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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 0-1227
Chicago Rivet & Machine Co.
(Exact Name of Registrant as Specified in Its Charter)
Illinois 36-0904920
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
901 Frontenac Road, Naperville, Illinois 60563
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (630) 357-8500
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
----- -----
As of June 30, 2004, 966,132 shares of the registrant's common stock were
outstanding.
CHICAGO RIVET & MACHINE CO.
INDEX
Page
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets at June 30, 2004
and December 31, 2003 2-3
Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 2004 and 2003 4
Consolidated Statements of Retained Earnings for the
Six Months Ended June 30, 2004 and 2003 5
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2004 and 2003 6
Notes to the Consolidated Financial Statements 7-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-11
Controls and Procedures 12
PART II. OTHER INFORMATION 13-21
1
Item 1. Financial Statements.
CHICAGO RIVET & MACHINE CO.
Consolidated Balance Sheets
June 30, 2004 and December 31, 2003
June 30, December 31,
2004 2003
----------- ------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 5,943,757 $ 5,530,099
Certificates of deposit 455,000 455,000
Accounts receivable - net of allowances 5,581,243 4,549,168
Inventories:
Raw materials 1,180,926 1,109,463
Work in process 1,678,736 1,760,990
Finished goods 2,266,972 2,363,335
----------- -----------
Total inventories 5,126,634 5,233,788
----------- -----------
Deferred income taxes 599,191 602,191
Other current assets 163,749 218,560
----------- -----------
Total current assets 17,869,574 16,588,806
----------- -----------
Property, Plant and Equipment:
Land and improvements 1,015,635 1,015,635
Buildings and improvements 5,782,062 5,779,993
Production equipment, leased machines and other 28,500,171 28,201,191
----------- -----------
35,297,868 34,996,819
Less accumulated depreciation 24,229,235 23,447,245
----------- -----------
Net property, plant and equipment 11,068,633 11,549,574
----------- -----------
Total assets $28,938,207 $28,138,380
=========== ===========
See Notes to the Consolidated Financial Statements
2
CHICAGO RIVET & MACHINE CO.
Consolidated Balance Sheets
June 30, 2004 and December 31, 2003
June 30, December 31,
2004 2003
------------ ------------
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable 1,515,237 1,310,044
Accrued wages and salaries 866,014 754,394
Contributions due profit sharing plan 140,986 133,243
Other accrued expenses 707,755 370,940
Total current liabilities 3,229,992 2,568,621
------------ ------------
Deferred income taxes 1,389,275 1,580,275
------------ ------------
Total liabilities 4,619,267 4,148,896
------------ ------------
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 26,655,808 26,326,352
Treasury stock, at cost, 171,964 shares (3,922,098) (3,922,098)
------------ ------------
Total shareholders' equity 24,318,940 23,989,484
------------ ------------
Total liabilities and shareholders' equity $ 28,938,207 $ 28,138,380
============ ============
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, 2004 and 2003
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Net sales $ 10,209,944 $ 9,966,997 $ 20,351,901 $ 20,156,255
Lease revenue 27,612 38,947 54,619 86,152
------------ ------------ ------------ ------------
10,237,556 10,005,944 20,406,520 20,242,407
Cost of goods sold and costs
related to lease revenue 8,006,988 8,076,311 16,153,546 15,927,245
------------ ------------ ------------ ------------
Gross profit 2,230,568 1,929,633 4,252,974 4,315,162
Selling and administrative expenses 1,660,438 1,614,924 3,257,217 3,309,601
------------ ------------ ------------ ------------
570,130 314,709 995,757 1,005,561
Other income and expenses:
Interest income 13,974 19,066 28,355 38,865
Interest expense -- (6,652) -- (16,237)
Gain from disposal of equipment -- 1,199 430 5,499
Other income, net of other expense 4,172 4,299 6,722 8,174
------------ ------------ ------------ ------------
Income before income taxes 588,276 332,621 1,031,264 1,041,862
Provision for income taxes 202,000 111,000 354,000 355,000
------------ ------------ ------------ ------------
Net income $ 386,276 $ 221,621 $ 677,264 $ 686,862
============ ============ ============ ============
Average common shares outstanding 966,132 966,132 966,132 966,132
============ ============ ============ ============
Per share data:
Net income per share $ 0.40 $ 0.23 $ 0.70 $ 0.71
============ ============ ============ ============
Cash dividends declared per share $ 0.18 $ 0.18 $ 0.36 $ 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, 2004 and 2003
(Unaudited)
2004 2003
------------ ------------
Retained earnings at beginning of period $ 26,326,352 $ 26,445,973
Net income for the six months ended 677,264 686,862
Cash dividends declared in the period,
$.36 and $.61 per share in 2004 and 2003, respectively (347,808) (589,340)
------------ ------------
Retained earnings at end of period $ 26,655,808 $ 26,543,495
============ ============
See Notes to the Consolidated Financial Statements
5
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2004 and 2003
(Unaudited)
2004 2003
----------- -----------
Cash flows from operating activities:
Net income $ 677,264 $ 686,862
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 865,356 926,032
Net gain on the sale of properties (430) (5,499)
Deferred income taxes (188,000) (23,000)
Changes in operating assets and liabilities:
Accounts receivable, net (1,032,075) (686,393)
Inventories 107,154 306,947
Other current assets 54,811 93,954
Accounts payable 53,630 332,170
Accrued wages and salaries 111,620 36,815
Accrued profit sharing 7,743 (279,556)
Other accrued expenses 336,815 (96,809)
----------- -----------
Net cash provided by operating activities 993,888 1,291,523
----------- -----------
Cash flows from investing activities:
Capital expenditures (232,852) (147,161)
Proceeds from the sale of properties 430 5,499
Proceeds from held-to-maturity securities 105,000 3,057,733
Purchases of held-to-maturity securities (105,000) (355,000)
----------- -----------
Net cash provided by (used in) investing activities (232,422) 2,561,071
----------- -----------
Cash flows from financing activities:
Payments under term loan agreement -- (900,000)
Cash dividends paid (347,808) (589,340)
----------- -----------
Net cash used in financing activities (347,808) (1,489,340)
----------- -----------
Net increase in cash and cash equivalents 413,658 2,363,254
Cash and cash equivalents at beginning of period 5,530,099 2,204,430
----------- -----------
Cash and cash equivalents at end of period $ 5,943,757 $ 4,567,684
=========== ===========
Supplemental schedule of noncash investing activities:
Capital expenditures in accounts payable $ 151,563 $ --
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, 2004 and December 31,2003 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,
2004 are not necessarily indicative of the results to be expected for the year.
3. The Company extends credit on the basis of terms that are customary within
our markets 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, 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, 2004:
Net sales and lease revenue $ 8,391,416 $ 1,846,140 $ -- $10,237,556
Depreciation 371,340 28,518 32,820 432,678
Segment profit 717,247 456,233 -- 1,173,480
Selling and administrative expenses 599,178 599,178
Interest expense -- --
Interest income (13,974) (13,974)
-----------
Income before income taxes 588,276
-----------
Capital expenditures 313,853 9,050 -- 322,903
Segment assets:
Accounts receivable, net 4,778,575 802,668 -- 5,581,243
Inventory 3,335,421 1,791,213 -- 5,126,634
Property, plant and equipment, net 8,731,688 1,400,545 936,400 11,068,633
Other assets -- -- 7,161,697 7,161,697
-----------
28,938,207
-----------
Three Months Ended June 30, 2003:
Net sales and lease revenue $ 7,933,029 $ 2,072,915 $ -- $10,005,944
Depreciation 370,130 40,063 52,521 462,714
Segment profit 486,869 549,771 -- 1,036,640
Selling and administrative expenses 716,433 716,433
Interest expense 6,652 6,652
Interest income (19,066) (19,066)
-----------
Income before income taxes 332,621
-----------
Capital expenditures 59,746 3,594 1,523 64,863
Segment assets:
Accounts receivable, net 4,706,113 974,977 -- 5,681,090
Inventory 3,592,843 2,190,151 -- 5,782,994
Property, plant and equipment, net 9,445,128 1,464,808 1,093,391 12,003,327
Other assets -- -- 5,770,904 5,770,904
-----------
29,238,315
-----------
8
CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Assembly
Fastener Equipment Other Consolidated
-------- --------- ----- ------------
Six Months Ended June 30, 2004:
Net sales and lease revenue $ 16,652,699 $ 3,753,821 $ -- $ 20,406,520
Depreciation 742,680 57,036 65,640 865,356
Segment profit 1,291,980 890,236 -- 2,182,216
Selling and administrative expenses 1,179,307 1,179,307
Interest expense -- --
Interest income (28,355) (28,355)
------------
Income before income taxes 1,031,264
------------
Capital expenditures 375,365 9,050 -- 384,415
Six Months Ended June 30, 2003:
Net sales and lease revenue $ 16,293,180 $ 3,949,227 $ -- $ 20,242,407
Depreciation 740,826 80,164 105,042 926,032
Segment profit 1,489,981 993,226 -- 2,483,207
Selling and administrative expenses 1,463,973 1,463,973
Interest expense 16,237 16,237
Interest income (38,865) (38,865)
------------
Income before income taxes 1,041,862
------------
Capital expenditures 131,627 14,011 1,523 147,161
9
CHICAGO RIVET & MACHINE CO.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overall, results for the second quarter of 2004 were positive. For the
quarter, revenues increased by approximately $232,000, and net income grew by
approximately $165,000, compared with the second quarter of 2003. Despite the
relatively strong second quarter results, net income for the first six months of
2004 trails that of 2003 by about $10,000.
In 2004, second quarter revenues within the fastener segment were 6%
higher than in the second quarter of 2003. In addition to increased volumes
during the second quarter, the Company benefited from reductions in expenditures
for tooling and repairs and maintenance. These benefits were partially offset by
significant increases in the cost of raw materials. Our efforts to recover these
higher costs have included price increases and the implementation of raw
material surcharges. However, prices for nearly all metals increased during the
quarter, and our suppliers recently announced an additional price increase for
steel wire and rod, our primary raw materials. The net, unrecovered cost
associated with higher raw material prices was approximately $180,000 during the
second quarter and $305,000 for the first six months. We have seen no indication
that prices for raw materials will decline in the near term, and we are
vigorously continuing our efforts to recover these higher costs.
For the first six months, fastener segment revenues are 2% above
those recorded in the first six months of 2003. Indirect labor and repairs and
maintenance expense were lower during 2004 than during the first six months of
2003. The company incurred significant tooling costs late in 2003 and early in
2004 in connection with pre-production approval for a number of new parts. While
these costs are behind us, and the new parts are beginning to go into
production, the impact of these higher costs in the first quarter of 2004
contributed to year to date tooling costs being disproportionately high for the
first half of 2004. Raw material costs are also higher than during the first
half of 2003 due to the price increases discussed above, and similar increases
that were incurred in the first quarter of 2004.
Weak demand for our products within the assembly equipment segment
contributed to an 11% decline in revenues within this segment during the second
quarter of 2004 compared to the second quarter of 2003. Reductions in indirect
labor and depreciation expense partially offset this decline in revenues. Raw
material costs have also increased within this segment, although the impact has
not been as significant as in the fastener segment. On a year to date basis,
revenues within this segment trail last year by nearly 5%. As was the case in
the second quarter, year to date reductions in indirect labor and depreciation
expense were not sufficient to offset the impact of lower sales revenues and
higher raw material prices.
Selling and administrative expenses have declined approximately $52,000
in 2004 compared to 2003, even though these expenses increased by approximately
$46,000 during the second quarter of 2004. The year to date decline primarily
relates to lower depreciation on office equipment. During the second quarter of
2004, commissions expense increased approximately $18,000 compared to 2003 due
to higher sales in the quarter, and profit sharing expense increased $26,000,
due to improved profitability.
Total inventory levels at the end of the second quarter were slightly
below those at the beginning of the year, although raw material inventories are
somewhat higher than at the beginning of the year. We anticipate continuing to
carry somewhat more raw materials as availability continues to be of concern in
the face of rising global demand for basic raw materials. Accounts receivable
declined slightly during the quarter and are at levels consistent with recent
sales volumes. With the exception of trade payables, the company has no
outstanding debt. The Company placed an order for new equipment to be used in
the manufacture of fasteners, valued at approximately $690,000, for which
delivery is expected in the third quarter of 2004. The Company's $1.0 million
dollar line of credit was extended through May 2005, and as of June 30, 2004 it
remained unused. Management believes that the Company's current cash, cash
equivalents, operating cash flow and available line of credit will be sufficient
to provide adequate working capital for the foreseeable future.
While general economic conditions continue to improve, our business has
not enjoyed a proportionate improvement. This is especially true within the
assembly equipment segment where demand for new assembly equipment and for
perishable tooling remains weak. While fastener sales have shown some
improvement, the lack of a similar improvement in demand for assembly equipment
is troubling and may be an indication that demand for these products will not
return to levels enjoyed in the past. We continue to be concerned with the
escalating price of raw materials and have some continuing uncertainty with
respect to supply availability. Although the market for fasteners has shown some
improvement, especially compared to the recent past, excess market capacity
continues to limit our pricing ability,
10
and we expect margins will remain under pressure as long as these conditions
persist. On the positive side, efforts to win new business have met with some
success, and we will continue our efforts in that regard.
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; increased global competition;
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.
11
CHICAGO RIVET & MACHINE CO.
Item 4. Controls and Procedures.
(a) Disclosure Controls and Procedures. The Company's management, with
the participation of the Company's Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company's disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the
end of the period covered by this report. Based on such evaluation, the
Company's Chief Executive Officer and Chief Financial Officer have concluded
that, as of the end of such period, the Company's disclosure controls and
procedures are effective in recording, processing, summarizing and reporting, on
a timely basis, information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act.
(b) Internal Control Over Financial Reporting. There have not been any
changes in the Company's internal control over financial reporting (as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting.
12
PART II -- OTHER INFORMATION
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities.
Under the terms of a stock repurchase authorization originally approved
by the Board of Directors of the Company in February of 1990, as amended, the
Company is authorized to repurchase up to an aggregate of 200,000 shares of its
common stock, in the open market or in private transactions, at prices deemed
reasonable by management. Cumulative purchases under the repurchase
authorization have amounted to 162,996 shares at an average price of $15.66 per
share. The Company has not purchased any shares of its common stock since 2002.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 11, 2004.
The only proposal voted upon was the election of seven directors for a term
ending at the Annual Meeting in 2004. The nine persons nominated by the
Company's Board of Directors received the following votes and were elected:
NAME VOTES FOR VOTES WITHHELD
---- --------- --------------
Edward L. Chott 913,577 27,568
Kent H. Cooney 1,019,816 3,826
Nirendu Dhar 909,558 29,768
William T. Divane, Jr. 914,237 27,168
George P. Lynch 1,019,486 4,046
John R. Madden 904,525 34,288
John A. Morrissey 909,918 29,568
Walter W. Morrissey 909,888 29,588
John C. Osterman 914,238 27,168
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31 Rule 13a-14(a) or 15d-14(a) Certifications
31.1 Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32 Section 1350 Certifications
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1 Interim Report to Shareholders for the quarter ended June 30,
2004.
(b) Reports on Form 8-K
Current Report on Form 8-K, Item 12, Results of Operations
and Financial Condition, dated August 3, 2004.
13
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 3, 2004
/s/ John A. Morrissey
----------------------------------
John A. Morrissey
Chairman of the Board of Directors
and Chief Executive Officer
Date: August 3, 2004
/s/ John C. Osterman
----------------------------------
John C. Osterman
President, Chief Operating
Officer and Treasurer
(Principal Financial Officer)
Date: August 3, 2004
/s/ Michael J. Bourg
----------------------------------
Michael J. Bourg
Controller (Principal Accounting
Officer)
14
CHICAGO RIVET & MACHINE CO.
EXHIBITS
INDEX TO EXHIBITS
Exhibit
Number Page
----
31 Rule 13a-14(a) or 15d-14(a) Certifications
31.1 Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 16
31.2 Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 17
32 Section 1350 Certifications
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 18
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 19
99.1 Interim Report to Shareholders for the quarter ended June 30, 2004 20 -- 21
15