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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2002 Commission file number 0-1227
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CHICAGO RIVET & MACHINE CO.
---------------------------
(Exact Name of Registrant as Specified in Its Charter)
ILLINOIS 36-0904920
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
P.O. Box 3061
90l Frontenac Road
Naperville, Illinois 60566
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(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code (630) 357-8500
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 2002
- ----- ----------------------------
Common Stock, $1.00 Par Value 966,132 Shares
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CHICAGO RIVET & MACHINE CO.
INDEX
PART I. FINANCIAL INFORMATION Page
Consolidated Balance Sheets at June 30, 2002
and December 31, 2001 2-3
Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 2002 and 2001 4
Consolidated Statements of Retained Earnings for the
Six Months Ended June 30, 2002 and 2001 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2002 and 2001 6
Notes to the Consolidated Financial Statements 7-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Quantitative and Qualitative Information About Market Risk 11
PART II. OTHER INFORMATION 12-18
1
CHICAGO RIVET & MACHINE CO.
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001
June 30, December 31,
2002 2001
----------- -----------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 3,703,080 $ 4,692,999
Certificates of deposit 757,733 177,882
Accounts receivable - net of allowances 6,166,780 3,995,148
Inventories:
Raw materials 1,507,281 1,649,051
Work in process 1,624,655 1,766,068
Finished goods 2,537,770 2,635,549
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Total inventories 5,669,706 6,050,668
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Deferred income taxes 607,191 607,191
Other current assets 392,792 335,590
----------- -----------
Total current assets 17,297,282 15,859,478
----------- -----------
Property, Plant and Equipment:
Land and improvements 1,010,595 1,010,595
Buildings and improvements 5,738,460 5,738,460
Production equipment, leased machines
and other 27,470,638 27,958,777
----------- -----------
34,219,693 34,707,832
Less accumulated depreciation 20,875,307 20,889,297
----------- -----------
Net property, plant and equipment 13,344,386 13,818,535
----------- -----------
Total assets $30,641,668 $29,678,013
=========== ===========
See Notes to the Consolidated Financial Statements
2
CHICAGO RIVET & MACHINE CO.
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001
June 30, December 31,
2002 2001
----------- -----------
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of note payable $ 1,800,000 $ 1,800,000
Accounts payable 1,383,404 929,634
Accrued wages and salaries 979,552 751,582
Contributions due profit sharing plan 254,986 294,986
Other accrued expenses 518,407 384,110
Federal and state income taxes payable 137,742 82,742
----------- -----------
Total current liabilities 5,074,091 4,243,054
Note payable 732,760 1,632,760
Deferred income taxes 1,454,275 1,429,275
----------- -----------
Total liabilities 7,261,126 7,305,089
----------- -----------
Commitments and contingencies (Note 4)
Shareholders' Equity:
Preferred stock, no par value, 500,000 shares
authorized: none outstanding - -
Common stock, $1.00 par value, 4,000,000 shares
authorized: 1,138,096 shares issued 1,138,096 1,138,096
Additional paid-in capital 447,134 447,134
Retained earnings 25,717,410 24,682,816
Treasury stock, at cost, 171,964 and
170,964 shares respectively (3,922,098) (3,895,122)
----------- -----------
Total shareholders' equity 23,380,542 22,372,924
----------- -----------
Total liabilities and shareholders' equity $30,641,668 $29,678,013
=========== ===========
See Notes to the Consolidated Financial Statements
3
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2002 and 2001
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
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2002 2001 2002 2001
---- ---- ---- ----
Net sales $ 12,388,292 $ 11,159,885 $ 22,786,428 $ 21,728,583
Lease revenue 49,564 56,364 103,754 115,497
------------ ------------ ------------ ------------
12,437,856 11,216,249 22,890,182 21,844,080
Cost of goods sold and costs
related to lease revenue 9,321,633 8,396,627 17,198,154 16,774,541
------------ ------------ ------------ ------------
Gross profit 3,116,223 2,819,622 5,692,028 5,069,539
Selling and administrative expenses 1,760,364 1,676,349 3,415,087 3,375,594
------------ ------------ ------------ ------------
1,355,859 1,143,273 2,276,941 1,693,945
Other income and expenses:
Interest income 19,808 36,452 41,764 83,214
Interest expense (21,401) (72,606) (45,775) (167,374)
Gain from disposal of equipment 4,606 10,609 29,183 18,592
Other income, net of other expense 11,717 5,710 15,592 8,302
------------ ------------ ------------ ------------
Income before income taxes 1,370,589 1,123,438 2,317,705 1,636,679
Provision for income taxes 468,000 386,000 790,000 560,000
------------ ------------ ------------ ------------
Net income $ 902,589 $ 737,438 $ 1,527,705 $ 1,076,679
============ ============ ============ ============
Average common shares outstanding 966,768 967,132 966,949 967,132
============ ============ ============ ============
Per share data:
Net income per share $ 0.93 $ 0.76 $ 1.58 $ 1.11
============ ============ ============ ============
Cash dividends declared per share $ 0.18 $ 0.18 $ 0.51 $ 0.61
============ ============ ============ ============
See Notes to the Consolidated Financial Statements
4
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Retained Earnings
For the Six Months Ended June 30, 2002 and 2001
(Unaudited)
2002 2001
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Retained earnings at beginning of period $24,682,816 $23,828,665
Net income for the six months ended 1,527,705 1,076,679
Cash dividends declared in the period,
$.51 and $.61 per share in 2002 and 2001,
respectively (493,111) (589,951)
----------- -----------
Retained earnings at end of period $25,717,410 $24,315,393
=========== ===========
See Notes to the Consolidated Financial Statements
5
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2002 and 2001
(Unaudited)
2002 2001
----------- -----------
Cash flows from operating activities:
Net income $ 1,527,705 $ 1,076,679
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 956,990 940,897
Net gain on the sale of properties (29,183) (18,592)
Deferred income taxes 25,000 20,000
Changes in operating assets and liabilities:
Accounts receivable (2,171,632) (636,832)
Inventories 380,962 788,685
Other current assets (57,202) (100,786)
Accounts payable 453,770 489,372
Accrued wages and salaries 227,970 189,124
Accrued profit sharing (40,000) (256,090)
Other accrued expenses 134,297 (265,144)
Income taxes payable 55,000 144,329
----------- -----------
Net cash provided by operating activities 1,463,677 2,371,642
----------- -----------
Cash flows from investing activities:
Capital expenditures (488,728) (730,380)
Proceeds from the sale of properties 35,070 27,600
Proceeds from held-to-maturity securities 327,882 1,584,886
Purchases of held-to-maturity securities (907,733) (886,103)
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Net cash used in investing activities (1,033,509) (3,997)
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Cash flows from financing activities:
Payments under term loan agreement (900,000) (900,000)
Purchase of treasury stock (26,976) -
Cash dividends paid (493,111) (589,951)
----------- -----------
Net cash used in financing activities (1,420,087) (1,489,951)
Net increase (decrease) in cash and
cash equivalents (989,919) 877,694
Cash and cash equivalents at beginning of period 4,692,999 2,265,442
----------- -----------
Cash and cash equivalents at end of period $ 3,703,080 $ 3,143,136
=========== ===========
See Notes to the Consolidated Financial Statements
6
CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited interim financial
statements contain all adjustments necessary to present fairly the financial
position of the Company as of June 30, 2002 and the results of operations and
changes in cash flows for the indicated periods.
The Company uses estimated gross profit rates to determine the cost of goods
sold during interim periods on a portion of its operations. Actual results could
differ from those estimates and will be adjusted, as necessary, following the
Company's annual physical inventory in the fourth quarter.
The preparation of financial statements in conformity with generally accepted
accounting principles 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. The results of operations for the three and six-month period ending June 30,
2002 are not necessarily indicative of the results to be expected for the year.
3. The Company extends credit primarily on the basis of 30-day terms to various
companies doing business primarily in the automotive industry. The Company has a
concentration of credit risk primarily within the automotive industry and in the
Midwestern United States.
4. The Company is, from time to time, involved in litigation, including
environmental claims, in the normal course of business. While it is not possible
at this time to establish the ultimate amount of liability with respect to
contingent liabilities, including those related to legal proceedings, management
is of the opinion that the aggregate amount of any such liabilities, for which
provision has not been made, will not have a material adverse effect on the
Company's financial position.
7
CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Segment Information--The Company operates in two business segments as
determined by its products. The fastener segment includes rivets, cold-formed
fasteners and screw machine products. The assembly equipment segment includes
automatic rivet setting machines, parts and tools for such machines and the
leasing of automatic rivet setting machines. Information by segment is as
follows:
Assembly
Fastener Equipment Other Consolidated
------------ ------------ ------------ ------------
Three Months Ended June 30, 2002:
Net sales and lease revenue $ 9,739,161 $ 2,698,695 $ - $ 12,437,856
Depreciation 362,904 53,044 57,030 472,978
Segment profit 1,269,534 851,619 - 2,121,153
Selling and administrative expenses 748,971 748,971
Interest expense 21,401 21,401
Interest income (19,808) (19,808)
------------
Income before income taxes 1,370,589
------------
Capital expenditures 307,290 1,940 75,171 384,401
Segment assets:
Accounts receivable, net 4,954,866 1,211,914 - 6,166,780
Inventory 3,517,565 2,152,141 - 5,669,706
Property, plant and equipment, net 10,417,648 1,625,342 1,301,396 13,344,386
Other assets - - 5,460,796 5,460,796
------------
30,641,668
------------
Three Months Ended June 30, 2001:
Net sales and lease revenue $ 8,987,735 $ 2,228,514 $ - $ 11,216,249
Depreciation 353,173 60,699 59,718 473,590
Segment profit 1,250,140 654,034 - 1,904,174
Selling and administrative expenses 744,582 744,582
Interest expense 72,606 72,606
Interest income (36,452) (36,452)
------------
Income before income taxes 1,123,438
------------
Capital expenditures 384,525 274 52,795 437,594
Segment assets:
Accounts receivable, net 4,588,071 1,085,992 5,674,063
Inventory 3,782,991 2,632,508 - 6,415,499
Property, plant and equipment, net 10,649,367 1,999,879 1,454,746 14,103,992
Other assets - - 4,851,884 4,851,884
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31,045,438
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8
CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Assembly
Fastener Equipment Other Consolidated
------------ ------------ ------------ ------------
Six Months Ended June 30, 2002:
Net sales and lease revenue $ 18,378,478 $ 4,511,704 $ - $ 22,890,182
Depreciation 732,263 111,813 112,914 956,990
Segment profit 2,467,641 1,324,193 - 3,791,834
Selling and administrative expenses 1,470,118 1,470,118
Interest expense 45,775 45,775
Interest income (41,764) (41,764)
------------
Income before income taxes 2,317,705
------------
Capital expenditures 411,617 1,940 75,171 488,728
Six Months Ended June 30, 2001:
Net sales and lease revenue $ 17,294,380 $ 4,549,700 $ - $ 21,844,080
Depreciation 700,063 121,398 119,436 940,897
Segment profit 1,867,414 1,389,888 - 3,257,302
Selling and administrative expenses 1,536,463 1,536,463
Interest expense 167,374 167,374
Interest income (83,214) (83,214)
------------
Income before income taxes 1,636,679
Capital expenditures 602,373 13,209 114,798 730,380
9
CHICAGO RIVET & MACHINE CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net revenue for the second quarter of 2002 totaled $12,437,856, which
represents an improvement of nearly 11% compared with the second quarter of
2001. Within the fastener segment of our operations, revenues improved 8.4%
compared with the second quarter of 2001, reflecting a combination of new
business and modest net increases in orders from existing customers. Second
quarter revenues within the assembly equipment segment improved sharply compared
with the depressed levels of the second quarter of 2001. However, this increase
is attributable to a few large equipment orders and does not, in our opinion,
indicate a near term return to historical levels of activity within this
segment. On a year to date basis, revenues within the assembly segment are
approximately equal to those of the first six months of 2001, reflecting the
continuing weakness in capital equipment spending, while revenues within the
fastener segment have increased slightly over 6% compared with the first half of
2001.
Overall, net income for the second quarter of 2002 improved to
$902,589, or $.93 per share on 966,768 average shares outstanding. Increased
volume, especially within the equipment segment, was the major factor
contributing to the increase in net income during the second quarter of 2002
compared with the second quarter of 2001. The gains from higher volumes were
offset, to some extent, by a variety of factors, including those described
below. Within the fastener segment, competitive pressures on selling prices
continued to limit our ability to obtain the margin levels that we have enjoyed
in the past. Fastener segment margins were also impacted by higher labor costs.
In addition to the foregoing, first half results for the fastener segment were
favorably impacted by lower tooling expenses during the first quarter of 2002.
Margins within both segments were adversely impacted by higher costs for health
insurance in both the second quarter and first half of 2002. Within the assembly
equipment segment, material costs increased in both the second quarter and the
first half of 2002, reflecting higher prices paid for raw materials. Overall,
selling and administrative expenses for both the second quarter and the first
six months of 2002 increased slightly compared to the prior year, primarily due
to higher commission and profit sharing expense.
The Company's financial condition remains sound. Working capital at the
end of the quarter was $12.2 million, an increase of $.4 million during the
second quarter of 2002 and an increase of $.6 million on a year to date basis.
Inventory levels, which had increased slightly during the first quarter of 2002,
were reduced to $5.7 million during the second quarter, a reduction of
approximately 6% for the year to date. While collections have remained in line
with expectations, the accounts receivable balance has increased during the past
two quarters due to the increase in the level of sales. At June 30, 2002, the
balance on the term note was $2.5 million and the average interest rate was
2.9%. The Company also has available a $1.0 million line of credit through Bank
of America. There is no charge for this facility until it is utilized. We
believe that current cash, cash equivalents and the available credit facility
will be sufficient to meet the Company's working capital needs for the
foreseeable future.
Despite a relatively strong first half, our outlook for the near term
remains cautious. The improvements that we have seen in our markets continue to
be customer specific, not indicative of widespread strength in the economy in
general, or our markets in particular. Recently imposed tariffs on imported
steel have resulted in spot shortages, increased lead-times and higher prices
for both domestic and imported raw material. While the impact has been small so
far, we believe the situation has the potential to have a greater impact in the
coming months. Conditions in our markets will likely limit our ability to
successfully pass higher costs on to our customers. We expect that revenues from
our assembly equipment segment will remain below historical levels until
economic conditions show more sustained improvement. We plan to continue our
efforts to control costs, to invest resources in areas that will improve our
competitive position or will allow us to expand our capabilities and to solicit
profitable business from both new and existing customers.
The foregoing discussion is only intended to provide highlights of operations
for the periods covered. Additional information is contained in our Form 10-Q,
which has been filed with the SEC and is available to shareholders upon request
from the Company, or via the internet through the SEC's EDGAR database. This
discussion contains certain "forward-looking statements" which are inherently
subject to risks and uncertainties that may cause actual events to differ
materially from those discussed herein. Factors which may cause such differences
in events include, among other things, our ability to maintain our relationships
with our significant customers; increases in the prices of, or limitations on
the availability of, our primary raw materials; or a downturn in the automotive
industry, upon which we rely for sales revenue, and which is cyclical and
dependent on, among other things, consumer spending, international economic
conditions and regulations and policies regarding international trade. Many of
these factors are beyond our ability to control or predict. Readers are
cautioned not to place undue reliance on these forward-looking statements. We
undertake no obligation to publish revised forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
10
CHICAGO RIVET & MACHINE CO.
QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
Over time, the Company is exposed to market risks arising from changes
in interest rates. The Company has not historically used derivative financial
instruments. As of June 30, 2002, $2.53 million of floating-rate debt was
exposed to changes in interest rates compared to $3.43 million as of December
31, 2001. This exposure was primarily linked to the London Inter-Bank Offering
Rate and the lender's prime rate under the Company's term loan. A hypothetical
10% change in these rates would not have had a material effect on the Company's
quarterly earnings.
11
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May
14, 2002. The only proposal voted upon was the election of seven directors for a
term ending at the Annual Meeting in 2003. The seven persons nominated by the
Company's Board of Directors received the following votes and were elected:
NAME VOTES FOR VOTES WITHHELD
---- --------- --------------
Edward L. Chott 914,607 26,258
Nirendu Dhar 907,205 30,088
William T. Divane, Jr. 915,727 25,458
John R. Madden 915,705 25,478
John A. Morrissey 912,175 28,738
Walter W. Morrissey 912,929 26,658
John C. Osterman 908,326 29,288
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Interim Report to Shareholders for the quarter ended
June 30, 2002.
99.2 Certification of CEO Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
99.3 Certification of CFO Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the current period.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHICAGO RIVET & MACHINE CO.
---------------------------
(Registrant)
Date: August 12, 2002
/s/ John A. Morrissey
----------------------------------------
John A. Morrissey
Chairman of the Board of Directors
and Chief Executive Officer
Date: August 12, 2002
/s/ John C. Osterman
----------------------------------------
John C. Osterman
President, Chief Operating
Officer and Treasurer
(Principal Financial Officer)
Date: August 12, 2002
/s/ Michael J. Bourg
-----------------------------------
Michael J. Bourg
Controller (Principal Accounting
Officer)
13
CHICAGO RIVET & MACHINE CO.
EXHIBITS
INDEX TO EXHIBITS
Exhibit
Number Page
------
99.1 Interim Report to Shareholders for the
quarter ended June 30, 2002 15 - 16
99.2 Certification of CEO Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 17
99.3 Certification of CFO Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 18
14