Back to GetFilings.com
United States Securities and Exchange Commission
Washington D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 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
incorporation or organization) Identification No.)
5460 EXECUTIVE PARKWAY SE
GRAND RAPIDS, MI 49512
------------------------------------ ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (616) 698-2100
Securities registered pursuant to Section 12(b) of the Act: Common Stock,
no par value
Securities registered pursuant to 12(g) of the Act: None
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 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting common stock of the Registrant (based
upon the last reported sale of the Common Stock at that date by the American
Stock Exchange) held by non-affiliates was $2,554,434 as of December 10, 2002.
The number of shares outstanding of the Registrant's common stock as of December
10, 2002 was 3,379,605 shares of common stock without par value.
DOCUMENTS INCORPORATED BY REFERENCE:
Part of Form 10-K Into Which Portions
Document of Documents are Incorporated
- -------------------------------------------------------------- ------------------------------------------
Portions of the Proxy Statement for the Registrant's 2003 Parts I, II III and IV
Annual Meeting of Shareholders to be filed within 120 days
after the end of Registrant's fiscal year are incorporated by
reference in Parts I, II III and IV.
1
THE MATTERS DISCUSSED IN THIS ANNUAL REPORT ON FORM 10-K CONTAIN CERTAIN
FORWARD-LOOKING STATEMENTS. 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," OR "CONTINUE," THE NEGATIVE OR OTHER
VARIATION THEREOF, OR COMPARABLE TERMINOLOGY, ARE INTENDED TO IDENTIFY
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.
RIVIERA TOOL COMPANY
Annual Report on Form 10-K
December 16, 2002
TABLE OF CONTENTS
PART I PAGE
------ ----
Item 1. Business........................................................................ 3
Item 2. Properties...................................................................... 7
Item 3. Legal Proceedings............................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders............................. 7
PART II
-------
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters..................................................... 8
Item 6. Selected Financial Data......................................................... 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................. 10
Item 7A. Quantitative and Qualitative Disclosures about Market Risk...................... 15
Item 8. Financial Statements and Supplementary Data..................................... 16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......................................... 30
PART III
--------
Item 10. Directors and Executive Officers................................................ 30
Item 11. Executive Compensation.......................................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and Management.................. 30
Item 13. Certain Relationships and Related Transactions.................................. 30
Item 14. Controls and Procedures......................................................... 30
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................ 31
SIGNATURES...................................................................... 31
2
PART I
ITEM 1. BUSINESS
GENERAL
Riviera Tool Company (the "Company") is a designer and manufacturer of large
scale, complex stamping die systems used to form sheet metal parts. Most of the
stamping die systems sold by the Company are used in the production of
automobile and truck body parts such as roofs, hoods, fenders, doors, door
frames, structural components and bumpers. The following table sets forth the
Company's sales (in millions) and percentage of total sales by major customers,
DaimlerChrysler, Ford Motor Company and General Motors Corporation (the "OEM's")
in fiscal years 2000, 2001 and 2002.
YEAR ENDED AUGUST 31,
- -----------------------------------------------------------------------------------------------------------------
CUSTOMER 2000 2001 2002
- ---------------------------------------------- ------------------ ------------------ ------------------
AMOUNT % AMOUNT % AMOUNT %
------------------ ------------------ ------------------
DaimlerChrysler AG............................ $8.6 34% 2.6 22% 0.9 6%
Suppliers of DaimlerChryslerAG................ 3.7 15 -- -- 0.2 1
Ford Motor Company............................ -- -- 0.2 2 -- --
Suppliers of Ford Motor Co.................... 4.7 19 3.0 25 0.8 6
General Motors Corporation.................... 2.3 9 4.0 33 8.5 61
Suppliers of General Motors Corporation....... -- -- 1.9 16 0.6 4
Other auto and truck manufacturers
and their suppliers................... 5.9 23 0.3 2 3.0 22
------------------ ------------------ ------------------
Total Sales............................ $25.2 100% $12.0 100% $14.0 100%
================== ================== ==================
- ----------
The Company was originally incorporated in 1967 and was incorporated in
its present form in 1988, under the laws of the State of Michigan.
RECENT DEVELOPMENTS
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. During 2002, the Company was
not in compliance with certain covenants of its long-term loan agreement causing
a significant portion of the Company's debt to be classified as current in the
financial statements. The Company's agreement expired September 1, 2002 and has
been renewed monthly thereafter.
Management believes the Company will be able to refinance the debt as the
Company has completed negotiations with its current bank and another lender to
obtain long-term financing. The Company has received Commitment Letters from
these financial institutions, however, such commitments are subject to
conditions yet to be fulfilled. Management believes that such conditions should
be fulfilled within sixty days of this filing. Additionally, the Company has a
backlog of $21 million, is anticipating other significant long-term contracts
with customers, and believes this backlog and projected cash flow from
operations together with the anticipated debt financing will be sufficient to
finance the Company's operations in 2003.
INDUSTRY TRENDS
The principal factor affecting tooling demand is the level of capital
spending on manufacturing equipment for use in the production of new products or
models and, in the Company's case, predominantly the automotive industry. The
demand for U.S. produced tooling has both cyclical and structural factors which
drive tooling product demand.
3
The cyclical factors are associated with the consumer demand levels as
well as capital spending in various end-use sectors. Generally, tooling sales
are less dependent on the level of automotive unit sales, but are more dependent
on the introduction of new and updated product designs into the marketplace. The
introduction of a new automotive model creates a demand for new tooling. This
new tooling then creates the product parts that are assembled into the new
models. Some slight variations in the production platform, such as changes to
the drive train of an automobile, may involve no changes in tooling but may
entail slight modifications in existing tooling in order to allow the production
of components with these minor modifications. For the most part, the vast
majority of new models require completely new tooling.
The structural factors affecting automotive tooling demand include the
OEMs trend to shorter product cycles (30-36 month product cycle) as well as
compressed tooling lead times (9-12 months). Additionally, the implementation of
globalized manufacturing strategies, including the increasing competitiveness of
foreign toolmakers, as well as the capture of domestic industry production share
by offshore-based firms affect domestic automotive tooling demand.
During the last 24 months, the company believes that such demand has
declined as domestic automotive manufacturers delayed new product introductions
in order to preserve cash and build up their balance sheets, thereby fortifying
the financial health of their respective businesses. During 2000 and 2001, new
model introduction in the North American automotive sector declined by 10% from
the previous two-year period (1). This slowdown appears to be more pronounced
among U.S. automotive OEMs than among foreign transplants in the United States.
Other sources suggest that during the next few years the automotive industry in
North America is likely to introduce a considerable number of new products into
the U.S. market in the form of major platform changes (2). If true, such
platform changes will require new tooling, thereby reversing the trend of the
past two years.
PRODUCTS AND SERVICES
Dies. The Company's dies are used in the high-speed production of sheet
metal stamped parts and assemblies. Production of such parts is a multiple step
process involving a series of dies. Typically, the first die is used to cut the
appropriate size metal blank from a sheet or coil of steel. The next die draws
the metal blank into its primary shape and subsequent dies are used to bend
edges or corners, create flanges, trim-off excess metal and pierce assembly
holes. A customer usually orders only one series of dies for each separate part.
Normally, the dies do not require replacement due to usage because the life of
well-maintained dies is sufficient to carry production to the point when styling
changes dictate production of new dies. The dies manufactured by the Company
generally include automation features, adding to the complexity of design and
construction. These automation features facilitate rapid introduction and
removal of the work piece or raw material into and out of the die, thereby
increasing production speeds and reducing labor cost for part manufacturers.
Engineering of Product and Process. As the OEMs continue their efforts to
reduce lead times of new model launches, the Company produces concurrently,
rather than sequentially, many of its tool design and manufacturing process. In
certain instances, before the final design by the customer is complete, the
Company already has ordered many of the raw materials, such as steel, and may
have begun various machining operations. Typically, the Company will receive
part data or descriptions in the form of electronic files for which the customer
wants the Company to build the tool to produce. The part and tool design then is
created by the Company utilizing computer aided-design ("CAD") software. The
Company then utilizes computer software which simulates the metal-forming
process within the die. This simulation data then is utilized in final die
design to reduce the need for expensive and time-consuming reworking of the die
during the tryout process. Upon completion of tool design, the Company
- --------
(1) DesRosiers Automotive Consultants, Inc., Key Factors Influencing the
Canadian Tool Making Industry (Richmond Hill, Ontario: DesRosiers, July,
2002), p. 11.
(2) DesRosiers Automotive Consultants, Inc., Key Factors Influencing the
Canadian Tool Making Industry (Richmond Hill, Ontario: DesRosiers, July,
2002), p. 11-16.
4
develops the computer programs (computer-aided-manufacturing ("CAM") software)
which drive the cutter paths on the machine tools. These machine tools fabricate
many components for the tool. A variety of machine tools are utilized to cut and
polish the various parts and surfaces of the tool, including the Company's
high-speed machining centers and 5-axis machining centers, all of which are
computer-numerically-controlled ("CNC"). The process of utilizing high-speed CNC
machining centers reduces the traditional requirement for expensive and
time-consuming hand finishing. After the tool components are produced or
purchased, they are assembled and fitted together.
Prototype Tooling and Parts. Prototype tooling and parts are utilized during
the design phase of new models, which the automobile manufacturers use to
validate the fit and function of the respective components and assemblies and
the repeatability of the respective production processes. The parts manufactured
from prototype tools are also often used in crash testing.
Typically, prototype tools associated with the primary metal forming
operations are manufactured from an alloy casting or mild steel and subsequently
machined using the mathematical database and related CNC programs. After
machining, the prototype tools are assembled and tested to validate the
integrity and repeatability of the final manufacturing process. The results of
the validation process are incorporated into the mathematical database, which
will then be used to manufacture the final production tools. After testing the
primary forming operations, prototype parts are manufactured using special means
such as computerized laser-cutting machines to trim off excess scrap and to
incorporate various slots and holes. These parts are then sent to the automobile
manufacturers for further testing and evaluation. The results of this testing
and evaluation may require the incorporation of additional design and
manufacturing process modifications prior to construction of the production
tooling.
MANUFACTURING
The manufacturing process starts when the Company is awarded a tooling
contract. The engineering process commences when an electronic "model" of the
part to be produced is transmitted to the Company as a mathematical database or
electronic files. Company engineers use the mathematical database to generate
computer-aided die designs and die face cutter path programs. These cutter path
programs are used by the machine tools to manufacture the inner workings of the
tool. Most material is removed and the cutting is done by CNC machine tools,
which utilize the computer-generated cutter path programs to cut and polish the
various parts of the tool. After the tool components are produced or purchased,
they are assembled and fitted together. Finally, after the die is constructed,
the Company produces a "tryout" or run of parts. These parts are then evaluated
statistically for process repeatability and dimensional validation on the
Company's coordinate measuring machine. During this automated validation
process, the tool is statistically compared to the mathematical database. During
2002, the Company acquired and implemented "simulation" software that simulates
the metal-forming process within the die prior to final part and die design.
This front-end simulation data is then utilized in final die design in order to
reduce the need for expensive and time-consuming reworking of the die during the
tryout process.
On average, 10 months elapse from the time the Company is awarded a contract
until the final set of dies is shipped to the customer.
QS 9000/TE CERTIFICATION
The Company is certified under the Tooling and Equipment Supplement
("TE Supplement") QS-9000 and ISO-9000 Quality Standards. The TE
Supplement/QS-9000 standard was developed jointly by DaimlerChrysler, Ford, and
General Motors to establish a single set of quality requirements for their
tooling suppliers. ISO 9000 is an international quality standard for all
industries.
The TE Supplement has become the international standard of all quality
systems in the tooling industry, designed to ensure that systems are in place to
prevent defects from occurring in the design, manufacturing and validation
phases of our processes. The Company, by receiving the TE Supplement/QS-9000
certification, has demonstrated that its quality systems are in place to meet
customer requirements.
5
RAW MATERIALS
The steel, castings and other components utilized by the Company in the
manufacturing process are available from many different sources and the Company
is not dependent on any single source. The Company typically purchases its raw
materials on a purchase order basis as needed and has generally been able to
obtain adequate supplies of raw materials for its operations.
MARKETING AND SALES
The Company's marketing emphasis is on DaimlerChrysler, Ford, General Motors
and BMW and their respective tier one suppliers. The Company maintains excellent
relationships with DaimlerChrysler, Ford, and General Motors which directly
accounted for approximately 67%, in the aggregate, of the Company's revenues in
2002. For the year ended August 31, 2002, DaimlerChrysler, Ford, General Motors
and their respective tier one suppliers accounted for approximately 78% in the
aggregate of the Company's revenues. For the year ended August 31, 2001,
DaimlerChrysler, Ford, General Motors directly accounted for 57%, in the
aggregate of the Company's revenues. These direct sales, combined with their
tier one suppliers, represented approximately 98% of the Company's fiscal 2001
revenues.
The Company typically sells its tooling systems to either OEMs directly or
to manufacturers of products under contract with such OEMs (tier one suppliers).
Sales efforts are conducted primarily by the Company's Vice President of Sales,
President, senior management and project management personnel. Frequent contact
is made with domestic and foreign automobile manufacturers, purchasing agents,
platform managers and tier one suppliers. Typically, the Company's sales process
begins when a package or request for quotation is received from the tier one
supplier or OEM. Generally, the Company recommends process and design changes to
improve the cost and quality of a product. The Company maintains a computer
database with historical information regarding dies it has previously
manufactured. This database assists the Company in quoting prices for dies and
enables it to respond to most quotation requests quickly and accurately. If a
customer decides to accept the Company's quotation, a purchase order is issued
subject to price adjustments for engineering changes as requested by the
customer. Bids generally are awarded based on technological capability, price,
quality and past performance.
BACKLOG AND SEASONALITY
The Company's backlog of awarded contracts, which are all believed to be
firm, was approximately $21 million and $7 million as of August 31, 2002 and
2001, respectively. The Company expects all backlog contracts will be reflected
in sales during fiscal years ended August 31, 2003 and 2004. The Company's sales
of stamping dies do not follow a seasonal pattern; however, the timing of new
model introductions and existing model restyling tooling programs are dependent
on DaimlerChrysler, Ford and General Motors and their respective introduction of
new models.
COMPETITION
Large, complex automotive stamping dies are manufactured primarily by three
supplier groups: a) domestic independent tool and die manufacturers, b) foreign
independent tool and die manufacturers, and c) captive or in-house tool and die
shops owned and operated by OEMs.
The independent tool and die manufacturer industry has significant barriers
to entry, which can reduce competition in the large-scale die market. These
barriers include the highly capital intensive and technically complex
requirements of the industry. Additionally, attracting and retaining employees
skilled in the use of advanced design and manufacturing technology is a
multi-year process. A new competitor most likely would lack much of the
credibility and historical customer relationships that take years to develop.
Finally, the OEMs maintain in-house, captive tool and die capacity in order to
meet a portion of their needs. General Motors, for example, maintains the
largest captive capacity and, based on estimates from various trade
publications, supplies an estimated 75-80% of its own die construction needs.
Ford produces approximately 50%
6
and DaimlerChrysler 25% of their own respective needs. Independent suppliers,
like the Company, tend to have a competitive advantage over the OEMs' in-house
die shops due to the OEMs' higher cost structure.
With the advent of simultaneous engineering in the automobile industry,
proximity of the OEM's design engineers may effect the placement of the die
manufacturer. However, foreign competition may have certain advantages over
domestic die manufacturers including lower capital costs, currency exchange
advantages, government assistance and lower labor costs.
SIGNIFICANT CUSTOMERS
The Company maintains excellent relationships with DaimlerChrysler, Ford,
and General Motors which directly accounted for approximately 67%, in the
aggregate, of the Company's revenues in 2002. For the year ended August 31,
2002, DaimlerChrysler, Ford, General Motors and their respective tier one
suppliers accounted for approximately 78% in the aggregate of the Company's
revenues.
EMPLOYEES
The Company's work force consists of approximately 112 full-time employees,
of which approximately 34 are salaried managerial and engineering personnel. The
balance are hourly employees engaged in manufacturing and indirect labor
support. Included among these hourly workers are approximately 74 skilled
tradesmen who are either journeymen tool and die makers or machinists. None of
the Company's employees are covered by a collective bargaining agreement. The
Company has not experienced any work stoppages and considers its relations with
its employees to be good. The Company has a discretionary contribution 401(K)
plan. The Company has no pension liabilities arising from any defined benefit
plan.
ENVIRONMENTAL MATTERS
The Company is subject to environmental laws and regulations concerning
emissions to the air, discharges to waterways, and generation, handling,
storage, transportation, treatment and disposal of waste materials. The Company
also is subject to other Federal and state laws and regulations regarding health
and safety issues. The Company believes that it is currently in material
compliance with applicable environmental and health and safety laws and
regulations.
ITEM 2. PROPERTIES
The Company's facilities are located in Grand Rapids, Michigan, and
consist of approximately 178,000 square feet of space, of which 28,000 square
feet is utilized for office, engineering and employee service functions.
Constructed in 1989, the facility is leased with a lease term of 20 years. The
facility lease provides for annual payments of $934,500 plus an escalation of
base rent of 1% for each of the first ten years and 2% for each of the second
ten years. The Company has a purchase option on the building at the fair market
value beginning in November, 1996. The Company believes its facilities are
modern, well maintained, adequately insured and suitable for their present and
intended uses.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently a party to any legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year,
covered by this report, to a vote of security holders through the solicitation
of proxies or otherwise.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock ("Common Stock") is traded on the American
Stock Exchange ("AMEX") under the symbol RTC. The Common Stock commenced trading
on the AMEX on March 7, 1997, through an initial public offering of the
Company's Common Stock. Prior to that date, there was no public market for the
Common Stock. The table below sets forth the high and low sales prices as
reported by AMEX for each period reported.
FISCAL 2001 FISCAL 2002
----------- -----------
HIGH LOW HIGH LOW
---- --- ---- ---
1st quarter............. $3.0000 $1.750 $1.55 $1.00
2nd quarter............. $2.7600 $1.750 $1.23 $0.78
3rd quarter............. $2.3125 $0.900 $1.85 $1.00
4th quarter............. $2.2000 $1.250 $1.82 $1.28
As of October 18, 2002, the Company's common stock was held by 50
registered holders of record and approximately 701 beneficial stockholders.
The Company has not historically paid cash dividends on its Common
Stock. The payment of Common Stock cash dividends is within the discretion of
the Company's Board of Directors, with prior written consent of its primary
lender; however, in view of the current working capital needs and in order to
finance future growth, it is unlikely that the Company will pay any cash
dividends on its Common Stock in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Financial Statements and related Notes contained herein. All
amounts are in thousands, except per share data.
YEAR ENDED AUGUST 31,
-------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1998 1999 2000 2001 2002
----------------------------- ------ ------ ------ ------ ------
Sales ............................................... $ 22,581 $ 22,821 $ 25,187 $ 12,047 $ 14,050
Gross Profit (Loss) ................................. 5,484 5,875 3,794 (3,062) (630)
Income (Loss) from Operations ....................... 3,821 3,856 1,655 (4,712) (2,289)
Interest Expense .................................... 244 343 890 725 653
Other Income/(Expense) .............................. (132) 169 (119) (5) (59)
Income (Loss) before Income Taxes ................... 3,445 3,682 645 (5,442) (3,002)
Income Tax Expense (Benefit) ........................ 1,040 1,252 242 (1,538) --
------ ------ ------ ------ ------
Net Income (Loss) ................................... 2,405 2,430 404 (3,904) (3,002)
------ ------ ------ ------ ------
Dividends ........................................... 202 -- -- -- --
------ ------ ------ ------ ------
Net Income (Loss) available for common shares ....... $ 2,203 $ 2,430 $ 404 $ (3,904) $ (3,002)
====== ====== ====== ====== ======
Basic Earnings (Loss) per common share .............. $ 78 $ .72 $ .12 $ (1.16) $ (.89)
====== ====== ====== ====== ======
Basic common shares outstanding ..................... 2,820 3,379. 3,379 3,379 3,379
====== ====== ====== ====== ======
Diluted Earnings (Loss) per common share ............ $ .73 $ .72 $ .12 $ (1.16) $ (.89)
====== ====== ====== ====== ======
Diluted common shares outstanding ................... 3,294 3,379 3,379 3,379 3,379
====== ====== ====== ====== ======
OTHER DATA :
------------
Depreciation and amortization expense ............... $ 1,292 $ 1,579 $ 1,940 $ 1,952 $ 1,913
====== ====== ====== ====== ======
8
AS OF AUGUST 31,
-------------------------------------------------------------
BALANCE SHEET DATA: 1998 1999 2000 2001 2002
------------------- ------ ------ ------ ------ ------
Working Capital ................................... $ 11,297 $ 10,981 $ 13,051 $ 5,176 $ (3,513)
Total Assets ...................................... 27,696 33,928 35,076 25,146 24,984
Current Portion of Long-Term Debt ................. 877 1,889 1,984 1,876 3,855
Revolving Line of Credit .......................... 3,863 2,032 5,080 3,143 6,500
Long-term Debt, less current portion ............. 4,334 7,207 5,223 3,384 --
Common Stockholders' Equity ....................... 15,882 18,312 18,715 14,812 11,810
Note: Fiscal 1998 and 1999 been revised to give effect for the issuance of stock
dividends.
9
The following table is derived from the Company's Statement of Operations and
sets forth, for the periods indicated, selected operating data as a percentage
of sales.
FISCAL YEAR ENDED AUGUST 31,
-------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1998 1999 2000 2001 2002
------------------------------ ------ ------ ------ ------ ------
Net Sales .................................................. 100% 100% 100% 100% 100%
Gross Profit (Loss) ........................................ 24 26 15 (25) (4)
Income (Loss) from Operations .............................. 17 17 7 (39) (16)
Interest Expense ........................................... 1 1 4 6 5
Income (Loss) before Income Taxes .......................... 16 16 3 (45) (21)
Federal Income Tax (Benefit) ............................... 5 5 1 (13) --
------ ------ ------ ------ ------
Net Income (Loss) .......................................... 11% 11% 2 (32) (21)
------ ------ ------ ------ ------
Dividends .................................................. 1 -- -- -- --
------ ------ ------ ------ ------
Net Income (Loss) available for common shares .............. 10% 11% 2% (32%) (21%)
====== ====== ====== ====== ======
OTHER DATA:
-----------
Depreciation and amortization expense ...................... 6% 7% 8% 16% 14%
Quarterly Financial Data
The following is a condensed summary of quarterly results of operations for
2000, 2001 and 2002 (in thousands, except per share data):
NET INCOME BASIC DILUTED
/(LOSS) ------------------- -------------------
AVAILABLE EARNINGS EARNINGS
GROSS OPERATING NET FOR (LOSS) COMMON (LOSS) COMMON
PROFIT/ INCOME/ INCOME/ COMMON PER SHARES PER SHARES
REVENUES (LOSS) (LOSS) (LOSS) SHARES SHARE OUTSTANDING SHARE OUTSTANDING
-------- ------ ------ ------ ------ ----- ----------- ----- -----------
2000:First ................. $ 5,855 $ 1,197 $ 742 $ 354 $ 354 $ .10 3,379 $ .10 3,312
----
Second ................ 5,176 27 (751) (664) (664) (.20) 3,379 (.20) 3,312
Third ................. 6,675 1,311 853 369 369 .11 3,379 .11 3,312
Fourth ................ 7,481 1,259 811 345 345 .11 3,379 .11 3,379
-------- ------ ------ ------ ------ ----- ----------- ----- -----------
Total $25,187 $ 3,794 $ 1,655 $ 404 $ 404 $ .12 3,379 $ .12 3,379
======== ====== ====== ====== ====== ===== =========== ===== ===========
2001:First ................. $ 4,592 $ 265 $.(263) $ (332) $ (332) $ (.10) 3,379 $ (.10) 3,379
----
Second ................ 2,386 (1,346) (1,667) (1,243) (1,243) (.37) 3,379 (.37) 3,379
Third ................. 2,302 (848) (1,275) (939) (939) (.28) 3,379 (.28) 3,379
Fourth ................ 2,767 (1,133) (1,507) (1,390) (1,390) (.41) 3,379 (.41) 3,379
-------- ------ ------ ------ ------ ----- ----------- ----- -----------
Total $12,047 $(3,062) $(4,712) $(3,904) $(3,904) $ (1.16) 3,379 $ (1.16) 3,379
======== ====== ====== ====== ====== ===== =========== ===== ===========
2002:First ................. $ 3,364 $ (182) $ (648) $ (818) $ (818) $ (.24) 3,379 $ (.24) 3,379
----
Second ................ 3,452 (141) (519) (688) (688) (.20) 3,379 (.20) 3,379
Third ................. 3,702 137 (304) (453) (453) (.13) 3,379 (.13) 3,379
Fourth ................ 3,532 (444) (818) (1,043) (1,043) (.32) 3,379 (.32) 3,379
-------- ------ ------ ------ ------ ----- ----------- ----- -----------
Total $14,050 $ (630) $(2,289) $(3,002) $(3,002) $ (.89) 3,379 $ (.89) 3,379
======== ====== ====== ====== ====== ===== =========== ===== ===========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The matters discussed in this Management's Discussion and Analysis of Financial
Condition and Results of Operations contain certain forward-looking statements.
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," or "continue," the negative or other variation thereof,
or comparable terminology, are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
and actual results may differ materially depending upon a
10
variety of factors, including continued market demand for the types of products
and services produced and sold by the Company.
GENERAL OVERVIEW
The Company is a designer and manufacturer of large scale, complex stamping
die systems used to form sheet metal parts. Most of the stamping die systems
sold by the Company are used in the high-speed production of automobile and
truck body parts such as doors, door frames, structural components and bumpers.
A majority of the Company's sales are to DaimlerChrysler AG, Ford Motor Company,
General Motors Corporation and their tier one suppliers of sheet metal stamped
parts and assemblies.
CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations is based upon the Company's Financial Statements. These financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America. These principles require the use of
estimates and assumptions that affect amounts reported and disclosed in the
financial statements and related notes. The accounting policies that may involve
a higher degree of judgements, estimates and complexity include revenue
recognition using percentage of completion estimates and net book value of
long-lived assets. The Company uses the following methods and assumptions in its
estimates.
- Revenue recognition -- The Company recognizes revenue on time and
material contracts utilizing the completed-contract method. Revenue is
recognized on all other contracts utilizing the
percentage-of-completion method. Under the completed-contract method,
the contract is considered complete when all costs except for
insignificant items have been incurred and the project has been
approved by the customer. Under the percentage-of-completion method
estimated contract earnings are based on total estimated contract
profits multiplied by the ratio of labor hours incurred to total
estimated labor hours on the contract. Provisions for total estimated
losses on contracts in process are recognized in the period such losses
are determined. Changes in job performance, conditions and estimated
profitability may result in revisions to costs and income and are
recognized in the period such revisions are determined.
- Net book value of long-lived assets -- The Company periodically reviews
the carrying value of its long-lived assets held and used. This review
is performed using estimated future cash flows. If the carrying value
of a long-lived asset is considered to be impaired, an impairment
charge is recorded for the amount that the carrying value of the
long-lived asset exceeds its fair value.
NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations." SFAS No. 141 requires the purchase method
of accounting for all business combinations initiated after June 30, 2001. The
FASB also issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No.
142 requires, among other things, the discontinuance of the amortization of
goodwill and certain other identified intangibles. In addition, the statement
includes provisions for the reassessment of the value and useful lives of
existing recognized intangibles (including goodwill), reclassification of
certain intangibles both in and out of the previously reported goodwill and the
identification of reporting units for the purposes of assessing potential future
impairments of goodwill and other intangibles. The Company will adopt these
standards effective September 1, 2002 and does not believe the adoption will
have a significant impact on the financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets. The Statement supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed of."
SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (a)
recognition and measurement of the impairment of long-lived assets to be held
and used and (b) measurement of long-lived assets to
11
be disposed by sale. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001. The Company has determined that its current accounting policy
is consistent with SFAS No. 144.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. During 2002, the Company
sustained a loss from operations of $2,289,114 and a net loss of $3,001,557.
This loss resulted in an accumulated deficit of $3,305,059 as of August 31,
2002. Further, the Company was not in compliance with certain covenants of its
long-term loan agreement causing a significant portion of the Company's debt to
be classified as current in the financial statements. The Company's agreement
expired September 1, 2002 and has been renewed monthly thereafter. These
factors, among other things, raise 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.
Management believes the Company will be able to refinance the debt as the
Company has concluded negotiations with its current bank and another lender to
obtain long-term financing. The Company has received Commitment Letters from
these financial institutions however, such commitments are subject to conditions
yet to be fulfilled. Additionally, the Company has a backlog of $21 million, is
anticipating other significant long-term contracts with customers, and believes
this backlog and projected cash flow from operations together with the
anticipated debt financing will be sufficient to finance the Company's
operations in 2003.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Financial Statements and the Notes thereto included elsewhere herein.
FISCAL 2002 COMPARED TO FISCAL 2001
Revenue. Total revenue increased from approximately $12 million in 2001 to $14
million in 2002, an increase of 17%. This increase was a result of the market
for foreign auto manufacturers tooling contract opportunities opening up to
US-based tooling manufacturers. The Company received contracts, directly and
indirectly, from Nissan and BMW during the past twelve months.
As of August 31, 2002, the Company's backlog was approximately $21 million as
compared to $7 million at August 31, 2001. During the last quarters of 2002, the
Company received a major contract (approximately $17 million) which should
positively affect the Company's financial performance during the second quarter
of fiscal 2003. Despite this major contract award, the Company continues to see
a "softness" in the overall domestic automotive tooling industry. The Company's
results in 2002 continued to reflect the very competitive contract pricing
market, which was mitigated by continuing the Company's strategy of bidding on
contracts that would maintain contribution margin on contracts awarded to the
Company. This combined with a continuation of the Company's cost containment
initiatives enabled the Company to reduce negative margins by $2.3 million.
Cost of Goods Sold. Cost of goods sold decreased from $15.1 million for 2001 to
$14.7 million for 2002, as a percent of sales, cost of goods sold decreased from
125.4% for 2001 to 104.5% for 2002. This was mainly due to a decrease of
$708,000 in direct costs, as well as a $114,000 decrease in manufacturing
overhead expense. These decreases were offset by an increase of $394,000 in
engineering expense.
Of the cost of goods sold, direct costs were $6.8 million, 48.5% of sales, in
2002 as compared to $7.5 million, 62.4% of sales, in 2001. Direct materials
expense decreased from $2.7 million in 2001 to $2.4 million in 2002 and as a
percent of sales from 22.2% to 16.8%. This decrease was largely due to lower
contract material requirements during 2002.
12
Direct labor expense decreased from $3.9 million in 2001 to $3.6 million in 2002
and as a percent of sales, from 32.4% to 26.3%. This decrease was a result of
the Company incurring a 7% decrease in direct labor hours, from 204,000 hours in
2001 to 189,000 in 2002. Of the total direct labor expense, overtime expense
decreased from $1,045,000 in 2001 to $697,000 in 2002, a decrease of 33.3%. This
decrease was a result of the Company having lower labor requirements during
2002.
Engineering expense increased from $1.2 million, 9.7% of sales, for 2001 to $1.6
million, 11.1% of sales, for 2002. This 33.3% increase was due to the Company's
increased contract backlog during the latter part of 2002. This backlog resulted
in the Company increasing the number of engineering personnel necessary to
fulfill the engineering portion of the increased backlog.
Manufacturing overhead was $6.3 million or 44.9% of sales in 2002 as compared to
$6.4 million or 53.3% of sales in 2001. During 2002, decreases in manufacturing
overhead included: $65,000 in indirect labor, $59,000 in payroll taxes, $48,000
in workers compensation insurance, $30,000 in building maintenance and $22,000
in depreciation expense. These 2002 decreases were offset by increases
including: $62,000 in manufacturing supplies, $47,000 in perishable tooling,
$24,000 in general insurance and $23,000 in supervision salaries.
During fiscal 2001, the Company recorded a $765,000 loss on certain contracts
with one of its customers. This loss was a result of a dispute between the
Company and its customer over the manufacture of stamping die systems for an
auto frame assembly. This dispute resulted in the Company being a Defendant in a
lawsuit with the customer ("Plaintiff") asking for recovery of $850,000 in
damages. The Company and its customer settled this matter on April 17, 2002
resulting in no additional expense to the Company.
Selling and Administrative Expense. Selling and administrative expense for 2002
remained consistent with 2001 at $1.6 million. As a percent of sales, selling
and administrative expense decreased from 13.7% in 2001 to 11.8% in 2002. The
largest selling and administrative expense increases in 2002 included: $45,000
in supervision and office salaries, $37,000 in computer maintenance, $34,000
legal & professional expense and $24,000 in employee training. These increases
were offset by decreases of $45,000 in insurance expense, $43,000 in deferred
compensation/401K expense, $30,000 in miscellaneous expenses, $12,000 in
advertising expense and $20,000 in director fees.
Interest Expense. Interest expense decreased from $725,000 in 2001 to $653,000
in 2002 and, as a percent of sales, from 6.0% to 4.6%. This decrease was due to
lower average debt levels and a decrease in interest rates during 2002.
FISCAL 2001 COMPARED TO FISCAL 2000
Revenue. Total revenue for 2001 decreased from approximately $25.2 million in
2000 to $12.0 million in 2001, a decrease of 52%. This was a result of the
market decrease for automotive tooling systems in 2000 and 2001. In addition to
limited contracts being released during the period, those contracts that were
released, were competitively bid and resulted in extreme erosion of contract
pricing. These factors in tandem lowered contract revenue as well as contract
margins during late fiscal 2000 and all of 2001. The Company, in securing new
contracts during fiscal 2001, utilized a strategy of bidding on contracts at
rates that would maintain contribution margin if such was awarded to the
Company.
As of August 31, 2001, the Company's backlog was approximately $6.9 million as
compared to $10.6 million at August 31, 2000. During the last two quarters of
2000 and all of 2001, the automotive tooling industry has experienced a slowdown
in product demand. The decrease in tooling demand and the resultant reduction in
the Company's backlog negatively affected the Company's financial performance
during fiscal 2001 and continued through fiscal 2002.
Cost of Goods Sold. Cost of goods sold decreased from $21.4 million for 2000 to
$15.1 million for 2001. However, as a percent of sales, cost of goods sold
increased from 84.9% for 2000 to 125.4% for 2001. The cost decrease was a
13
direct result of lower contract levels and related revenues experienced during
2001. The increase, as a percent of sales, was primarily in manufacturing
overhead, changing from 28.1% in 2000 to 53.3% in 2001.
Of the cost of goods sold, direct costs were $7.5 million, 62.4% of sales, in
2001 as compared to $12.5 million, 49.6% of sales, in 2000. Direct materials
expense decreased from $3.1 million in 2000 to $2.7 million in 2001, but
increased as a percent of sales from 12.5% to 22.2%. This increase as a percent
of sales was largely due to lower contract margins during 2001. Direct labor
decreased from $6.4 million in 2000 to $3.9 million in 2001, but increased as a
percent of sales from 25.3% to 32.4%. Direct labor hours decreased from 338,000
hours in 2000 to 204,000 in 2001, a decrease of 40%. This decrease was a result
of the Company having lower contract levels during 2001 thus lowering direct
labor requirements. The Company, in an effort to contain costs, implemented
direct labor layoffs and wage concessions during the year in order to lower
direct labor expense. Outside service expense decreased from $3.0 million or
11.8% of sales in 2000 to $936,000 or 7.8% of sales in 2001. This decrease was a
result of the Company having the capacity to perform more services internally,
as a result of lower contract levels during 2001.
Engineering expense decreased from $1.8 million for 2000 to $1.2 million for
2001. However, as a percent of sales, engineering expense was 7.2% in 2000 as
compared to 9.7% in 2001. The decrease in engineering costs was due to the
Company lowering the number of engineering personnel and implementing wage
concessions during part of the year. These measures lowered engineering labor
costs by approximately $521,000 in 2001. Additionally, the Company lowered its
utilization of outside contract engineering services during 2001 thus lowering
such costs by $134,000.
Manufacturing overhead was $6.4 million or 53.3% of sales in 2001 as compared to
$7.1 million or 28.1% of sales in 2000. This decrease of $700,000 was largely
due to a $363,000 decrease in supervisory and indirect labor and $486,000 in
manufacturing supplies and perishable tooling expenses. Increases included
$220,000 in building rent and $114,000 in property tax expense. These increases
were a result of the expiration of a sublease in November, 2000 of a portion of
the Company's facility to an unaffiliated entity for which the tenant also
shared in certain operating expenses.
Selling and Administrative Expense. Selling and administrative expense decreased
from $2.1 million for 2000 to $1.6 million for 2001. As a percent of sales,
selling and administrative expense increased from 8.5% in 2000 to 13.7% in 2001.
The largest selling and administrative expense decreases in 2001 were $341,000
in salaries, $99,000 in the State of Michigan Single Business Tax, $32,000 in
deferred compensation - 401(k) expense, $36,000 in travel expenses and $29,000
in public company costs. During 2001 these decreases were partially offset by an
increase of $47,000 in legal and professional fees expense.
Interest Expense. Interest expense decreased from $890,000 in 2000 to $725,000
in 2001 and increased as a percent of sales from 3.5% in 2000 to 6.0% in 2001.
This decrease was due to lower average debt levels and a decrease in interest
rates during 2001. The decrease in outstanding debt was attributed to lower
sales in 2001 as compared to 2000, which lowered the amount of working capital
financing required for the Company's long-term contracts.
FEDERAL INCOME TAX.
The Company's effective income tax rates were 37%, a credit of 28% and 0% for
the years ended August 31, 2000, 2001 and 2002, respectively. The Company had
approximately $155,150 of alternative minimum tax credits as of August 31, 2002,
the use of which does not expire, and federal net operating loss carryforwards
of $3,986,858 which expire, if unused, in fiscal 2021 and 2022. The Company
recorded a valuation allowance of $1,301,000 in 2002 for net deferred tax assets
which may not ultimately be realized.
LIQUIDITY AND CAPITAL RESOURCES.
14
The Company's need for capital in 1999 and 2000 increased primarily to acquire
fixed assets and to finance the increase in trade accounts receivable and
contracts in process. The Company financed these needs during these periods
through internally generated funds and bank financing. During fiscal 2002, the
Company generated operational cash flow of $569,000. This was largely generated
as a result of a decrease of $687,000 in current assets and an increase of
$886,000 in trade accounts payable and accrued liabilities. The cash flow from
operations in 2002 was primarily utilized to fund $466,107 of asset
acquisitions. The Company anticipates less than $500,000 in capital expenditures
for fiscal 2003.
The Company's total bank debt as of August 31, 2002, is $10,354,499, of which
all is classified as short-term. As of August 31, 2002, the Company was not in
compliance with certain covenants of its long-term loan agreement causing the
Company's debt to be classified as current in the financial statements. The
Company's agreement expired September 1, 2002 and has renewed monthly
thereafter. Management believes the Company will be able to refinance the debt
as the Company has concluded negotiations with its current bank and another
lender to obtain long-term financing. The Company has received Commitment
Letters from these financial institutions; however, such commitments are subject
to conditions yet to be fulfilled. Additionally, the Company has a backlog of
$21 million, is anticipating other significant long-term contracts with
customers, and believes this backlog and projected cash flow from operations
together with the anticipated debt financing will be sufficient to finance the
Company's operations in 2003.
INFLATION.
The Company has no long-term, fixed price supply contracts. Although the average
set of dies takes approximately ten months from inception to shipment, any
significant direct material costs are incurred at the beginning of the die
manufacturing process. Historically, the Company has been able to reflect
increases in the prices of labor and material in its selling prices, however
under current industry pricing pressures, the Company is unsure if this will
continue to be the case in the future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
NOT APPLICABLE
15
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Riviera Tool Company
Grand Rapids, Michigan
We have audited the accompanying balance sheets of Riviera Tool Company as
of August 31, 2002 and 2001, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the
period ended August 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Riviera Tool Company as of August 31,
2002 and 2001, and the results of its operations and its cash flows for
each of the three years in the period ended August 31, 2002 in conformity
with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that
Riviera Tool Company will continue as a going concern. As discussed in
Note 2 to the financial statements, at August 31, 2002, the Company was
not in compliance with certain covenants of its long-term loan agreement.
The Company is negotiating with its bank and another lender to obtain
long-term financing. The Company's difficulties in meeting its loan
agreement covenants and obtaining financing as discussed in Note 2 raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regards to these matters are also described in Note
2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Grand Rapids, Michigan
November 1, 2002
(December 9, 2002 as to Note 2)
16
Riviera Tool Company
Balance Sheets
August 31
--------------------
ASSETS Note 2001 2002
---- ------ ------
Current Assets
Cash................................................................... $ 282,721 $ 2,337,743
Accounts receivable.................................................... 3,449,430 2,899,075
Costs in excess of billings
on contracts in process............................................. 4 4,153,569 3,988,346
Inventories............................................................ 5 308,977 250,569
Prepaid expenses and other current assets.............................. 97,289 184,313
------------ -------------
Total current assets.......................................... 8,291,986 9,660,046
Property, plant and equipment, net..................................... 6 16,146,059 14,471,879
Perishable tooling..................................................... 572,822 548,606
Other assets........................................................... 135,770 303,060
------------ -------------
Total assets.................................................. $ 25,146,637 $ 24,983,591
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Current portion of long-term debt...................................... 7 $ 1,875,631 $ 10,354,499
Accounts payable....................................................... 898,212 1,694,779
Accrued liabilities.................................................... 342,007 448,171
------------ -------------
Total current liabilities..................................... 3,115,850 12,497,449
Long-term debt, net of current portion................................. 7 6,526,729 --
Accrued lease expense.................................................. 9 692,094 675,735
------------ -------------
Total liabilities............................................. 10,334,673 13,173,184
Preferred stock -- no par value,
$100 mandatory redemption value:
Authorized--5,000 shares, Issued and outstanding-- no shares........ -- --
Preferred stock -- no par value,
Authorized -- 200,000 shares
Issued and outstanding -- no shares................................. -- --
Common stockholders' equity
Common stock -- no par value,
Authorized -- 9,798,575 shares
Issued and outstanding -- 3,379,609 shares......................... 15,115,466 15,115,466
Retained deficit..................................................... (303,502) (3,305,059)
------------ -------------
Total common stockholders' equity............................. 14,811,964 11,810,407
------------ -------------
Total liabilities and stockholders' equity............................. $ 25,146,637 $ 24,983,591
============= =============
See Notes to Financial Statements
17
Riviera Tool Company
Statements of Operations
Year Ended August 31
--------------------------------------------------
2000 2001 2002
------------ ------------ ------------
Sales ........................................................... $ 25,187,327 $ 12,047,039 $ 14,050,133
Cost of sales ................................................... 21,393,111 15,109,065 14,680,398
------------ ------------ ------------
Gross profit (loss) ............................................. 3,794,216 (3,062,026) (630,265)
Selling and administrative expenses ............................. 2,139,346 1,649,558 1,658,849
------------ ------------ ------------
Income (loss) from operations ................................... 1,654,870 (4,711,584) (2,289,114)
Other income (expense):
Interest expense .............................................. (889,578) (725,267) (652,905)
Other ......................................................... 10,733 (4,806) 726
Loss on asset disposals ....................................... (130,400) -- (60,264)
Total other expense, net ........................................ (1,009,245) (730,073) (712,443)
------------ ------------ ------------
Income (loss) -- before income tax (benefit) .................... 645,625 (5,441,657) (3,001,557)
------------ ------------ ------------
Income tax expense (benefit) .................................... 242,000 (1,538,000) --
------------ ------------ ------------
Net income (loss) available for common shares ................... $ 403,625 $ (3,903,657) $ (3,001,557)
============ ============ ============
Basic and Diluted earnings (loss) per common share ............. $ .12 $ (1.16) $ (0.89)
============ ============ ============
Basic and Diluted common shares outstanding ..................... 3,379,609 3,379,609 3,379,609
See Notes to Financial Statements
18
Riviera Tool Company
Statements of Common Stockholders' Equity
Common Stock Retained Total
---------------------------- Earnings Stockholders'
Note Shares Amount (Deficit) Equity
---- --------- -------------- -------------- --------------
Balance -- September 1, 1999 ........... 3,218,744 $ 14,512,185 $ 3,799,811 $ 18,311,996
--------- -------------- -------------- --------------
Net income ............................. -- -- 403,625 403,625
5% common stock dividend ............... 12 160,865 603,281 (603,281) --
--------- -------------- -------------- --------------
Balance -- August 31, 2000 ............. 3,379,609 $ 15,115,466 $ 3,600,155 $ 18,715,621
--------- -------------- -------------- --------------
Net loss ............................... -- -- (3,903,657) (3,903,657)
--------- -------------- -------------- --------------
Balance -- August 31, 2001 ............. 3,379,609 $ 15,115,466 $ (303,502) $ 14,811,964
--------- -------------- -------------- --------------
Net loss ............................... -- -- (3,001,557) (3,001,557)
--------- -------------- -------------- --------------
Balance -- August 31, 2002 ............. 3,379,609 $ 15,115,466 $ (3,305,059) $ 11,810,407
========= ============== ============== ==============
See Notes to Financial Statements
19
Riviera Tool Company
Statements of Cash Flows
Year Ended August 31
----------------------------------------
2000 2001 2002
---------- ---------- ----------
Cash Flows from Operating Activities
Net income (loss) ............................................ $ 403,625 $(3,903,657) $(3,001,557)
Adjustments to reconcile net income to net cash from operating:
activities
Depreciation and amortization ........................... 1,939,644 1,952,320 1,912,733
Loss on disposal of machinery and equipment ............. 130,400 -- 60,264
Deferred taxes .......................................... 151,722 (1,538,000) --
Decrease (increase) in assets:
Accounts receivable .................................. (230,650) 3,602,739 550,355
Costs in excess of billings
on contracts in process ...................... (734,907) 4,411,082 165,223
Inventories .......................................... 144,492 (2,302) 58,408
Perishable tooling ................................... 11,891 (34,079) 24,216
Federal income tax refundable ........................ (673,897) 673,897 --
Prepaid expenses and other current assets ............ (85,981) 72,881 (87,024)
Increase (decrease) in liabilities:
Accounts payable ..................................... 52,351 (512,622) 796,567
Accrued lease expense ................................ 18,685 2,336 (16,359)
Accrued liabilities .................................. (636,295) (92,682) 106,164
---------- ---------- ----------
Cash flows from operating activities ................. 491,080 4,631,913 568,990
---------- ---------- ----------
Cash Flows from Investing Activities
Proceeds from sale of property, plant and equipment ......... 68,500 -- --
(Increase) decrease in other assets ......................... (75,000) 75,000 (167,290)
Purchases of property, plant and equipment................... (1,642,174) (653,090) (298,817)
---------- ---------- ----------
Net cash used in investing activities ............... (1,648,674) (578,090) (466,107)
---------- ---------- ----------
Cash Flows from Financing Activities
Net borrowings (repayments) on revolving credit line ........ 3,047,525 (1,937,229) 3,357,210
Proceeds from issuance of long-term debt .................... -- -- 470,560
Principal payments on long-term debt ........................ (1,889,415) (1,947,572) (1,875,631)
---------- ---------- ----------
Cash flows from (used in) financing activities ...... 1,158,110 (3,834,801) 1,952,139
---------- ---------- ----------
Net increase in cash .......................................... 516 169,022 2,055,022
---------- ---------- ----------
Cash -- beginning of year ..................................... 113,183 113,699 282,721
---------- ---------- ----------
Cash -- end of year ........................................... $ 113,699 $ 282,721 $ 2,337,743
---------- ---------- ----------
Interest paid ................................................. $ 921,452 $ 764,215 $ 581,915
========== ========== ==========
Income taxes paid (refunded) .................................. 1,355,000 (731,957) (25,000)
See Notes to Financial Statements
20
Riviera Tool Company
Notes to Financial Statements
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS.
Riviera Tool Company (the "Company") designs, develops and manufactures
custom and complex large scale metal stamping die systems used in the
high-speed production of sheet metal stamped parts and assemblies for the
automotive industry. These systems are mainly sold to DaimlerChrysler AG,
Ford Motor Company, General Motors Corporation, BMW and their tier one
suppliers of sheet metal stamped parts and assemblies.
USE OF ESTIMATES.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Although
management believes the estimates are reasonable, actual results could
differ from those estimates.
SIGNIFICANT ESTIMATES.
The most significant estimates made by the Company are in the determination
and recognition of revenue on contracts in process. Management's best
estimate of costs to complete is based on costs incurred, engineers' cost
projections, experience with customers or particular die systems and other
analyses. Although management's estimates are not expected to materially
change in the near term, the costs the Company will ultimately incur will
differ from the amounts estimated.
REVENUE RECOGNITION.
The Company recognizes revenue on time and material contracts utilizing the
completed-contract method. Revenue is recognized on all other contracts
utilizing the percentage-of-completion method. Under the completed-contract
method, the contract is considered complete when all costs except for
insignificant items have been incurred and the project has been approved by
the customer. Under the percentage-of-completion method estimated contract
earnings are based on total estimated contract profits multiplied by the
ratio of labor hours incurred to total estimated labor hours on the
contract. Provisions for total estimated losses on contracts in process are
recognized in the period such losses are determined. Changes in job
performance, conditions and estimated profitability may result in revisions
to costs and income and are recognized in the period such revisions are
determined.
ACCOUNTS RECEIVABLE.
As of August 31, 2001 and 2002, the Company had no reserve for
uncollectible accounts receivable and had $147,169 and $23,659 of unbilled
accounts receivable (completed contracts for which revenue earned exceeds
amounts billed), respectively.
INVENTORIES.
Inventories are recorded at the lower-of-cost (first-in, first-out method),
or market.
PROPERTY, PLANT AND EQUIPMENT.
Property, plant and equipment are recorded at cost. Depreciation is
computed using the straight-line method over the useful life of the asset
for financial reporting purposes as follows:
21
Riviera Tool Company
Notes to Financial Statements
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
ASSET USEFUL LIVES
----- ------------
- Leasehold Improvements.......................... 7-20
- Office Furniture and Fixtures................... 3-10
- Machinery and Equipment......................... 5-20
- Computer Equipment and Software................. 5-20
- Transportation Equipment........................ 5-10
Expenditures for maintenance and repairs are charged to expense as
incurred. The Company capitalizes interest cost associated with
construction in process. The amount of capitalized interest was $71,158,
$21,572 and $6,703 in 2000, 2001 and 2002, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS.
The Company reviews and evaluates long-lived assets for impairment when
events and circumstances indicate that the carrying amount of an asset may
not be recoverable. When the undiscounted future cash flows are not
sufficient to recover an asset's carrying amount, a discounted cash flow
model is utilized to determine the impairment loss to be recorded.
Long-lived assets to be disposed of are reported at the lower of carrying
amount or fair value, less costs to sell.
PERISHABLE TOOLING.
Perishable tools are generally used up over five years, reported at cost as
non-current assets in the balance sheet and amortized evenly over their
useful lives.
INCOME TAXES.
Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities
that will result in taxable or deductible amounts in the future. Such
deferred income tax asset and liability computations are based upon enacted
tax laws and rates applicable to periods in which the differences are
expected to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be
realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets
and liabilities.
EARNINGS PER SHARE.
Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised.
STOCK-BASED COMPENSATION.
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-based Compensation, and as permitted
by this standard, will continue to apply the recognition and measurement
principles prescribed under Accounting Principles Board Opinion No, 25,
Accounting for Stock Issued to Employees, to its stock-based compensation
(see Note 11).
BUSINESS SEGMENT REPORTING.
Based on the nature of its operations and products, the Company considers
its business to be a single operating segment.
22
Riviera Tool Company
Notes to Financial Statements
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
NEW ACCOUNTING STANDARDS.
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations." SFAS No. 141 requires the purchase method
of accounting for all business combinations initiated after June 30, 2001.
The FASB also issued SFAS No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 142 requires, among other things, the discontinuance of the
amortization of goodwill and certain other identified intangibles. In
addition, the statement includes provisions for the reassessment of the
value and useful lives of existing recognized intangibles (including
goodwill), reclassification of certain intangibles both in and out of the
previously reported goodwill and the identification of reporting units for
the purposes of assessing potential future impairments of goodwill and
other intangibles. The Company will adopt these standards effective
September 1, 2002 and does not believe the adoption will have a significant
impact on the financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets. The Statement supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed
of." SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for
(a) recognition and measurement of the impairment of long-lived assets to
be held and used and (b) measurement of long-lived assets to be disposed by
sale. SFAS No. 144 is effective for fiscal years beginning after December
15, 2001. The Company has determined that its current accounting policy is
consistent with SFAS No. 144.
NOTE 2 -- BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. During 2002, the Company sustained
a loss from operations of $2,289,114 and a net loss of $3,001,557. This loss
resulted in an accumulated deficit of $3,305,059 as of August 31, 2002. Further,
the Company was not in compliance with certain covenants of its long-term loan
agreement causing a significant portion of the Company's debt to be classified
as current in the financial statements. The Company's agreement expired
September 1, 2002 and has been renewed monthly thereafter. These factors, among
other things, raise 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.
Management believes the Company will be able to refinance the debt as the
Company has concluded negotiations with its current bank and another lender to
obtain long-term financing. The Company has received Commitment Letters from
these financial institutions however, such commitments are subject to conditions
yet to be fulfilled. Additionally, the Company has a backlog of $21 million, is
anticipating other significant long-term contracts with customers, and believes
this backlog and projected cash flow from operations together with the
anticipated debt financing will be sufficient to finance the Company's
operations in 2003.
NOTE 3 -- SALES TO MAJOR CUSTOMERS
The nature of the Company's business is such that a limited number of customers
comprise a majority of its business in any given year, even though the specific
customers will differ from year to year. The following table summarizes the
Company's sales to those customers, which represent more than 10% of the annual
sales, in the particular year presented, of the Company (in 000's):
23
Riviera Tool Company
Notes to Financial Statements
NOTE 3 -- SALES TO MAJOR CUSTOMERS -CONTINUED
AUGUST 31
-------------------------------------------------------------------------------------
2000 % 2001 % 2002 %
------- ------- ------- ------- ------- -------
General Motors ........................ $ 2,324 9 $ 3,975 33 $ 8,486 60
DaimlerChrysler AG .................... 8,604 34 2,588 21 905 6
Autodie International ................. 2,584 10 1,871 16 -- --
Dana Corporation ...................... -- -- 1,563 13 -- --
Budd Company .......................... -- -- 1,135 9 109 1
L & W Engineering ..................... 2,701 11 -- -- 183 1
Oxford Automotive ..................... -- -- -- -- 1,235 9
Others ................................ 8,974 36 915 8 3,132 23
------- ------- ------- ------- ------- -------
Total Sales ...................... $25,187 100% $12,047 100% $14,050 100%
======= ======= ======= ======= ======= =======
Outstanding account receivables from three of these customers represented
approximately 74 percent and 80 percent at August 31, 2001 and 2002 of the total
accounts receivable, respectively.
NOTE 4 -- COSTS AND BILLINGS ON CONTRACTS IN PROCESS
Costs and billings on contracts in process are as follows: AUGUST 31
------------------------------
2001 2002
----------- -----------
Costs incurred on contracts in process under the
percentage-of-completion method .................................. $ 8,587,454 $ 11,248,868
----------- -----------
Estimated gross loss ............................................... (650,000) (670,000)
Total ......................................................... 7,937,454 10,578,868
Less progress payments received and progress billings to date ...... 3,783,885 6,682,206
Plus costs incurred on contracts in process under
the completed contract method ..................................... -- 91,682
----------- -----------
Costs in excess of billings
on contracts in process ....................................... $ 4,153,569 $ 3,988,346
=========== ===========
Included in estimated gross loss for 2001 and 2002 are contracts with estimated
losses accrued of $763,980 and $973,985, respectively.
NOTE 5-- INVENTORIES
Inventories consist of the following: AUGUST 31
2001 2002
----------- -----------
Raw material stock .......................................... $190,337 $146,303
Small tools and supplies .................................... $118,640 104,266
----------- -----------
Total .............................................. $308,977 $250,569
=========== ===========
24
Riviera Tool Company
Notes to Financial Statements
NOTE 6 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following: AUGUST 31
------------------------------
2001 2002
------------ -------------
Land and leasehold improvements................................... $ 1,501,015 $ 1,367,908
Office furniture and fixtures.................................. 194,993 157,868
Machinery and equipment.......................................... 22,865,732 22,353,184
Computer equipment and software............................. 2,210,378 2,119,363
Transportation equipment.......................................... 133,365 61,919
Construction in process......................................... 23,913 1,399
------------ -------------
Total cost........................................... 26,929,396 26,061,641
------------ -------------
Accumulated depreciation and amortization...................... 10,783,337 11,589,762
------------ -------------
Property, plant and equipment, net.............................. $ 16,146,059 $ 14,471,879
============ =============
Depreciation & amortization expense............................... $ 1,952,320 $ 1,912,733
============ =============
NOTE 7 -- LONG-TERM DEBT
The Company's long-term debt, which is subject to certain covenants discussed
below, consists of the following:
AUGUST 31
------------------------------
2001 2002
------------ -------------
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 of up to $6.5 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 January 13, 2003, and bears interest, payable monthly,
at 2.0% above the bank's prime, 5.75% as of August 31, 2002 .................... 3,142,790 6,500,000
NOTES PAYABLE TO BANK
- ---------------------
Note payable to bank, collateralized by substantially all assets of the Company,
due December 31, 2002, and is payable in monthly installments of $54,167 plus
interest, payable monthly, at .25% below the bank's prime rate (as of August 31,
2001, an effective rate of 6.25%) .............................................. 541,667 --
Note payable to bank, collateralized by specific assets of the
Company, payable in monthly installments of $55,556, plus simple
interest of 7.26%, due December 31, 2002 ....................................... 2,277,764 1,611,092
Note payable to bank, collateralized by specific assets of the
Company, payable in monthly installments of $16,666 plus simple
interest of 8.04%, due December 31, 2002 ....................................... 616,667 416,667
NON-REVOLVING EQUIPMENT LINE OF CREDIT
- --------------------------------------
$3,271,000 equipment line of credit is collateralized by specific assets of the
Company, is due December 31, 2002, and is payable in monthly installments of
$38,941 plus interest at the bank's prime rate less .25% (as of August 31, 2002,
an effective rate of 4.5%) ..................................................... 1,823,472 1,826,740
25
Total long-term debt ................................................ 8,402,360 10,354,499
Less current portion ................................................ 1,875,631 10,354,499
------------ -------------
Long-term debt -- Net ............................................... $ 6,526,729 $ --
============ =============
Minimum scheduled principal payments on long-term debt to maturity as of August
31, 2002, are as follows:
2003................................................... $ 10,354,499
2004................................................... --
2005 .................................................. --
2006 .................................................. --
2007 .................................................. --
-------------
Total..................... $ 10,354,499
=============
26
Riviera Tool Company
Notes to Financial Statements
NOTE 7 -- LONG-TERM DEBT-CONTINUED
The Company was not in compliance with certain covenants of its long-term loan
agreement causing all of the Company's debt to be classified as current in the
financial statements. The Company's agreement expired September 1, 2002 and has
been renewed monthly thereafter.
The estimated fair value of the Company's notes payable and long-term debt
approximates its carrying amount.
NOTE 8 -- FEDERAL INCOME TAXES
The provision for federal income taxes is as follows:
AUGUST 31
------------------------------------------------
2000 2001 2002
---------- ---------- ----------
Current expense ............................................. $ 90,000 $ -- $ --
Deferred expense (benefit) .................................. 152,000 (1,538,000) --
---------- ---------- ----------
Income tax expense (benefit) .................. $ 242,000 $(1,538,000) $ --
========== ========== ==========
The difference between the federal statutory tax rate and the Company's
effective rate was:
AUGUST 31
------------------------------------------
2000 2001 2002
---------- ---------- ----------
Federal statutory tax rate ...................................... 34.0% (34.0%) (34.0%)
Effect of increasing the valuation allowance .................... -- 5.8% 34.0%
Other items ..................................................... 3.4% -- --
---------- ---------- ----------
Effective tax rate .................................... 37.4% (28.2%) --
========== ========== ==========
The details of the net deferred tax liability are as follows: AUGUST 31
-------------------------------
2001 2002
---------- ----------
Deferred tax liabilities:
Depreciation ..................................................... $(2,955,438) $(3,128,313)
Deferred tax assets:
Alternative minimum tax credit carryforward ...................... 155,150 155,150
Accrued lease expense ............................................ 235,312 229,750
Deferred compensation and other items ............................ 63,280 57,555
Net operating loss carryforward .................................. 2,813,696 3,986,858
---------- ----------
Total deferred tax assets ............................ 3,267,438 4,429,313
---------- ----------
Valuation allowance recognized for deferred tax assets ............. (312,000) (1,301,000)
---------- ----------
Net deferred tax liability ........................... $ -- $ --
========== ==========
The net operating loss carryforward arising in fiscal 2001 and 2002 will expire,
if unused, in fiscal 2021 and 2022, respectively.
NOTE 9 -- OPERATING LEASES
The Company has entered into a noncancellable operating lease agreement for
manufacturing and office facilities with a lease term that expires in October
2009. The agreement provides for annual lease payments plus an escalation of 2
percent per year for the remainder of the lease term. The Company has an option
to renew this lease for two additional 10-year terms at a rate to be negotiated
and has an option to acquire the facility at fair market value.
27
Riviera Tool Company
Notes to Financial Statements
NOTE 9 -- OPERATING LEASES - CONTINUED
Generally accepted accounting principles require that rent expense related to
this type of lease be recognized ratably over the term of the lease. The
difference between the rent payments made and the amount of expense recognized
has been recorded as accrued lease expense (a liability). For the years ended
August 31, 2000 and 2001, lease expense exceeded cash payments made by $18,865,
and $2,335, respectively. During the year ended August 31, 2002 the cash
payments made exceeded the lease expense by $34,305.
The Company has various operating leases, including the noncancellable operating
lease noted above, for facilities that expire during the next 15 years. Rent
expense under these leases for the years ended August 31, 2000, 2001 and 2002
amounted to $835,862, $1,053,118 and $1,075,186, respectively.
The following is a schedule of future minimum rent payments required under
operating leases that have initial or remaining noncancellable lease terms in
excess of one year as of August 31, 2002.
LEASE
PAYMENTS
----------
2003............................................... 1,131,812
2004............................................... 1,150,502
2005............................................... 1,144,948
2006............................................... 1,146,320
2007............................................... 1,165,010
2008 and after..................................... 2,587,007
----------
Total minimum payments required...... $ 8,325,599
==========
NOTE 10 -- RETIREMENT PLANS
The Company has a profit-sharing plan that covers substantially all employees.
The plan includes a 401(k) deferred-compensation option. The plan, as
established, allows for discretionary contributions as determined annually by
the Company's Board of Directors. No discretionary contribution was made for the
years-ended August 31, 2000, 2001, and 2002. The Company also matches and
contributes up to 15 percent of the employees' contributions, up to 2% of an
employee's annual wage. Effective January 1, 2002, the Company, until further
notice, suspended its matching share of the employees contribution. The
Company's matching contributions to the plan for the years ended August 31,
2000, 2001 and 2002, amounted to $106,408, $74,759 and $31,324, respectively.
NOTE 11 -- STOCK OPTION PLANS
The Company's 1996 Stock Option Plan (the "Option Plan") was adopted by the
Board of Directors and approved by the stockholders on October 31, 1996. Under
the Option Plan, 250,000 shares of Common Stock were reserved for issuance and
are intended to qualify as incentive stock options under the Internal Revenue
Code of 1986, as amended. Stock options granted to Company personnel under the
option plan are at exercise prices equal to the market value of the stock on the
date of grant. The options vest one year from the date of option grant and the
recipients must be employed by the Company at the time of exercise.
28
Riviera Tool Company
Notes to Financial Statements
NOTE 11 -- STOCK OPTION PLANS -- CONTINUED
The Company's 1998 Key Employee Stock Option Plan (the "Key Option Plan") was
adopted by the Board of Directors and approved by the stockholders on December
16, 1998. Under the Key Option Plan, 200,000 shares of Common Stock were
reserved for issuance and do not qualify as incentive stock options under the
Internal Revenue Code of 1986, as amended. Stock options granted to Company
personnel and Directors under the option plan are at exercise prices equal to
the market value of the stock on the date of grant. The options vest one year
from the date of option grant and recipients must be employed by the Company at
the time of exercise.
As permitted by SFAS No. 123, "Accounting for Stock-based Compensation", the
Company continues to apply the provisions of Accounting Principles Board Opinion
No. 25 which recognizes compensation expense under the intrinsic value method.
The compensation cost, estimated under the fair value-based method defined in
SFAS No. 123, was not significant.
A summary of the status of the Option Plan and Key Option Plan during the years'
presented is as follows (no stock options were granted previous to fiscal 1999
under the 1996 Stock Option Plan and the 1998 Key Employee Stock Option Plan):
Weighted
Average
1996 STOCK OPTION PLAN, AS AMENDED Exercise
---------------------------------- Shares Price
------ -----
Outstanding at end of year, August 31, 1999.................... 45,000 $6.625
======= =======
Fiscal Year Ended August 31, 2000
Stock options granted........................................... 75,000 $3.75
------- -------
Outstanding at end of year, August 31, 2000.................... 120,000 $4.82
======= =======
Fiscal Year Ended August 31, 2001
Stock options granted........................................... -- --
------- -------
Outstanding at end of year, August 31, 2001.................... 120,000 $4.82
======= =======
Fiscal Year Ended August 31, 2002
Stock options granted........................................... -- --
------- -------
Outstanding at end of year, August 31, 2002.................... 120,000 $4.82
======= =======
Weighted
Average
1998 KEY EMPLOYEE STOCK OPTION PLAN Exercise
----------------------------------- Shares Price
------ -----
Outstanding at end of year, August 31, 1999.................... 54,000 $6.625
Fiscal Year Ended August 31, 2000
Stock options granted........................................... 53,000 $3.75
------- -------
Outstanding at end of year, August 31, 2000.................... 107,000 $5.20
Fiscal Year Ended August 31, 2001
Stock options granted........................................... -- --
Stock options forfeited......................................... (5,000) $6.625
Stock options forfeited......................................... (5,000) $3.75
Outstanding at end of year, August 31, 2001.................... 97,000 $5.20
Fiscal Year Ended August 31, 2002
Stock options granted........................................... -- --
------- -------
Outstanding at end of year, August 31, 2002.................... 97,000 $5.20
======= =======
29
Riviera Tool Company
Notes to Financial Statements
NOTE 12 -- STOCKHOLDERS INVESTMENT
On November 24, 1999, the Company's Board of Directors declared a five-percent
common stock dividend, payable on February 1, 2000, to all stockholders of
record on December 29, 1999. On February 1, 2000, an additional 160,865 shares
of Common Stock were issued as a stock dividend. All share and per share data
presented for fiscal 1999 have been adjusted to give effect to the five percent
stock dividend.
NOTE 13 -- CONTINGENCIES
During fiscal 2001, the Company recorded a $765,000 loss on certain contracts
with one of its customers. This loss was a result of a dispute between the
Company and its customer over the manufacture of stamping die systems for an
auto frame assembly. This dispute resulted in the Company being a Defendant in
a lawsuit with the customer ("Plaintiff") asking for recovery of $850,000 in
damages. The Company and its customer settled this matter on April 17, 2002
resulting in no additional expense to the Company.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to Directors and Executive Officers may be
found under the caption "Directors and Executive Officers" in the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held December 17,
2002 (the "Proxy Statement") and such information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to Directors and Executive Officers
Compensation may be found under the captions "Compensation of Directors and
Executive Officers" in the Company's definitive proxy statement for its 2003
Annual Meeting of Stockholders (the "Proxy Statement") and such information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information with respect to Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters may be found under the
captions "Executive Compensation," and "Director Compensation" in the Company's
Proxy Statement and such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to Certain Relationships and Related
Transactions is contained under the captions "Executive Compensation,"
"Ownership of Company Stock," and "Compensation Committee Interlocks and Insider
Participation" in the Company's Proxy Statement and such information is
incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE 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.
CHANGES IN INTERNAL CONTROLS
30
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.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
1. Financial Statements -- The Consolidated Financial Statements
of Riviera Tool Company in Item 8 hereof are filed as part of
this Annual Report on Form 10-K.
2. Exhibits
10(y) Fourth Amendment to Loan Documents between Registrant and
Fifth Third Bank, f/k/a Old Kent Bank, dated August 27, 2001.
10(z) Fifth Amendment to Loan Documents between Registrant and Fifth
Third Bank, f/k/a Old Kent Bank, dated October 30, 2002.
10(aa) Sixth Amendment to Loan Documents between Registrant and Fifth
Third Bank, f/k/a Old Kent Bank, dated November 27, 2002.
10(bb) Seventh Amendment to Loan Documents between Registrant and
Fifth Third Bank, f/k/a Old Kent Bank, dated December 13,
2002.
21 Subsidiaries -- None
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- No Reports were filed on Form 8-K in the last
quarter of the Fiscal Year ended August 31, 2002.
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) 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.
Dated: December 16, 2002 RIVIERA TOOL COMPANY
By: /s/ Kenneth K. Rieth
---------------------
Kenneth K. Rieth, Principal Executive Officer
and
By: /s/ Peter C. Canepa
---------------------
Peter C. Canepa, Principal Financial and
Accounting Officer
31
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on the 16th day of December, 2002, by the
following persons on behalf of the Company and in the capacities indicated.
Each Director of the Company whose signature appears below hereby
appoints Kenneth K. Rieth and Peter C. Canepa, and each of them individually, as
his attorney-in-fact to sign in his name and on his behalf as a Director of the
Company, and to file with the Commission any and all amendments to this report
on Form 10-K to the same extent and with the same effect as if done personally.
/s/ Leonard H. Wood /s/ Kenneth K. Rieth
- ------------------- --------------------
Leonard H. Wood, Director Kenneth K. Rieth, Director
/s/ John C. Kennedy /s/ Jay S. Baron
- ------------------- ----------------
John C. Kennedy, Director Jay S. Baron, Director
/s/ Thomas H. Highley
- ----------------------
Thomas H. Highley, Director
32
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 Annual Report of Riviera Tool Company (the
"Company") on Form 10-K for the year ending August 31, 2002 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 annual report on Form 10-K of Riviera Tool
Company;
(2) Based on my knowledge, this annual 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
annual report; and
(3) Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and
(c) presented in this annual 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 annual 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: December 16, 2002 By: /s/
------
Kenneth K. Rieth
Chief Executive Officer
This certification accompanies this Annual Report on Form 10-K 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.
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 Annual Report of Riviera Tool Company (the
"Company") on Form 10-K for the year ending August 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof, I, Peter 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 annual report on Form 10-K of Riviera Tool
Company;
(2) Based on my knowledge, this annual 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
annual report; and
(3) Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in al
material respects the financial condition, results of operations and cash flows
of registrant as of, and for, the periods presented in this annual 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 annual 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 annual report (the "Evaluation Date"); and
(c) presented in this annual 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 annual 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: December 16, 2002 By: /s/
------
Peter Canepa
Chief Financial Officer
This certification accompanies this Annual Report on Form 10-K 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.
EX. NO. EXHIBIT INDEX
10(y) Fourth Amendment to Loan Documents between Registrant and
Fifth Third Bank, f/k/a Old Kent Bank, dated August 27, 2001.
10(z) Fifth Amendment to Loan Documents between Registrant and Fifth
Third Bank, f/k/a Old Kent Bank, dated October 30, 2002.
10(aa) Sixth Amendment to Loan Documents between Registrant and Fifth
Third Bank, f/k/a Old Kent Bank, dated November 27, 2002.
10(bb) Seventh Amendment to Loan Documents between Registrant and
Fifth Third Bank, f/k/a Old Kent Bank, dated December 13,
2002.
21 Subsidiaries -- None
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
33