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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(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, 2004
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]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes[ ] No [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 $3,703,405 as of December 23, 2004.
The number of shares outstanding of the Registrant's common stock as of December
15, 2004 was 3,774,346 shares of common stock without par value.
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 27, 2004
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business..................................................................................... 3
Item 2. Properties................................................................................... 6
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, Related Stockholder Matters and Issuer Purchases
of Equity Securities......................................................................... 7
Item 6. Selected Financial Data...................................................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 9
Item 7A. Quantitative and Qualitative Disclosures about Market Risk................................... 14
Item 8. Financial Statements and Supplementary Data.................................................. 15
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 29
Item 9A. Controls and Procedures......................................................................
PART III
Item 10. Directors and Executive Officers............................................................. 29
Item 11. Executive Compensation....................................................................... 29
Item 12. Security Ownership of Certain Beneficial Owners and Management............................... 29
Item 13. Certain Relationships and Related Transactions............................................... 29
Item 14. Principal Accountant Fees and Services....................................................... 37
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................. 37
SIGNATURES................................................................................... 39
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, General Motors Corporation, Mercedes-Benz
and BMW (the "OEM's") in fiscal years 2002, 2003 and 2004.
YEAR ENDED AUGUST 31,
---------------------------------------------
CUSTOMER 2002 2003 2004
-------- -------------- ------------- ------------
AMOUNT % AMOUNT % AMOUNT %
------ ---- ------ ---- ------ ---
Suppliers of Mercedes-Benz................................ $ -- --% $ 19.2 56% $ 20.8 84%
BMW....................................................... 0.6 4 0.3 1 -- --
Suppliers of BMW.......................................... 0.6 4 3.0 10 -- --
DaimlerChrysler AG........................................ 0.9 6 1.9 6 0.2 1
Suppliers of DaimlerChryslerAG............................ 0.2 1 1.0 1 0.3 1
Ford Motor Company........................................ -- -- 0.9 1 -- --
Suppliers of Ford Motor Co................................ 0.8 6 2.4 7 -- --
General Motors Corporation................................ 8.5 61 0.5 2 0.9 4
Suppliers of General Motors Corporation................... 0.6 4 0.2 -- 0.5 2
Other auto and truck manufacturers and their suppliers.. 1.8 14 4.7 16 2.0 8
------ --- ------ --- ------ ---
Total Sales........................................ $ 14.0 100% $ 34.1 100% $ 24.7 100%
------ --- ------ --- ------ ---
The Company was originally incorporated in 1967 and was incorporated in
its present form in 1988, under the laws of the State of Michigan.
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
market for U.S. produced tooling has both cyclical and structural factors that
create tooling product demand.
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 new 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.
3
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 designs and manufacturing processes.
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, which the customer
wants the Company to use in developing a tool to produce that part. The tool
design is then created by the Company, utilizing computer aided-design ("CAD")
software. The Company then utilizes computer software that simulates the
metal-forming process within the die. This simulation data is then 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 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. The automobile manufacturers validate the
fit and function of the respective components and assemblies and the
repeatability of the respective production processes using these tools. 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
die. 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.
4
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.
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, Mercedes-Benz and BMW and their respective tier one suppliers. The
Company maintains relationships with DaimlerChrysler, Ford, General Motors,
Mercedes-Benz and BMW that directly accounted for approximately 5%, in the
aggregate, of the Company's revenues in 2004. For the year ended August 31,
2004, DaimlerChrysler, Ford, General Motors, Mercedes-Benz, BMW and their
respective tier one suppliers accounted for approximately 92%, in the aggregate,
of the Company's revenues. For the year ended August 31, 2003, DaimlerChrysler,
Ford, General Motors, Mercedes-Benz and BMW and their respective tier one
supplier directly accounted for 84%, in the aggregate, of the Company's
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, their purchasing
agents, and 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 $2.5 million and $27 million as of August 31, 2004 and
2003, respectively. Subsequent to August 31, 2004, the Company received new
orders increasing its backlog to $7.2 million, as of December 12, 2004. The
Company expects all backlog contracts will be reflected in sales during fiscal
years ended August 31, 2005 and 2006. 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, General Motors, Mercedes-Benz, BMW and their respective introduction of
new models.
5
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% 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 OEMs' 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 relationships with DaimlerChrysler, Ford, General
Motors, Mercedes-Benz and BMW, which directly accounted for approximately 5%, in
the aggregate, of the Company's revenues in 2004. For the year ended August 31,
2004, DaimlerChrysler, Ford, General Motors, Mercedes-Benz and BMW and their
respective tier one suppliers accounted for approximately 92%, in the aggregate,
of the Company's revenues.
EMPLOYEES
The Company's work force consists of approximately 135 full-time
employees, of which approximately 30 are managerial and engineering personnel.
The balance consists of hourly employees engaged in manufacturing and indirect
labor support. Included among these hourly workers are approximately 85 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 177,000 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 expiring in 2018.
The facility lease provides for annual payments of $944,847 plus an escalation
of base rent of approximately $.14 per square foot. The Company has an option to
renew this lease for an additional ten-year term at a rate based upon the then
prevailing market rates for similar properties. The Company believes its
facilities are modern, well maintained, adequately insured and suitable for
their present and intended uses.
6
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 matters were 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.
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 2003 FISCAL 2004
--------------------- ---------------------
HIGH LOW HIGH LOW
---- --- ---- ---
1st quarter...................... $ 1.49 $ 1.04 $ 5.10 $ 3.10
2nd quarter...................... $ 2.45 $ 1.01 $ 5.70 $ 3.66
3rd quarter...................... $ 3.55 $ 1.75 $ 4.99 $ 3.16
4th quarter...................... $ 5.10 $ 2.81 $ 3.70 $ 1.86
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.
7
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.
FISCAL YEAR ENDED AUGUST 31,
------------------------------------------------------------------
2000 2001 2002 2003 2004
---------- ----------- ----------- ---------- ----------
STATEMENT OF OPERATIONS DATA:
Sales............................................. $ 25,187 $ 12,047 $ 14,050 $ 34,084 $ 24,689
Gross Profit (Loss)............................... 3,794 (3,062) (630) 3,377 (5,349)
Income (Loss) from Operations..................... 1,655 (4,712) (2,289) 1,687 (7,363)
Interest Expense.................................. 890 725 653 779 872
Other (Income)/Expense............................ 119 5 59 8 6
Income (Loss) before Income Taxes................. 645 (5,442) (3,002) 900 (8,241)
Income Tax Expense (Benefit)...................... 242 (1,538) -- -- --
---------- ----------- ----------- ---------- ----------
Net Income (Loss) available for common shares..... $ 404 $ (3,904) $ (3,002) $ 900 $ (8,241)
========== =========== =========== ========== ==========
Diluted Earnings (Loss) per common share.......... $ .12 $ (1.16) $ (.89) $ .27 $ (2.18)
========== =========== =========== ========== ==========
Diluted common shares outstanding................. 3,379 3,379 3,379 3,379 3,774
OTHER DATA :
Depreciation and amortization expense............. $ 1,940 $ 1,952 $ 1,913 $ 1,840 $ 1,758
AS OF AUGUST 31,
------------------------------------------------------------------
2000 2001 2002 2003 2004
---------- ----------- ----------- ---------- ----------
BALANCE SHEET DATA:
Working Capital (Deficit)........................ $ 13,051 $ 5,176 $ (3,513) $ 7,762 $ (6,954)
Total Assets..................................... 35,076 25,146 24,984 33,751 27,898
Current Portion of Long-Term Debt................ 1,984 1,876 3,855 639 15,735
Revolving Line of Credit......................... 5,080 3,143 6,500 5,982 9,850
Long-term Debt, less current portion............. 5,223 3,384 -- 2,418 --
Common Stockholders' Equity...................... 18,715 14,812 11,810 12,710 5,780
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,
-----------------------------------------------------------
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Sales........................................... 100% 100% 100% 100% 100%
Gross Profit (Loss)............................. 15 (25) (4) 10 (22)
Income (Loss) from Operations................... 7 (39) (16) 5 (30)
Interest Expense................................ 4 6 5 2 3
Income (Loss) before Income Taxes............... 3 (45) (21) 3 (33)
Federal Income Tax Expense (Benefit)............ 1 (13) -- -- --
-- --- --- --- ---
Net Income (Loss) available for common shares... 2% (32%) (21%) 3% (33)%
== === === === ===
OTHER DATA:
Depreciation and amortization expense........... 8% 16% 14% 5% 7%
8
QUARTERLY FINANCIAL DATA
The following is a condensed summary of quarterly results of operations for
2002, 2003 and 2004 (in thousands, except per share data):
NET INCOME DILUTED
/(LOSS) --------------------
AVAILABLE EARNINGS
GROSS OPERATING FOR (LOSS) COMMON
PROFIT/ INCOME/ COMMON PER SHARES
SALES (LOSS) (LOSS) SHARES SHARE OUTSTANDING
----- ------- --------- ---------- -------- -----------
2002: First ........ $ 3,364 $ (182) $ (648) $ (818) $ (.24) 3,379
Second ....... 3,452 (141) (519) (688) (.20) 3,379
Third ........ 3,702 137 (304) (453) (.13) 3,379
Fourth ....... 3,532 (444) (818) (1,043) (.32) 3,379
--------- --------- --------- ---------- ------- -----
Total $ 14,050 $ (630) $ (2,289) $ (3,002) $ (.89) 3,379
========= ========= ========= ========== ======= =====
2003: First ........ $ 4,339 $ 293 $ (29) $ (189) $ (.06) 3,379
Second ....... 8,304 869 453 231 .07 3,379
Third ........ 9,919 1,093 587 391 .12 3,379
Fourth ....... 11,522 1,121 676 467 .14 3,379
--------- --------- --------- ---------- ------- -----
Total $ 34,084 $ 3,376 $ 1,687 $ 900 $ .27 3,379
========= ========= ========= ========== ======= =====
2004 First ........ $ 8,311 $ 850 $ 446 $ 238 $ .07 3,379
Second ....... 8,293 840 335 212 .06 3,379
Third ........ 7,597 867 387 239 .06 3,774
Fourth ....... 488 (7,906) (8,531) (8,930) (2.37) 3,774
--------- --------- --------- ---------- ------- -----
Total $ 24,689 $ (5,349) $ (7,363) $ (8,241) $ (2.18) 3,774
========= ========= ========= ========== ======= =====
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 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, frames, structural components and
bumpers. A majority of the Company's sales are to DaimlerChrysler, Ford Motor
Company, General Motors Corporation, Mercedes-Benz, BMW 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 judgment, estimates and complexity include revenue
recognition using percentage of completion estimates and the assessment of asset
impairments. The Company uses the following methods and assumptions in its
estimates.
9
- 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 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 May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity." SFAS No. 150 requires certain financial instruments that embody
obligations of the issuer and have characteristics of both liabilities and
equity to be classified as liabilities. Many of these instruments previously
were classified as equity or temporary equity and as such, SFAS No. 150
represents a significant change in practice in the accounting for a number of
mandatory redeemable equity instruments and certain equity derivatives that
frequently are used in connection with share repurchase programs. SFAS No. 150
is effective for all financial instruments created or modified after May 31,
2003, and to other instruments at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a
significant impact on the Company's financial statements.
In April, 2003, SFAS No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities" was issued and is effective for contracts
entered into or modified after June 30, 2003. SFAS No. 149 amends and clarifies
financial accounting and reporting of derivatives, including derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." The
adoption of SFAS No. 149 did not have any impact on the Company's financial
position, results of operations or cash flows.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation" to provide alternative
methods of transition to SFAS No. 123's fair value method of accounting for
stock-based employee compensation; however, it does not amend SFAS No. 123 to
require companies to account for employee stock options using the fair value
method. The statement also requires disclosure of the effects of an entity's
accounting policy with respect to stock-based employee compensation on reported
net income and earnings per share in the summary of significant accounting
policies in annual and interim financial statements. The disclosure provisions
of SFAS No. 148 were adopted on August 31, 2003. As allowed by SFAS No. 148, the
Company has not adopted the fair value method of accounting for stock options.
In January 2003, FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities," an Interpretation of APB No. 50 ("FIN 46") and was
amended in December 2003. FIN 46 is effective in February 2003 for all new
variable interest entities created or acquired. For variable interest entities
created or acquired before February 2003, FIN 46 is effective in February 2004.
FIN 46 requires consolidation of a variable interest entity if a company's
variable interest absorbs a majority of the entity's losses or receives a
majority of the entity's expected residual returns, or both. The adoption of FIN
46 did not have any impact on the Company's financial position, results of
operations or cash flows.
10
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 2004, the Company
sustained a loss from operations of $7,363,027 and a net loss of $8,241,478.
This loss resulted in an accumulated deficit of $10,646,487 as of August 31,
2004. Further, the Company was not in compliance with the covenants of its
long-term loan agreement causing the Company's debt to be classified as current
in the financial statements. The Company's agreement was extended to December
31, 2004. The Company is currently negotiating a three month extension of such
agreement. 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.
The Company believes that the revolving line of credit and the funds
generated from operations, will be sufficient to cover anticipated cash needs
through fiscal 2005. However, depending on Company's primary lenders willingness
to extend the due date of the facility as well as the level of future sales,
terms of such sales, financial performance and cash flow of existing contracts,
such financing may not be sufficient to support operations. Therefore, the
Company may be required to seek additional sources of funding.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment if changes in
circumstances or the occurrence of events suggest the remaining value may not be
recoverable. An asset is deemed impaired and written down to its fair value if
estimated related total future undiscounted cash flows are less than its book
(carrying) value. The Company, in performing its evaluation of long-lived assets
for impairment, utilized financial projections for five future years including
total undiscounted cash flow. In developing the projections, the Company
estimated revenues for each year and estimated resulting margins based upon
various assumptions including future market pricing trends and historical
financial costs. The analysis concluded that the estimated total undiscounted
future cash flows were in excess of the carrying value of long-lived assets. Had
the analysis concluded that the total undiscounted future cash flows been below
the carrying value, an impairment charge of the difference between the carrying
value and the lower of the total discounted cash flows or fair value would have
been recorded.
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 2004 COMPARED TO FISCAL 2003
Revenue. Total revenue decreased from approximately $34 million in 2003 to $25
million in 2004, a decrease of 28%. This decrease was a result of the Company
completing its significant tooling programs for a major European automaker for a
sports utility vehicle and a new "crossover" vehicle to be manufactured in the
United States. The Company's customer for these vehicles is the Tier 1 supplier
to Mercedes-Benz for these particular vehicles. During the fourth quarter, the
Company had significant difficulties in completing the contracts, which had a
severe negative effect on revenue, cost of sales, and related earnings. The
Company, due to many various circumstances, incurred significant cost overruns
on many of the parts under the contracts. Many of these cost overruns involve
customer timing changes, material specification changes and the Company
outsourcing the completion of many dies to meet customer deadlines. All of the
aforementioned issues resulted in the Company incurring approximately $4.0
million in additional outsourcing costs and $3.5 million in additional labor
costs. The Company has accrued $5.2 million of estimated losses on these
contracts and others as of August 31, 2004, and believes this reserve will be
adequate to complete the contracts. The outsourcing costs were incurred as a
result of the Company having certain "bottlenecks" in its production. These
bottlenecks were a result of changes to material specifications combined with an
increase in the number of engineering changes required. The material
specification changes involved customer changes from a grade of steel the
Company had previous experience with to a new grade of high-strength steel
which, not only had the Company had no experience working with, was also new to
the customer. As a result of this new material, the Company could not simulate
the flow of the steel in the dies. Due to the lack of historical data as to the
material
11
flow, the Company, in some cases, had to re-cut the dies up to eight times to
get the part within specifications with this material. This created capacity
constraints in the Company's machining and tryout areas. As a result of these
constraints, the customer required that the Company utilize specified outside
die shops to complete certain dies, which were constructed internally. The
customer decided that the Company's internal capacity had become overburdened as
a result of the rework being performed by the Company to obtain part
specifications with the new high-strength steel. Had the Company not outsourced
this work, the customer may have cancelled the contracts and charged the Company
for all of the added costs incurred. In addition, the customer may have
discontinued the scheduled progress payments, which would have caused severe
cash-flow problems for the Company. Management took the position that by
outsourcing this work directly the added costs were better controlled and
prevented potential cash-flow difficulties.
Despite the aforementioned fourth quarter problems, the Company did realize an
overall profit on these two programs. The total amount of revenue on these
contracts was $43.0 million with a net margin of $0.2 million.
Cost of Goods Sold. Cost of goods sold decreased from $30.7 million for 2003 to
$30.0 million for 2004. However, as a percent of sales, cost of goods sold
increased from 90.1% for 2003 to 121.7% for 2004. Direct costs (materials and
labor) decreased by $0.8 million, from $21.4 million for 2003 to $20.6 million
for 2004. Engineering expense remained consistent at $2.4 million for both 2003
and 2004. Lastly, of the cost of goods sold, manufacturing overhead remained
consistent at $7.0 million for 2004 versus $6.9 million for 2003. Additional
details of these changes in cost of sales for 2003 and 2004 are as follows:
- Direct materials expense decreased from $6.4 million for 2003 to
$4.2 million for 2004 and as a percent of sales from 18.8% to 16.9%. This
decrease was largely due to lower contract material requirements during
2004 as compared to 2003. Outside services expense increased from $9.4
million for 2003 to $9.7 million for 2004 and increased as a percent of
sales from 27.5% to 39.3%. Of the outsourced services expense for 2004,
approximately $4.0 million of the $9.7 million was in excess of amounts
estimated for certain jobs and created extensive cost overruns on those
particular jobs as described in the aforementioned Revenue section.
- Direct labor expense increased from $5.7 million for 2003 to $6.7
million for 2004 and as a percent of sales, direct labor increased from
16.7% to 27.3%. This change was a result of the Company incurring a 4.4%
increase in direct labor hours, from 304,000 hours in 2003 to 318,000 in
2004. Of the total direct labor expense, regular or straight time
increased by $690,000 and as a percent of sales increased from 11.0% for
2003 to 17.9% for 2004. Overtime expense increased from $1.9 million for
2003 to $2.3 million for 2004 and as a percent of sales increased from
5.7% for 2003 to 9.4% for 2004. The Company incurred added labor costs of
approximately $3.5 million related to the construction and buy-off
difficulties noted above.
Selling and Administrative Expense. Selling and administrative expense for 2004
increased by $324,000 to $2,014,000 as compared to $1,690,000 for 2003. As a
percent of sales, selling and administrative expense increased from 5.0% for
2003 to 8.2% for 2004. This largely consisted of increases of $141,000 in
administrative and sales salaries, $79,000 in State of Michigan Single Business
Tax, $50,000 in Deferred Compensation expense and $38,000 in Public Company
expenses.
Interest Expense. Interest expense increased from $779,000 for 2003 to $872,000
for 2004. This increase was largely due to the Company incurring additional
interest expense related to issuance of $3.0 million subordinated debt during
the fourth quarter of 2004.
FISCAL 2003 COMPARED TO FISCAL 2002
Revenue. Total revenue increased from approximately $14 million in 2002 to $34
million in 2003, an increase of 143%. This increase was a result of the Company
receiving significant tooling programs for the Mercedes-Benz M Class sports
utility vehicle and a new "crossover" vehicle yet to be introduced. The
Company's customer for these vehicles is the Tier 1 supplier to Mercedes-Benz
for these particular vehicles. For a portion of these tooling systems the
Company is performing engineering services and manages certain die manufacturing
subcontracted by the Company, with the Company being responsible for the
engineering and performance of these tools. During fiscal 2003, the Company
recorded approximately $9.4 million of outsourced revenue or 25% of total fiscal
2003 sales.
12
Cost of Goods Sold. Cost of goods sold increased from $14.7 million for 2002 to
$30.7 million for 2003. However, as a percent of sales, cost of goods sold
decreased from 104.5% for 2002 to 90.1% for 2003. Direct costs (materials and
labor) increased by $14.6 million, from $6.8 million for 2002 to $21.4 million
for 2003. Engineering expense increased by $815,500 from $1.6 million for 2002
to $2.3 million for 2003. Lastly, of the cost of goods sold, manufacturing
overhead increased by $580,000 from $6.3 million for 2002 to $6.9 million for
2003. Additional details of these changes in cost of sales for 2002 and 2003 are
as follows:
- Direct materials expense increased from $2.4 million for 2002 to
$6.4 million for 2003 and as a percent of sales from 16.8% to 18.8%. This
increase was largely due to higher contract material requirements during
2003 as compared to 2002. Outside services expense increased from $923,000
for 2002 to $9.4 million for 2003 and as a percent of sales from 6.6% to
27.5%. This increase was largely due to the Company incurring $7.3 million
of expense related to its outsourced revenue. The balance of the outside
services expense was due to sales volumes and corresponding increases in
outsourcing certain machining, die patterns, laser cutting, heat treat and
outside design services.
- Direct labor expense increased from $3.6 million for 2002 to $5.7
million for 2003. However, as a percent of sales, direct labor decreased
from 25.5% to 16.7%. This change was a result of the Company incurring a
56% increase in direct labor hours, from 189,000 hours in 2002 to 294,000
in 2003. Of the total direct labor expense, regular or straight time
increased by $909,000 however as a percent of sales, decreased from 20.1%
for 2002 to 10.9% for 2003 due to increased sales volume. Overtime expense
increased from $756,000 for 2002 to $1.9 million for 2003, however as a
percent of sales, only increased from 5.4% for 2002 to 5.7% for 2003.
- Engineering expense increased from $1.6 million, 11.1% of sales, for
2002 to $2.4 million, 7.0% of sales, for 2003. This 50% increase was due
to the Company's increase in awarded contracts during 2003 and the Company
increasing the number of engineering personnel necessary to fulfill the
design and project management portions of the contracts.
- Manufacturing overhead was $6.3 million or 44.9% of sales for 2002
as compared to $6.9 million or 20.2% of sales for 2003. During 2003,
increases in manufacturing overhead were largely due to a $326,000
increase in vacation, holiday pay and payroll tax expenses and a $100,000
increase in medical insurance premiums. The decrease of approximately 50%
of manufacturing overhead, as a percent of sales, was largely due to
improved overhead absorption from sales increases.
Selling and Administrative Expense. Selling and administrative expense for 2003
remained consistent with 2002 at $1.7 million. As a percent of sales, selling
and administrative expense decreased from 11.8% for 2002 to 5.0% for 2003 due to
the increased sales volume. The largest selling and administrative expense
increases for 2003 included: $124,000 in supervision salaries and $39,000 in
directors and officers insurance premiums and director fees. These increases
were offset by decreases in computer maintenance expense.
Interest Expense. Interest expense increased from $653,000 for 2002 to $779,000
for 2003. This increase was largely due to the Company incurring $230,000 of
debt issuance and guarantees amortization expense during 2003. These costs were
incurred in the Company's December 2002 refinancing.
FEDERAL INCOME TAX
The Company's effective income tax rates were 0% for the years ended August 31,
2002, 2003 and 2004. The Company had approximately $160,000 of alternative
minimum tax credits as of August 31, 2004, the use of which does not expire, and
federal net operating loss carryforwards of $6,511,000, which expire, if unused,
in fiscal 2021, 2022 and 2024. The Company has a valuation allowance of
$1,003,000 and $3,737,000 at August 31, 2003 and 2004, respectively, for net
deferred tax assets, which may not ultimately be realized.
13
LIQUIDITY AND CAPITAL RESOURCES
The Company's need for working capital increased during 2004 largely as a result
of the loss in the fourth quarter. For the year ended 2004, the Company utilized
approximately $6.7 million in operating activities. The Company financed these
needs through bank financing, issuance of subordinated debt and sale of common
stock for a total of $8.0 million from financing activities. The Company also
utilized $1.3 million of those proceeds in the acquisition of assets.
The Company's total bank debt as of August 31, 2004, is $15.7 million, all of
which is classified as short-term debt. As of August 31, 2004, the Company was
in default of its loan covenants with its lenders. As a result the Company has
negotiated a $10 million Revolving Line of Credit with a balance outstanding of
approximately $4.6 million (as of December 27, 2004), and term notes with an
aggregate outstanding balance of $1,835,100, expiring December 31, 2004. The
Revolving Line of Credit bears interest at the bank's prime rate plus 4.0
percent (an effective rate of 9.0% at November 30, 2004) and the term notes
bears interest at bank's prime rate plus 4.25 percent (an effective rate of
9.25% at November 30, 2004). The Company also has two subordinated debt notes
payable totaling $4,050,670 which includes $1,050,670 bearing interest at 11%
and $3,000,000 bearing interest at 14% plus deferred interest of 6%.
The table below presents our significant contractual obligations as of August
31, 2004:
LESS THAN 1 MORE THAN 5
TOTAL YEAR 1-3 YEARS 3-5 YEARS YEARS
----- ----------- --------- --------- -----------
Debt ............................. $ 15,735,302 $ 15,735,302 -- -- --
Operating Lease .................. 16,173,620 981,298 $ 988,298 $ 1,013,135 $ 13,190,889
Deferred Compensation ............ 216,474 50,000 45,351 43,192 77,931
Capital Lease .................... 20,070 7,367 7,367 5,336 --
------------- ------------- ------------- ------------- -------------
Total Obligations $ 32,145,466 $ 16,773,967 $ 1,041,016 $ 1,061,663 $ 13,268,820
============= ============= ============= ============= =============
The Company believes that the revolving line of credit and the funds generated
from operations, will be sufficient to cover anticipated cash needs through
fiscal 2005. However, depending on Company's primary lenders willingness to
extend the due date of the facility as well as the level of future sales, terms
of such sales, financial performance and cash flow of existing contracts, such
financing may not be sufficient to support operations. Therefore, the Company
may be required to seek additional sources of funding.
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.
14
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004 and 2003, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended August 31, 2004. 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 standards of the Public Company
Accounting Oversight Board (United States). 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, 2004
and 2003, and the results of its operations and its cash flows for each of the
three years in the period ended August 31, 2004 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, 2004, the Company was not in compliance with
its loan agreements, has losses from operations and a retained deficit that
raise substantial doubt about its ability to continue as a going concern.
Management's plans concerning 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
December 22, 2004
15
Riviera Tool Company
Balance Sheets
August 31
------------------------------
ASSETS Note 2003 2004
------ ---- ---- ----
Current Assets
Cash...................................................................... $ -- $ 1,200
Accounts receivable....................................................... 7,010,039 13,075,285
Costs in excess of billings on contracts in process....................... 4 12,208,666 669,143
Inventories............................................................... 5 248,559 238,301
Prepaid expenses and other current assets................................. 294,143 235,203
------------- -------------
Total current assets............................................. 19,761,407 14,219,132
Property, plant and equipment, net........................................ 6 13,046,289 12,328,746
Perishable tooling........................................................ 617,722 726,704
Other assets.............................................................. 325,198 623,635
------------- -------------
Total assets..................................................... $ 33,750,616 $ 27,898,217
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt......................................... 7 $ 638,756 $ 15,742,669
Accounts payable.......................................................... 5,020,554 4,908,893
Accrued outsourced contracts payable...................................... 5,903,930 --
Accrued liabilities....................................................... 435,896 521,193
------------- -------------
Total current liabilities........................................ 11,999,136 21,172,755
Long-term and subordinated debt, net of current portion................... 7 8,400,333 12,703
Accrued lease expense..................................................... 9 640,690 740,894
Deferred compensation..................................................... 10 166,474
Deferred interest......................................................... 7 -- 25,500
------------- -------------
Total liabilities................................................ 21,040,159 22,118,326
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 at August 31, 2003 and
3,774,346 at August 31, 2004......................................... 15,115,466 16,426,378
Retained deficit........................................................ (2,405,009) (10,646,487)
------------- -------------
Total common stockholders' equity................................ 12,710,457 5,779,891
------------- -------------
Total liabilities and stockholders' equity................................ $ 33,750,616 $ 27,898,217
============= =============
See Notes to Financial Statements
16
Riviera Tool Company
Statements of Operations
Year Ended August 31
2002 2003 2004
---- ---- ----
Sales ................................................. $ 14,050,133 $ 34,084,111 $ 24,689,221
Cost of sales ......................................... 14,680,398 30,707,447 30,038,654
------------- ------------- -------------
Gross profit (loss) ................................... (630,265) 3,376,664 (5,349,433)
Selling and administrative expenses ................... 1,658,849 1,689,192 2,013,594
------------- ------------- -------------
Income (loss) from operations ......................... (2,289,114) 1,687,472 (7,363,027)
------------- ------------- -------------
Other income (expense):
Interest expense .................................. (652,905) (779,074) (871,900)
Other ............................................. 726 (8,348) (6,551)
Loss on asset disposals ........................... (60,264) -- --
------------- ------------- -------------
Total other expense, net .............................. (712,443) (787,422) (878,451)
Income (loss) -- before income tax benefit ............ (3,001,557) 900,050 (8,241,478)
------------- ------------- -------------
Income tax benefit .................................... -- -- --
------------- ------------- -------------
Net income (loss) available for common shares ......... $ (3,001,557) $ 900,050 $ (8,241,478)
============= ============= =============
Basic and Diluted earnings (loss) per common share .... $ (0.89) $ 0.27 $ (2.18)
============= ============= =============
Basic and Diluted common shares outstanding ........... 3,379,609 3,379,609 3,774,346
See Notes to Financial Statements
17
Riviera Tool Company
Statements of Common Stockholders' Equity
Common Stock Retained Total
---------------------------- Earnings Stockholders'
Shares Amount (Deficit) Equity
--------- ------------- ------------- -------------
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
--------- ------------- ------------- -------------
Net income.................................... -- -- 900,050 900,050
Balance -- August 31, 2003 3,379,609 $ 15,115,466 $ (2,405,009) $ 12,710,457
--------- ------------- ------------- -------------
Sale of Common Stock.......................... 394,737 1,310,912 -- 1,310,912
Net loss...................................... -- -- (8,241,478) (8,241,478)
--------- ------------- ------------- -------------
Balance -- August 31, 2004 3,774,346 $ 16,426,378 $ (10,646,487) $ 5,779,891
========= ============= ============= =============
See Notes to Financial Statements
18
Riviera Tool Company
Statements of Cash Flows
Year Ended August 31
-----------------------------------------------
2002 2003 2004
---- ---- ----
Cash Flows from Operating Activities
Net income (loss) .................................................... $ (3,001,557) $ 900,050 $ (8,241,478)
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization .................................. 1,912,733 1,839,801 1,757,862
Loss on disposal of machinery and equipment .................... 60,264 -- --
Decrease (increase) in assets:
Accounts receivable ......................................... 550,355 (4,110,964) (6,065,246)
Costs in excess of billings on contracts in process ......... 165,223 (8,220,320) 11,539,523
Inventories ................................................. 58,408 2,010 10,258
Perishable tooling .......................................... 24,216 (69,116) (108,982)
Prepaid expenses and other current assets ................... (87,024) (109,830) 58,940
Increase (decrease) in liabilities:
Accounts payable ............................................ 796,567 3,325,775 (111,662)
Accrued outsourced contracts payable ........................ -- 5,903,930 (5,903,930)
Accrued lease expense ....................................... (16,359) (12,275) 100,204
Accrued liabilities ......................................... 106,164 (35,045) 85,297
Deferred compensation ....................................... -- -- 166,475
------------- ------------- -------------
Cash flows from (used in) operating activities .............. 568,990 (585,984) (6,712,739)
------------- ------------- -------------
Cash Flows from Investing Activities
(Increase) decrease in other assets ................................ (167,290) (22,138) (298,437)
Purchases of property, plant and equipment ......................... (298,817) (414,211) (1,040,319)
------------- ------------- -------------
Net cash used in investing activities ...................... (466,107) (436,349) (1,338,756)
------------- ------------- -------------
Cash Flows from Financing Activities
Net borrowings (repayments) on revolving credit line ............... 3,357,210 (517,640) 3,867,172
Proceeds from issuance of long-term debt ........................... 470,560 -- 435,100
Principal payments on long-term debt ............................... (1,875,631) (797,770) (606,059)
Proceeds from issuance of subordinated debt ........................ -- -- 3,000,000
Capital lease ...................................................... -- -- 20,070
Deferred interest .................................................. -- -- 25,500
Proceeds from sale of common stock ................................. -- -- 1,310,912
------------- ------------- -------------
Cash flows from (used in) financing activities .................. 1,952,139 (1,315,410) 8,052,695
------------- ------------- -------------
Net increase (decrease) in cash ...................................... 2,055,022 (2,337,743) 1,200
------------- ------------- -------------
Cash -- beginning of year ............................................ 282,721 2,337,743 --
Cash -- end of year .................................................. $ 2,337,743 $ -- $ 1,200
============= ============= =============
Interest paid ........................................................ $ 581,915 $ 788,496 $ 481,900
Income taxes refunded ................................................ 25,000 -- --
See Notes to Financial Statements
19
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,
Ford Motor Company, General Motors Corporation, Mercedes-Benz, 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 estimates of costs to complete are 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 could ultimately incur could 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 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, 2003 and 2004, the Company had no reserve for
uncollectible accounts receivable and had $361,144 and $162,795 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:
20
Riviera Tool Company
Notes to Financial Statements
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
PROPERTY, PLANT AND EQUIPMENT - 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 $6,703, $0
and $0 in 2002, 2003 and 2004, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS.
The Company reviews long-lived assets for impairment if changes in
circumstances or the occurrence of events suggest the remaining value may
not be recoverable. An asset is deemed impaired and written down to its
fair value if estimated related total future undiscounted cash flows are
less than its book (carrying) value. The Company, in performing its
evaluation of long-lived assets for impairment, utilized financial
projections for five future years including total undiscounted cash flow.
The analysis concluded that the estimated total undiscounted future cash
flows were in excess of the carrying value of long-lived assets. Had the
analysis concluded that the total undiscounted future cash flows been
below the carrying value, an impairment charge of the difference between
the carrying value and the lower of the total discounted cash flows or
fair value would have been recorded.
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 10). No stock-based compensation cost
is reflected in net income (loss), as all options granted under its plan
had an exercise price equal to the market value of the underlying common
stock on the date of grant. Had the Company applied the fair value
recognition principles of SFAS No. 123, there would be no impact on net
income (loss) as of August 31, 2002, 2003 and 2004.
21
Riviera Tool Company
Notes to Financial Statements
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
BUSINESS SEGMENT REPORTING.
Based on the nature of its operations and products, the Company considers
its business to be a single operating segment.
NEW ACCOUNTING STANDARDS.
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" was issued in April 2003 and is effective for
contracts entered into or modified after June 30, 2003. SFAS No. 149
amends and clarifies financial accounting and reporting of derivatives,
including derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The adoption of SFAS No. 149 did not
have any impact on the Company's financial position, results of operations
or cash flows.
SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity" was issued in May 2003 and
is effective for financial instruments entered into or modified after May
31, 2003. SFAS No. 150 establishes standards for classification and
measurement of certain financial instruments with characteristics of both
liabilities and equity. The adoption of SFAS No. 150 did not have any
impact on the Company's financial position, results of operations or cash
flows.
Financial Accounting Standards Board ("FASB") Interpretation No. 46,
"Consolidation of Variable Interest Entities," an Interpretation of APB
No. 50 ("FIN 46") was issued in January 2003 and was amended in December
2003. FIN 46 is effective in February 2003 for all new variable interest
entities created or acquired. For variable interest entities created or
acquired before February 2003, FIN 46 is effective in February 2004. FIN
46 requires consolidation of a variable interest entity if a company's
variable interest absorbs a majority of the entity's losses or receives a
majority of the entity's expected residual returns, or both. The adoption
of FIN 46 did not have any impact on the Company's financial position,
results of operations or cash flows.
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 2004,
the Company sustained a loss from operations of $7,363,027 and a net loss
of $8,241,478. This loss resulted in an accumulated deficit of $10,646,487
as of August 31, 2004. Further, the Company was not in compliance with the
covenants of its long-term loan agreement causing the Company's debt to be
classified as current in the financial statements. 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.
The Company believes that the revolving line of credit and the funds
generated from operations, will be sufficient to cover anticipated cash
needs through fiscal 2005. However, depending on Company's primary lenders
willingness to extend the due date of the facility as well as the level of
future sales, terms of such sales, financial performance and cash flow of
existing contracts such financing may not be sufficient to support
operations. Therefore, the Company may be required to seek additional
sources of funding.
22
Riviera Tool Company
Notes to Financial Statements
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):
AUGUST 31
------------------------------------------------------------
2002 % 2003 % 2004 %
-------- -------- -------- -------- -------- --------
Oxford Automotive ............ $ 1,235 9 $ 19,152 56% $ 18,640 75%
DaimlerChrysler AG ........... 905 6 1,925 6% 209 1%
General Motors ............... 8,486 60 450 1% 938 4%
Others ....................... 3,424 25 12,557 37% 4,902 20%
-------- --- -------- --- -------- ---
Total Sales ............. $ 14,050 100% $ 34,084 100% $ 24,689 100%
======== === ======== === ======== ===
Outstanding account receivables from three of these customers represented
approximately 78 percent and 90 percent at August 31, 2003 and 2004 of the total
accounts receivable, respectively. On December 6, 2004, the Company's largest
customer, Oxford Automotive filed for protection under Chapter XI of the United
States Bankruptcy Court. As of August 31, 2004, Oxford Automotive represents
$10.9 million or 83% of the Company's accounts receivable. The Company had
previously filed perfected security interests on all tools manufactured for this
customer. As a result of these liens the Company, Oxford and Mercedes-Benz U.S.
International, Inc. executed a Tri-party Tooling Agreement on May 24, 2004.
Under such agreement Mercedes-Benz directly pays the Company for tooling on the
behalf of Oxford. Subsequent to August 31, 2004, the Company has received
approximately $9.1 million of payments from Mercedes-Benz.
NOTE 4 -- COSTS AND BILLINGS ON CONTRACTS IN PROCESS
Costs and billings on contracts in process are as follows:
AUGUST 31
---------------------------
2003 2004
------------ -------------
Costs incurred on contracts in process under the
percentage-of-completion method............................................ $ 26,836,205 $ 22,265,744
Estimated gross profit/(loss)................................................ 3,000,000 (4,250,000)
------------ -------------
Total................................................................... 29,836,205 18,015,744
Less progress payments received and progress billings to date................ 17,627,539 17,586,991
Plus costs incurred on contracts in process under
the completed contract method............................................... -- 240,390
------------ -------------
Costs in excess of billings on contracts in process.................. $ 12,208,666 $ 669,143
============ =============
Included in estimated gross loss for 2003 and 2004 are contracts with estimated
losses accrued of $532,665 and $5,190,491, respectively.
NOTE 5 -- INVENTORIES
Inventories consist of the following:
AUGUST 31
------------------------
2003 2004
--------- ---------
Raw material stock..................... $ 131,929 $ 140,513
Small tools and supplies............... 116,630 97,788
--------- ---------
Total......................... $ 248,559 $ 238,301
========= =========
23
Riviera Tool Company
Notes to Financial Statements
NOTE 6 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
AUGUST 31
---------------------------
2003 2004
------------ ------------
Leasehold improvements.......................................... $ 1,367,908 $ 1,367,908
Office furniture and fixtures................................... 164,417 169,129
Machinery and equipment......................................... 22,369,833 23,080,863
Computer equipment and software................................. 2,351,580 2,788,489
Transportation equipment........................................ 61,919 109,782
Construction in process......................................... 160,195 --
------------ ------------
Total cost................................................... 26,475,852 27,516,171
Accumulated depreciation and amortization....................... 13,429,563 15,187,425
------------ ------------
Property, plant and equipment, net........................... $ 13,046,289 $ 12,328,746
============ ============
Depreciation & amortization expense............................. $ 1,839,801 $ 1,757,862
============ ============
NOTE 7 -- LONG-TERM AND SUBORDINATED DEBT
The Company's long-term and subordinated debt, which is subject to certain
covenants discussed below, consists of the following:
AUGUST 31,
--------------------------------
2003 2004
------------- ------------
REVOLVING WORKING CAPITAL CREDIT LINE
The revolving working capital credit line is collateralized by substantially all
assets of the Company and provides for borrowing, subject to certain collateral
requirements up to $10 million. The agreement requires a commitment fee of .25%
per annum on the average daily unused portion of the revolving credit line. The
credit line is due December 31, 2004, and bears interest, payable monthly, at
4.0% above the bank's prime rate (as of November 17, an effective rate of 9%)..... $ 5,982,360 $ 9,849,532
NOTES PAYABLE TO BANKS
Note payable to bank, payable in monthly installments of $33,334, plus
interest at the bank's prime rate plus 4.25% (as of November 17, 2004, an
effective rate of 9.25%), due December 31, 2004................................... 1,766,667 1,400,000
Note payable to bank, payable in monthly installments of $9,065, plus -- 435,100
interest at the bank's prime rate plus 4.25% (as of November 17, 2004, an
effective rate of 9.25%), due December 31, 2004...................................
Subordinated note payable to bank, payable in monthly installments of
$31,000, including interest at 11%, due January 1, 2008........................... 1,290,062 1,050,670
SUBORDINATED DEBT
Subordinated note payable, principal payable in quarterly installments of
$250,000 commencing September 30, 2007. Interest payable quarterly, in arrears,
commencing on September 30, 2004 at 14%. Deferred interest accrues at 6%,
compounded quarterly and payable at the earlier of loan pay-off or
June 30, 2010..................................................................... 3,000,000
------------- ------------
Total debt................................................................... 9,039,089 15,735,302
Less current portion of long-term and subordinated debt...................... 638,756 15,735,302
------------- ------------
Long-term and subordinated debt -- Net....................................... $ 8,400,333 $ --
============= ============
24
Riviera Tool Company
Notes to Financial Statements
NOTE 7 -- LONG-TERM AND SUBORDINATED DEBT - CONTINUED
Minimum scheduled principal payments on long-term and subordinated debt to
maturity as of August 31, 2004, are as follows:
2005...................................................... $ 15,735,302
2006...................................................... --
2007...................................................... --
2008...................................................... --
2009...................................................... --
------------
Total...................... $ 15,735,302
============
The Company was not in compliance with the covenants of its long-term loan
agreements causing all of the Company's debt to be classified as current in the
financial statements.
The estimated fair value of the Company's notes payable and subordinated debt
approximates its carrying amount.
NOTE 8 -- FEDERAL INCOME TAXES
The provision for federal income taxes is as follows:
AUGUST 31
--------------------------------------
2002 2003 2004
---------- ---------- ----------
Current expense...................................... $ -- $ -- $ --
Deferred expense (benefit)........................... -- -- --
---------- ---------- ----------
Income tax expense (benefit)........... $ --. $ -- $ --
========== ========== ==========
The difference between the federal statutory tax rate and the Company's
effective rate was:
AUGUST 31
---------------------
2002 2003 2004
---- ---- ----
Federal statutory tax rate........................ (34%) 34% (34%)
Effect of valuation allowance..................... 34% (36%) 34%
Other items....................................... -- 2% --
--- --- ---
Effective tax rate...................... -- -- --
=== === ===
The details of the net deferred tax liability are as follows:
AUGUST 31
---------------------------
2003 2004
----------- -----------
Deferred tax liabilities:
Depreciation ....................................... $(3,148,943) $(3,323,376)
----------- -----------
Deferred tax assets:
Alternative minimum tax credit carryforward ........ 164,000 160,978
Accrued lease expense .............................. 217,835 251,904
Deferred compensation and other items .............. 78,208 136,255
Net operating loss carryforward .................... 3,691,900 6,510,818
----------- -----------
Total deferred tax assets .............. 4,153,943 7,059,955
Valuation allowance recognized for deferred tax assets (1,003,000) (3,736,579)
----------- -----------
Net deferred tax liability ............. $ -- $ --
=========== ===========
The net operating loss carryforward arising in fiscal 2001, 2002 and 2004 will
expire, if unused, in fiscal 2021, 2022 and 2024, respectively.
25
Riviera Tool Company
Notes to Financial Statements
NOTE 9 -- OPERATING LEASES
On June 26, 2003, the Company renegotiated its operating lease for its
manufacturing and office facilities. The new noncancellable lease begins
November 1, 2003 and expires on October 31, 2018. The agreement provides for
annual lease payments plus an escalation of approximately $.14 per square foot
for the lease term. The Company has an option to renew this lease for an
additional 10-year term at a rate based upon the then prevailing market rates
for similar-type properties.
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 year ended
August 31, 2002, the lease expense exceeded cash payments made by $16,359. For
the year ended August 31, 2003, the cash payments made exceeded the lease
expense by $35,045. For the year ended August 31, 2004, the lease expense
exceeded the cash payments by $100,204.
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, 2002, 2003 and 2004
amounted to $1,075,186, $1,120,250 and $1,098,955, 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, 2004.
LEASE
YEAR ENDED AUGUST 31, PAYMENTS
------------
2005........................................... $ 981,298
2006........................................... 988,298
2007........................................... 1,013,135
2008........................................... 1,039,332
2009........................................... 1,064,351
2010 and after................................. 11,087,206
-----------
Total minimum payments required........ $16,173,620
===========
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, 2002, 2003, and 2004. 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,
2002, 2003 and 2004, amounted to $31,324, $0 and $0, respectively.
The Company has an Executive Deferred Compensation Plan with an officer who is
retiring effective December 31, 2004. Under the plan, upon the earlier of death
or termination of executive's employment with the Company on or after attainment
of age 65, the Company shall pay to the executive, his heirs and assigns a
retirement benefit equal to $50,000 per year for five years. The retirement
benefit will commence on the first day of the second month following the death
or termination of his employment with the Company on or after attainment of age
65. The retirement benefit shall continue with four additional payments of
$50,000 each. Death of the executive after the commencement of payments shall
not reduce or eliminate subsequent payments due. The Company has a key-man life
insurance policy for $250,000 on such executive. As of August 31, 2004, the
Company has recorded $216,474 as a liability for the Executive Deferred
Compensation Plan.
26
Riviera Tool Company
Notes to Financial Statements
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.
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
Exercise
Shares Price
------- ----------------
1996 STOCK OPTION PLAN, AS AMENDED
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
====== ======
Fiscal Year Ended August 31, 2003
Stock options granted ............................................ -- --
------- ------
Outstanding at end of year, August 31, 2003 120,000 $ 4.82
====== ======
Fiscal Year Ended August 31, 2004
Stock options granted ............................................ -- --
------- ------
Outstanding at end of year, August 31, 2004 120,000 $ 4.82
====== ======
1998 KEY EMPLOYEE STOCK OPTION PLAN
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
====== ======
Fiscal Year Ended August 31, 2003
Stock options granted ............................................ -- --
Stock options forfeited .......................................... (2,000) $ 3.75
Stock options forfeited .......................................... (2,000) $6.625
------- ------
Outstanding at end of year, August 31, 2003 93,000 $ 5.20
====== ======
Fiscal Year Ended August 31, 2004
Stock options granted ............................................ -- --
------- ------
Outstanding at end of year, August 31, 2004 93,000 $ 5.20
====== ======
27
Riviera Tool Company
Notes to Financial Statements
NOTE 12 -- WARRANTS
On March 16, 2004, the Company sold 394,737 shares of common stock in a private
placement with four accredited investors for $1,500,000. In connection with this
purchase, the Company issued Series A Warrants for eighty percent warrant
coverage of the initial shares purchased (315,789 shares) with half of such
warrants having an exercisable price of 110% of the average of the 20
consecutive Closing Prices immediately prior to the March 16, 2004 (exercise
price of $5.07 per share) and the other half with an exercise price of 120% of
the average of the 20 consecutive Closing Prices immediately prior to the March
16, 2004 (exercise price of $5.53 per share). Such Series A Warrants are
exercisable for five years commencing six months from the Closing date. In
addition, the Company issued Series A Warrants to purchase up to 20,000 shares
of common stock at the same price to the broker of the transaction. The Company
also issued the purchasers Series B Warrants for purchase of up to and an
additional 263,158 shares at $3.80 per share. Such warrants are exercisable for
eighteen months commencing six months after March 16, 2004.
28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
The Company maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time period specified in the rules
and forms of the Securities and Exchange Commission. Based upon their evaluation
of those controls and procedures performed within 90 days of the filing date of
this report, the Chief Executive and Chief Financial Officers of the Company
concluded that the Company's disclosure controls and procedures were adequate.
The Company made no significant changes in its internal controls or in
other factors that could significantly affect those controls subsequent to the
date of the evaluation of those controls by the Chief Executive and Chief
Financial Officers. While the Chief Executive and Chief Financial Officers of
the Company believe that the Company's existing disclosure controls and
procedures have been effective to accomplish its objectives, the Chief Executive
and Chief Financial Officers of the Company intend to examine, refine, and
formalize our disclosure controls and procedures and monitor ongoing
developments.
Notwithstanding the foregoing, there can be no assurance that the
Company's disclosure controls and procedures will detect or uncover all failures
of persons within the Company and its consolidated subsidiaries to disclose
material information otherwise required to be set forth in the Company's
periodic reports.
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
Listed below are the names of the Directors of the Company, the year in
which such Director's respective term expires, and a brief account of the
business experience of each Director during the past five years.
TERM
NAME POSITION EXPIRES AGE
---- -------- ------- ---
Leonard H. Wood (4) Vice President and General Manager of the Company......................... 2004 (4) 46
Kenneth K. Rieth President and Chief Executive Officer of the Company...................... 2008 62
Thomas H. Highley (5) President and Chief Executive Officer, The Empire Company, Inc............ 2006 (5) 63
Dr. Jay S. Baron Director, Manufacturing Systems, Altarum, Center for Automotive Research.. 2004 39
Richard V. Gillette Director of Supplier Analysis, CSM Worldwide.............................. 2006 48
(4) Mr. Wood resigned as a Director effective December 15, 2004 and will
retire as Vice President and General Manager effective December 31, 2004.
(5) Mr. Highley resigned as a Director and member of the Audit, Nominating and
Compensation Committees effective November 12, 2004.
KENNETH K. RIETH. Mr. Rieth has been a principal owner and President of Riviera
Tool Company since 1980.
THOMAS H. HIGHLEY. Mr. Highley has been President and CEO of the Empire Company,
Inc., a distributor of residential and commercial millwork products, since 1991.
Mr. Highley resigned as a Director and member of the Audit, Nominating and
Compensation Committees effective November 12, 2004
29
LEONARD H. WOOD. Mr. Wood has been a Vice President of the Company since 1985.
Prior to that time, he was Project Manager with American Motors Corporation. Mr.
Wood resigned as a Director effective December 15, 2004 and will retire as Vice
President and General Manager effective December 31, 2004.
DR. JAY S. BARON. Dr. Jay S. Baron has been a Director of Riviera Tool Company
since 2002. Dr. Baron holds a Ph.D. and Master's Degree in Industrial and
Operations Engineering. Dr. Baron currently is Director of Manufacturing Systems
for Altarum - Center for Automotive Research. Previously, Dr. Baron was the
Manager of Manufacturing Systems for the University of Michigan's OSAT
department
RICHARD V. GILLETTE. Mr. Gillette has been a Director of Riviera Tool Company
since January, 2004. Mr. Gillette currently is Director of Supplier Analysis of
CSM Worldwide, a provider of specialized global automotive industry advice to
commercial and investment banks, private equity firms, investment analysts and
others. Previously, Mr. Gillette spent thirteen years as vice president of
automotive forecasting at IRN, Inc.
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE COMPANY
NAME POSITION AGE
---- -------- ---
Kenneth K. Rieth President, CEO and Director 46
Leonard H. Wood (1) Vice.President, General Manager and Director 63
Peter C. Canepa Secretary, Treasurer.and.CFO 46
Thomas J. Winters Vice.President of Sales 63
(1) Mr. Wood resigned as a Director effective December 15, 2004 and will
retire as Vice President and General Manager effective December 31, 2004.
Messrs. Rieth's and Wood's biographies are set forth above.
PETER C. CANEPA. Mr. Canepa has been Chief Financial Officer, Secretary and
Treasurer of the Company since March, 1994.
THOMAS J. WINTERS. Mr. Winters has been Vice President of Sales of the Company
since 1997.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Riviera's
directors and executive officers and persons who own more than 10% of a
registered class of the Company's equity securities, file reports of ownership
on Forms 3,4,and 5 with the SEC. Officers, directors and beneficial owners of
greater than 10% of the Company's Common Shares are required by the SEC's
regulations to furnish the company with copies of all Forms 3, 4 and 5 forms
they file.
Based soley on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file reports on Form 5 for the fiscal year ended August 31,
2004, the Company believed that all its officers, directors and beneficial
owners of greater than ten percent of the Company's Common Shares have filed all
reports applicable to them with respect to transactions during the fiscal year
ended August 31, 2004.
CODE OF ETHICS
On November 3, 2004, the Company's Board of Directors adopted a Code of Ethics
policy. The policy states that the Senior Financial Officers of the Company and
members of the Finance Department hold an important and elevated role in
corporate governance, Senior Financial Officers and Finance Members are vested
with both the
30
responsibility and authority to protect, balance, and preserve the interests of
all stakeholders, including shareholders, clients, employees, suppliers, and
citizens of the communities in which business is conducted. Senior Financial
Officers and Finance Members fulfill this responsibility by prescribing,
enforcing, and adhering to the Code of Ethics. The purpose of the Code of Ethics
is to establish and document the principles that Senior Financial Officers and
Finance Members are expected to adhere to and advocate. It is the Company's
policy for its Senior Financial Officers and Finance Members to promote and
follow a code of ethics that ensures all stakeholders' interest are appropriate
balanced, protected and preserved. It is the responsibility of the Senior
Financial Officers and Finance Members to abide by this Code, as well as, any
other applicable Company policies or guidelines. Any violation of this Code may
result in disciplinary action, up to and including immediate termination. A copy
of the Company's Code of Ethics is available, free of charge, by contacting the
Company.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company indemnifies its Directors and Officers to the fullest
extent permitted by law so they will be free from undue concern about personal
liability in connection with their service to the Company, as required under our
by-laws.
MEETINGS AND COMMITTEE OF THE BOARD OF DIRECTORS
The Board of Directors of the Company held four (4) formal meetings
during the fiscal year ended August 31, 2004. The Audit Committee of the Board
of Directors held four (4) formal meetings during the fiscal year ended August
31, 2004. The Compensation Committee of the Board of Directors held no formal
meetings during the fiscal year ended August 31, 2004. Each incumbent director
attended at least 75% of the meetings of the Board and the committees on which
he served during the fiscal year ended August 31, 2004.
REPORT OF THE AUDIT COMMITTEE
Members: James V. Gillette, Chairman and Financial Expert
Thomas H. Highley (resigned as a Director and member of
Nominating, Audit and Compensation Committees effective
November 12, 2004)
Dr. Jay S. Baron
The Audit Committee is responsible for:
- recommending to the Board of Directors the retention or discharge of
the independent public accountants
- reviewing the arrangements and scope of the audit and non-audit
engagements;
- compensation of the independent public accountants;
- reviewing with the independent public accountants and the Company's
financial officers the adequacy of the Company's internal financial
controls;
- reviewing major changes in accounting policies; and
- maintaining direct lines of communication with the board of
directors and Riviera's management and independent public
accountants
The Audit Committee of the Board of Directors of Riviera Tool Company is
responsible for providing independent, objective oversight for Riviera's
financial reporting functions and internal control systems. The Audit committee
is currently comprised of three nonemployee directors. Each of these members of
the Audit Committee is independent as defined by the Securities and Exchange
Commission regulations and the American Stock Exchange's listing standards. The
Audit Committee operates under a written charter adopted by Riviera's Board of
Directors.
The Audit Committee has reviewed and discussed with the Company's
management and the Company's independent auditors the audited financial
statements of the Company contained in the Company's fiscal 2003 Annual Report.
Without limiting the foregoing, the Audit Committee has also discussed with the
Company's independent auditors the matters required to be discussed by Statement
on Auditing Standards No. 61, Communication with Audit Committees, as amended.
The members of the Audit Committee have received and reviewed the written
disclosures and the letter from Deloitte and Touche LLP required by Independence
Standards Board Standard No. 1, Independence Discussions
31
with Audit Committees, as amended, and have reviewed, evaluated and discussed
with that firm its independence from the Company.
Recommendation to the Riviera Tool Company Board of Directors. Based on
its review of the audited financial statements and the various discussions noted
above, the Audit Committee recommended to the Board of Directors that the
audited financial statements be included in the Company's fiscal 2004 Annual
Report on Form 10-K for the year ended August 31, 2004.
The Audit Committee
James V. Gillette, Chairman
Thomas H. Highley
Dr. Jay S. Baron
ITEM 11. EXECUTIVE COMPENSATION
Directors who are employees of Riviera Tool Company receive no additional
compensation for serving on the board of directors. On an annual basis, a
non-employee director receives a fee of $5,000.
The following table provides information about the compensation of the
Company's Chief Executive Officer and two other most highly compensated
executive officers at fiscal years ended August 31, 2002, 2003, and 2004. Two
additional tables provide detailed information about the employees' stock
options.
SUMMARY COMPENSATION TABLE
OTHER RESTRI SECURITIES
COMP- ANNUAL CTED UNDERLYING
NAME AND PRINCIPAL FISCAL ANNUAL ENSATI0N COMP- STOCK OPTIONS LTIP ALL OTHER
POSITION YEAR SALARY BONUS(1) ENSATION AWARD SARS PAYOUTS COMPENSATION(2)(3)
- -------------------- ---- ------ -------- -------- ------ ---------- ------- ------------------
EXECUTIVE
OFFICERS
Kenneth K. Rieth......... 2004 $250,000 $ -- $ -- -- -- -- $ --
President, CEO and 2003 $250,000 31,500 -- -- -- -- --
Director 2002 165,000 -- -- -- -- -- 286
Leonard H. Wood (4)...... 2004 $150,000 $ -- $ -- -- -- -- $
Vice President, 2003 $150,000 -- -- -- -- -- 7,291
General Manager 2002 150,000 -- -- -- -- -- 7,551
and Director
Peter C. Canepa.......... 2004 $140,000 $ 20,000 $ -- -- -- -- $ --
Secretary, Treasurer 2003 $140,000 -- -- -- -- -- --
and CFO 2002 140,000 -- -- -- -- -- 424
OTHER EMPLOYEE
Thomas J. Winters........ 2004 $140,000 $ -- $ -- -- -- -- $ --
Vice President of 2003 $140,000 -- -- -- -- -- --
Sales 2002 140,000 -- -- -- -- -- 875
(1) Does not include any value that might be attributable to job-related
personal benefits, the annual value of which has not exceeded the lesser
of 10% of annual salary plus bonus or $50,000 for each executive officer.
(2) Represents the dollar value of the premiums paid by the Company for life
insurance policy maintained in respect an Executive Deferred Compensation
Plan agreement with Mr. Wood. This Agreement provides that upon death,
disability or retirement from service after reaching age 65, the employee
or his heirs and assigns will receive $50,000 per year for five
consecutive years.
(3) Required matching contribution by the Company to the 401(k) plan, which is
maintained by the Company for its employees generally.
(4) Mr. Wood resigned as a Director effective December 15, 2004 and will
retire as Vice President and General Manager effective December 31, 2004.
32
OPTION GRANTS TABLE
No stock options were granted during fiscal year ended August 31,
2004.
OPTION EXERCISES TABLE
The following table provides information on the value of options held by
each of the executive officers of the Company at August 31, 2003 measured in
terms of the closing price of the Company's Common Shares on that day. There
were no options exercised by any officer during the year.
Number of
Securities
Underlying Value of
Unexercised Unexercised
Options/SARs Options
at August 31, In-the- Money
Shares 2004 Options at
Acquired Value Exercisable August 31,
Name and Principal Position on Exercise Realized (shares) 2004
- --------------------------- ----------- -------- ------------ -------------
Kenneth K. Rieth - President,
C.E.O. & Chairman ................... -- -- 100,000 $ 0
Leonard H. Wood - Vice President,
General Manager and Director ........ -- -- 30,000(2) $ 0
Peter C. Canepa - Secretary,
Treasurer and CFO ................... -- -- 30,000(2) $ 0
Thomas J. Winters
Vice President of Sales ................ -- -- 30,000(2) $ 0
(1) On November 2, 1998, Mr. Rieth was granted a stock option for 50,000
shares, exercisable at $6.625 per share under the 1998 Key Employee Stock
Option Plan, expiring November 2, 2008. On November 24, 2000, Mr. Rieth
was granted a stock option for 50,000 shares, exercisable at $3.75 per
share after November 24, 2000 and expires November 2, 2009.
(2) On November 2, 1998, Messrs. Wood, Winters and Canepa were granted stock
options for 10,000 shares each, exercisable at $6.625 per share under the
1996 Incentive Employee Stock Option Plan, as amended, expiring November
2, 2008. On November 24, 2000, Messrs. Wood, Winters and Canepa were
granted a stock options for 20,000 shares each, exercisable at $3.75 per
share after November 24, 2000 and expires November 2, 2009.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee during fiscal year ended 2004
were Thomas H. Highley, Richard V. Gillette and Dr. Jay S. Baron. Neither
Messrs. Highley, Gillette nor Dr. Baron were ever an officer or employee of the
Company or any of its subsidiaries, and none of them had any relationship
requiring disclosure by the Company under Item 404 of Regulation S-K for the
fiscal year ended 2004.
COMPENSATION COMMITTEE REPORT
The duty of the Committee is to recommend to the Board of Directors the
remuneration arrangements for Kenneth K. Rieth, President and Chief Executive
Officer of the Company, as well as grant stock options under the Company's 1996
Incentive Stock Option Plan, as amended, and the 1998 Key Employee Stock Option
Plan. The Company's Board of Directors has given Mr. Rieth the authority to set
the compensation for senior management.
33
COMPENSATION PROGRAMS
BASE SALARY
The Committee reviews each officer's salary annually. In determining
appropriate salary levels, consideration is given to scope of responsibility,
experience, Company and individual performance as well as pay practices of other
companies relating to executives with similar responsibility.
In addition, with respect to the base salary of Mr. Rieth, the
Compensation Committee has acknowledged the longevity of Mr. Rieth's service to
the Company and its belief that Mr. Rieth is an excellent representative of the
Company within the industry. In assessing Mr. Rieth's compensation, the
committee engaged an independent firm to perform a review of his proposed
compensation. Upon completion of such review, the Board of Directors established
Mr. Rieth's base salary on April 25, 2003. This base compensation consists of a
regular payroll payment of $250,000 per year plus an annual bonus equal to 3.5%
of the Company's income from operations before such bonus expense. Messrs.
Canepa and Wood received a base salary of $140,000 and $150,000, respectively
for fiscal 2004.
BONUS AWARDS
The Company's officers may be considered for annual cash bonuses, which
are awarded to recognize and reward corporate and individual performance based
on meeting specified goals and objectives. The plan in effect for fiscal 2004
for Mr. Rieth did not provide a bonus to Mr. Rieth. In determining a bonus to
Mr. Rieth, the Committee reviews compensation levels and financial results
available to it for chief executive officers for similarly sized companies as
well as those located near the Company's headquarters. Mr. Rieth recommends to
the Committee Messrs. Canepa's and Wood's bonus based on his review of corporate
and Messrs. Canepa's and Wood's individual performances as well as the
performance bonus the management team awards to employees of the Company other
than Messrs. Canepa, Wood and Rieth.
STOCK OPTIONS
Under the Company's 1996 Incentive Stock Option Plan, as amended, stock
options may be granted to the Company's key employees including Messrs. Rieth,
Wood and Canepa. The number of options granted is determined by the subjective
evaluation of the person's ability to influence the Company's long-term growth
and profitability. For fiscal 2004, no stock options were issued under such
plan.
Under the Company's 1998 Key Employee Stock Option Plan, stock options may
be granted to the Company's key employees and directors including Messrs. Rieth,
Baron, Highley Wood, Gillette and Canepa. The number of options granted is
determined by the subjective evaluation of the person's ability to influence the
Company's long-term growth and profitability. For fiscal 2004, no stock options
were issued under such plan.
Stock options are granted with an exercise price equal to the market price
of the Common Shares on the date of grant. Since the value of an option bears a
direct relationship to the Company's stock price, it is an effective incentive
for employees to create value for shareholders. The Committee therefore views
stock options as an important component of its future compensation policy.
The Compensation Committee
Thomas H. Highley, Chairman
James V. Gillette
Jay S. Baron, Secretary
34
STOCK PERFORMANCE GRAPH
The following line graph compares the cumulative total shareholder return
for the Company's Common Shares with the cumulative total return of the
Standards & Poors 500 Composite Index and an index of peer companies selected by
the Company.
The comparison assumes $100 was invested on March 4, 1997 (the date of the
Company's initial public offering) in the Company's Common Shares, the S & P 500
Composite Index and the peer group. The companies in the peer group, all of
which are in the automotive industry, are as follows:
Dana Corporation Hayes Lemmerz International Inc. Spartan Motors Inc.
Gentex Corporation Magna International Inc. Tower Automotive Inc
Superior Industries International
INDEXED RETURNS
Years Ending
Base -----------------------
Period Cumulative Total Return
-------------------------------------------------------------------------
Company Name/Index March 4, Aug. 31, Aug. 31, Aug. 31, Aug. 31, Aug. 31,
1997 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
RIVIERA TOOL COMPANY $100 $ 67.71 $33.38 $32.27 $107.87 $45.98
S & P 500 $100 $116.32 $87.95 $72.12 $ 80.83 $90.09
PEER GROUP $100 $ 80.48 $88.99 $88.81 $103.14 $98.27
[PERFORMANCE GRAPH]
35
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth information with respect to the beneficial
ownership of the Company's common stock as of December 15, 2004 with respect to
(i) each stockholder known by the Company to be the beneficial owner of 5% of
the Company's common stock: (ii) each of the Company's directors; (iii) each
Executive Officer or Significant Employee listed in the Summary Compensation
Table under the heading "Executive Compensation" and (iv) all directors and
executive officers as a group. On the table, 3,774,346 shares of common stock
were issued and outstanding. Unless otherwise indicated, all persons named as
beneficial owners of common stock have sole voting power and sole investment
power with respect to the shares indicated as beneficially owned
BENEFICIAL OWNERSHIP TABLE
COMMON PERCENTAGE OF
SHARES TOTAL COMMON
NAME OF BENEFICIAL BENEFICIALLY SHARES OF THE
HOLDER ADDRESS OWNED COMPANY
------ ------- ----- -------
Kenneth K. Rieth 5460 Executive Parkway SE, Grand Rapids, MI 49512 769,216 (1) 20.4%
Leonard H. Wood (4) 5460 Executive Parkway SE, Grand Rapids, MI 49512 30,551 (2) 0.8%
Thomas H. Highley (5) 8181 Logistic Drive, Zeeland, MI 49464 2,000 (3) *
Dr. Jay S. Baron 1000 Victors Way, Suite 200, Ann Arbor, MI 48108 -- --
Richard V. Gillette 1669 Hamilton Road, Suite 210, Okemos, MI 48864 1,000 *
Peter C. Canepa 5460 Executive Parkway SE, Grand Rapids, MI 49512 35,512 (2) 0.9%
Thomas J. Winters 5460 Executive Parkway SE, Grand Rapids, MI 49512 20,000 (2) 0.9%
------- ---
ALL DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEE AS A GROUP (7 PERSONS) 858,279 2.7%
======= ===
(1) Riviera Holding Company, 100% owned by Kenneth K. Rieth, President and CEO
of Riviera Tool Company, owns 635,250 shares of the Common Shares of
Riviera Tool Company. Amount also includes 2,100 shares of Common Shares
owned by Mr. Rieth as custodian for his minor children and 100,000 shares,
which Mr. Rieth has the right to acquire through exercise, of a stock
options granted under the 1998 Key Employee Stock Option Plan.
(2) Amount includes 30,000 shares of which Mr. Wood, Mr. Winters and Mr.
Canepa each have the right to acquire through exercise of a stock option
grant under the 1996 Incentive Stock Option Plan.
(3) Amount includes 2,000 shares of which each referenced director or officer
has the right to acquire through exercise of a stock option grant under
the 1998 Key Employee Stock Option Plan.
(4) Mr. Wood resigned as a Director effective December 15, 2004 and will
retire as Vice President and General Manager effective December 31, 2004.
(5) Mr. Highley resigned as a Director effective November 12, 2004.
* Beneficial ownership of less than 0.1% of the class.
36
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
EQUITY COMPENSATION PLAN INFORMATION
AS OF AUGUST 31, 2004
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE EXERCISE FUTURE ISSUANCE UNDER
ISSUED UPON EXERCISE OF PRICE OF OUTSTANDING EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS RIGHTS REFLECTED IN COLUMN (a))
(a) (b) (c)
Equity compensation plans
approved by security holders 0 $ 0 0
Equity compensation plans not
approved by security holders 217,000 shares $4.99 233,000 shares
-------------- ----- --------------
Total 217,000 shares $4.99 233,000 shares
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - NONE
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Board of Directors of the Company has selected the public accounting
firm of Deloitte & Touche LLP to report on the Company's financial statements
for fiscal 2005, and the shareholders are being asked to ratify this selection.
Deloitte & Touche LLP has been the public accounting firm retained by the
Company since 1999.
Deloitte and Touche LLP's fees for professional services total $114,320
for the year ended August 31, 2004 out of a total of $122,070 in fees paid for
professional services to all accounting firms. Deloitte and Touche LLP fees for
professional services included the following:
- Audit Fees - Deloitte and Touche LLP fees relating to the year ended
August 31, 2004 audit and quarterly reviews were $81,425 and
$18,000, respectively.
- Private Placement Fees - Deloitte and Touche LLP fees relating to
the issuance of consents and review of the Form S-3 related to the
private placement offering memorandum was $6,695.
- Financial Information Systems Design and Implementation Fees - There
were no fees incurred for financial information system design and
implementation services.
- All Other Fees - Deloitte and Touche LLP fees relating the audit of
the Company's 401(k) Plan were $8,200.
PART IV
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 Financial Statements of Riviera Tool Company
in Item 8 hereof are filed as part of this Annual Report on Form 10-K.
37
2. Exhibits
10(gg) Financing Arrangements between Registrant and Comerica Bank,
dated November 16, 2004.
10(hh) Forebearance Agreement between Registrant and Comerica Bank,
dated December 15, 2004.
10(ii) Industrial Lease Agreement between Massachusetts Mutual Life
Insurance Company and Riviera Tool Company dated June 26, 2003
21 Subsidiaries - None
31.1 Written Statement of the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350 Sec. 302
31.2 Written Statement of the Chief Financial Officer Pursuant to
18 U.S.C. Section 1350 Sec. 302
32 Written Statements of the Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350 Sec. 906
(b) Reports on Form 8-K
File Date Item
--------- ----
December 15, 2004 5.02 Departure of Directors or Principal Officer
December 20, 2004 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule
& or Standard: Transfer of Listing
8.01 Other Events
38
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 27, 2004. 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
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 27th day of December, 2004, 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/ Jay S. Baron /s/ Kenneth K. Rieth
- ------------------ ---------------------------
Jay S. Baron, Director Kenneth K. Rieth, Director
/s/ James V. Gillette
- -----------------------
James V. Gillette, Director
39
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
EX-10(gg) Financing Arrangements between Registrant and Comerica Bank, dated November 16, 2004.
EX-10(hh) Forebearance Agreement between Registrant and Comerica Bank, dated December 15, 2004.
EX-10(ii) Industrial Lease Agreement between Massachusetts Mutual Life Insurance Company and Riviera Tool Company
dated June 26, 2003
EX-21 Subsidiaries - None
EX-31.1 Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 Sec. 302
EX-31.2 Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Sec. 302
EX-32 Written Statements of the Chief Executive Officer and Chief Financial Officer Pursuant to
18 U.S.C. Section 1350 Sec. 906