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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 September 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 September 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 September 30, 2004
and December 31, 2003 2-3
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 2004 and 2003 4
Consolidated Statements of Retained Earnings for the
Nine Months Ended September 30, 2004 and 2003 5
Consolidated Statements of Cash Flows for the Nine
Months Ended September 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
September 30, 2004 and December 31, 2003
September 30, December 31,
2004 2003
------------- -----------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 5,244,407 $ 5,530,099
Certificates of deposit 455,000 455,000
Accounts receivable - net of allowances 6,204,981 4,549,168
Inventories:
Raw materials 1,543,020 1,109,463
Work in process 1,850,486 1,760,990
Finished goods 2,375,814 2,363,335
----------- -----------
Total inventories 5,769,320 5,233,788
----------- -----------
Deferred income taxes 598,191 602,191
Other current assets 329,638 218,560
----------- -----------
Total current assets 18,601,537 16,588,806
----------- -----------
Property, Plant and Equipment:
Land and improvements 1,015,635 1,015,635
Buildings and improvements 5,784,126 5,779,993
Production equipment, leased machines and other 29,359,341 28,201,191
----------- -----------
36,159,102 34,996,819
Less accumulated depreciation 24,654,871 23,447,245
----------- -----------
Net property, plant and equipment 11,504,231 11,549,574
----------- -----------
Total assets $30,105,768 $28,138,380
=========== ===========
See Notes to the Consolidated Financial Statements
2
CHICAGO RIVET & MACHINE CO.
Consolidated Balance Sheets
September 30, 2004 and December 31, 2003
September 30, December 31,
2004 2003
------------ ------------
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 1,872,224 $ 1,310,044
Accrued wages and salaries 869,958 754,394
Contributions due profit sharing plan 258,986 133,243
Other accrued expenses 850,674 370,940
------------ ------------
Total current liabilities 3,851,842 2,568,621
Deferred income taxes 1,507,275 1,580,275
------------ ------------
Total liabilities 5,359,117 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 27,083,519 26,326,352
Treasury stock, at cost, 171,964 shares (3,922,098) (3,922,098)
------------ ------------
Total shareholders' equity 24,746,651 23,989,484
------------ ------------
Total liabilities and shareholders' equity $ 30,105,768 $ 28,138,380
============ ============
See Notes to the Consolidated Financial Statements
3
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2004 and 2003
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net sales $ 9,297,294 $ 8,793,772 $ 29,649,195 $ 28,950,027
Lease revenue 27,401 37,970 82,020 124,122
------------ ------------ ------------ ------------
9,324,695 8,831,742 29,731,215 29,074,149
Cost of goods sold and costs
related to lease revenue 7,170,224 7,292,570 23,323,770 23,219,815
------------ ------------ ------------ ------------
Gross profit 2,154,471 1,539,172 6,407,445 5,854,334
Selling and administrative expenses 1,257,479 1,558,777 4,514,696 4,868,378
------------ ------------ ------------ ------------
896,992 (19,605) 1,892,749 985,956
Other income and expenses:
Interest income 16,023 18,052 44,378 56,917
Interest expense - (4,318) - (20,555)
Gain from disposal of equipment - 10,635 430 16,134
Other income, net of other expense 3,600 3,667 10,322 11,841
------------ ------------ ------------ ------------
Income before income taxes 916,615 8,431 1,947,879 1,050,293
Provision for income taxes 315,000 3,000 669,000 358,000
------------ ------------ ------------ ------------
Net income $ 601,615 $ 5,431 $ 1,278,879 $ 692,293
============ ============ ============ ============
Average common shares outstanding 966,132 966,132 966,132 966,132
============ ============ ============ ============
Per share data:
Net income per share $ 0.62 $ 0.01 $ 1.32 $ 0.72
============ ============ ============ ============
Cash dividends declared per share $ 0.18 $ 0.18 $ 0.54 $ 0.79
============ ============ ============ ============
See Notes to the Consolidated Financial Statements
4
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Retained Earnings
For the Nine Months Ended September 30, 2004 and 2003
(Unaudited)
2004 2003
------------ ------------
Retained earnings at beginning of period $ 26,326,352 $ 26,445,973
Net income for the nine months ended 1,278,879 692,293
Cash dividends declared in the period,
$.54 and $.79 per share in 2004 and 2003, respectively (521,712) (763,245)
------------ ------------
Retained earnings at end of period $ 27,083,519 $ 26,375,021
============ ============
See Notes to the Consolidated Financial Statements
5
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2004 and 2003
(Unaudited)
2004 2003
----------- -----------
Cash flows from operating activities:
Net income $ 1,278,879 $ 692,293
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,304,912 1,388,491
Net gain on the sale of properties (430) (16,134)
Deferred income taxes (69,000) (23,000)
Changes in operating assets and liabilities:
Accounts receivable, net (1,655,813) (340,697)
Inventories (535,532) 640,313
Other current assets (111,078) (240)
Accounts payable 347,327 312,564
Accrued expenses 721,041 (59,110)
----------- -----------
Net cash provided by operating activities 1,280,306 2,594,480
----------- -----------
Cash flows from investing activities:
Capital expenditures (1,044,716) (435,540)
Proceeds from the sale of properties 430 24,144
Proceeds from held-to-maturity securities 485,000 3,157,733
Purchases of held-to-maturity securities (485,000) (455,000)
----------- -----------
Net cash provided by (used in) investing activities (1,044,286) 2,291,337
----------- -----------
Cash flows from financing activities:
Payments under term loan agreement - (1,350,000)
Cash dividends paid (521,712) (763,245)
----------- -----------
Net cash used in financing activities (521,712) (2,113,245)
----------- -----------
Net increase (decrease) in cash and cash equivalents (285,692) 2,772,572
Cash and cash equivalents at beginning of period 5,530,099 2,204,430
----------- -----------
Cash and cash equivalents at end of period $ 5,244,407 $ 4,977,002
=========== ===========
Supplemental schedule of noncash investing activities:
Capital expenditures in accounts payable $ 214,853 $ -
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 September 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 nine-month period ending
September 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 September 30, 2004:
Net sales and lease revenue $ 7,824,144 $ 1,500,551 $ - $ 9,324,695
Depreciation 378,218 28,518 32,820 439,556
Segment profit 1,071,601 354,230 - 1,425,831
Selling and administrative expenses 525,239 525,239
Interest expense - -
Interest income (16,023) (16,023)
-----------
Income before income taxes 916,615
-----------
Capital expenditures 874,280 874 - 875,154
Segment assets:
Accounts receivable, net 5,487,128 717,853 - 6,204,981
Inventory 3,926,253 1,843,067 - 5,769,320
Property, plant and equipment, net 9,227,749 1,372,901 903,581 11,504,231
Other assets - - 6,627,236 6,627,236
-----------
30,105,768
-----------
Three Months Ended September 30, 2003:
Net sales and lease revenue $ 7,130,290 $ 1,701,452 $ - $ 8,831,742
Depreciation 370,131 39,807 52,521 462,459
Segment profit 342,670 305,913 - 648,583
Selling and administrative expenses 653,886 653,886
Interest expense 4,318 4,318
Interest income (18,052) (18,052)
-----------
Income before income taxes 8,431
-----------
Capital expenditures 271,717 4,117 12,545 288,379
Segment assets:
Accounts receivable, net 4,291,184 1,044,210 - 5,335,394
Inventory 3,291,706 2,157,922 - 5,449,628
Property, plant and equipment, net 9,346,714 1,421,108 1,053,415 11,821,237
Other assets - - 6,274,416 6,274,416
-----------
28,880,675
-----------
8
CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Assembly
Fastener Equipment Other Consolidated
------------ ------------ ------------- ------------
Nine Months Ended September 30, 2004:
Net sales and lease revenue $ 24,476,843 $ 5,254,372 $ - $ 29,731,215
Depreciation 1,120,898 85,554 98,460 1,304,912
Segment profit 2,363,581 1,244,466 - 3,608,047
Selling and administrative expenses 1,704,546 1,704,546
Interest expense - -
Interest income (44,378) (44,378)
------------
Income before income taxes 1,947,879
------------
Capital expenditures 1,249,645 9,924 - 1,259,569
Nine Months Ended September 30, 2003:
Net sales and lease revenue $ 23,423,470 $ 5,650,679 $ - $ 29,074,149
Depreciation 1,110,957 119,971 157,563 1,388,491
Segment profit 1,832,651 1,299,139 - 3,131,790
Selling and administrative expenses 2,117,859 2,117,859
Interest expense 20,555 20,555
Interest income (56,917) (56,917)
------------
Income before income taxes 1,050,293
------------
Capital expenditures 403,344 18,128 14,068 435,540
9
CHICAGO RIVET & MACHINE CO.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results for the third quarter of 2004 were positive. Revenue of $9,324,695
for the quarter is approximately $493,000, or 5.6%, higher than that recorded in
the third quarter of 2003. Net income of $601,615 compares quite favorably with
the $5,431 reported in the same period of 2003, when revenues were much lower.
Along with higher revenue, results for the quarter also benefited from
reductions in some manufacturing costs and a refund of certain business taxes.
These factors are discussed in more detail below. On a year to date basis, 2004
revenue of $29,731,215 is approximately $657,000 greater than during the same
period in 2003, while net income for the first three quarters amounted to
$1,278,879, an increase of approximately $587,000.
For the third quarter of 2004, revenue within the fastener segment totaled
$7,824,144, an improvement of nearly $694,000 compared with the third quarter of
2003. This improvement is due, in part, to a general increase in activity within
our markets compared with the third quarter of 2003. In addition, we continue to
ship product related to new applications to both existing customers and new
customers. Higher volumes are one factor contributing to the improvement in
margins, compared to the third quarter of 2003 when margins were affected by
unusually low volumes. With the exception of indirect labor and related fringe
benefit costs and repair and maintenance expense, both of which were lower on an
absolute basis in 2004, most variable cost components increased by an amount
consistent with the increased volume, while fixed costs were relatively
unchanged. Prices paid for raw materials continued to rise during the third
quarter of 2004. During the quarter, we had some success in passing along these
costs. We also benefited, to some extent, from the higher material costs as we
sold, at higher prices, some inventory that was valued at the lower material
prices that prevailed in the prior quarter. In addition, a portion of these
higher material costs is reflected in higher inventory values at the end of the
third quarter. On a year to date basis, 2004 revenues within the fastener
segment are 4.5% higher than those recorded in the first nine months of 2003. As
in the third quarter, most year to date changes in manufacturing costs are
consistent with the increased level of activity. Indirect labor, related fringe
benefits and repair and maintenance expense have declined year to date, while
higher than normal tooling expenses incurred in the first half of the year, in
connection with the initial production of several new parts, contributed to year
to date tooling expense being significantly higher than that incurred in the
first nine months of 2003.
The cost of raw material continues to be a serious concern. Global demand
for commodities continues to manifest itself in the form of higher prices and
limited material availability. Our efforts to recover these higher costs have
met considerable resistance. We continue to pursue recovery of these costs, but
our ability to do so may be limited by either competitive or contractual
situations. In certain cases, we may find it advantageous to discontinue
production of parts for which we cannot obtain price relief.
Revenues within the assembly equipment segment declined by nearly 12%
during the third quarter of 2004 compared to the third quarter of 2003. On a
year to date basis, 2004 revenues trail the first nine months of 2003 by 7%.
During the third quarter, as in the first six months, reductions in labor costs
and depreciation expense helped offset the effects of lower volumes. During the
third quarter, the combined effect of these reductions was sufficient to allow a
slight increase in gross margins for this segment, when compared to the third
quarter of 2003. However, on a year to date basis, the savings realized were not
sufficient to fully offset the impact of lower volumes and 2004 gross margins
are slightly below the amount recorded for the first nine months of 2003.
During the third quarter, the Company received a refund of Michigan single
business tax amounting to approximately $330,000 as the result of a successful
appeal of the tax calculation for four prior years. This tax has been
traditionally recorded as an element of selling and administrative expense. This
refund is the primary reason that selling and administrative expenses were some
$301,000 lower during the third quarter of 2004 than during the third quarter of
2003. Partially offsetting the benefit of the tax refund were increases in legal
and professional fees. Reductions in salary and depreciation expense were
partially offset by increases in commission and profit sharing expense related
to higher sales and profits recorded during the quarter. On a year to date
basis, these factors contributed to a net reduction in selling and
administrative expense of $354,000.
Accounts receivable increased by slightly more than $624,000 during the
quarter and have increased by $1,656,000 since the beginning of the year. While
the majority of the increase is due to higher sales, approximately one-third of
the change is due to a one time delay in payments from a customer that had
technical difficulties due to an accounting system change. That account is now
current. We do not believe that the increase in the balance represents a
deterioration of the quality of the receivables. The increase in inventory
represents primarily the change in value associated with increases in the
purchase price of raw material along with an increase in the quantity of raw
materials on
10
hand as availability continues to be a concern in the face of rising global
demand for basic raw materials. With the exception of trade payables, the
Company has no outstanding debt. During the quarter, the Company invested
approximately $874,000 for the purchase of equipment used in the manufacture of
fasteners. The Company's $1.0 million line of credit expires in May 2005 and as
of September 30, 2004, 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.
Conditions within our markets remain largely unchanged from the prior
quarter. Opportunities to further increase sales are limited by generally weak
demand. This is especially true within the assembly equipment segment, where
conditions have been weak for quite some time, and we have seen very little to
indicate conditions in this segment will improve. Our outlook for the fastener
segment is somewhat more optimistic as sales have shown some improvement and
demand seems to have improved slightly, as well. We remain concerned about the
cost and availability of raw materials. We continue to negotiate with our
customers to recover these higher costs in the future, but we are concerned
because some customers have resisted our efforts to negotiate price relief. At
some point, we will be unable to accept future orders from these customers
unless we are able to obtain price relief. At this time, it is not possible to
predict the outcome of ongoing negotiations. We continue to actively pursue new
business from both new and existing customers and our efforts continue to meet
with some success, despite the extremely competitive conditions within our
markets.
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 6. 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 September 30,
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: November 10, 2004
/s/ John A. Morrissey
-------------------------------
John A. Morrissey
Chairman of the Board of Directors
and Chief Executive Officer
Date: November 10, 2004
/s/ John C. Osterman
----------------------------------
John C. Osterman
President, Chief Operating
Officer and Treasurer
(Principal Financial Officer)
Date: November 10, 2004
/s/ Michael J. Bourg
----------------------------------
Michael J. Bourg
Controller (Principal Accounting
Officer)
14
CHICAGO RIVET & MACHINE CO.
EXHIBITS
INDEX TO EXHIBITS
Exhibit Page
Number -------
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 September 30, 2004 20 - 21
15