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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 March 31, 2005
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 March 31, 2005, 966,132 shares of the registrant's common stock
were outstanding.
CHICAGO RIVET & MACHINE CO.
INDEX
PART I. FINANCIAL INFORMATION Page
----
Consolidated Balance Sheets at March 31, 2005 and December 31, 2004 2-3
Consolidated Statements of Operations for the Three
Months Ended March 31, 2005 and 2004 4
Consolidated Statements of Retained Earnings for the
Three Months Ended March 31, 2005 and 2004 5
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2005 and 2004 6
Notes to the Consolidated Financial Statements 7-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
Controls and Procedures 11
PART II. OTHER INFORMATION 12-20
Item 1. Financial Statements.
CHICAGO RIVET & MACHINE CO.
Consolidated Balance Sheets
March 31, 2005 and December 31, 2004
March 31, December 31,
2005 2004
---- ----
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 4,854,350 $ 5,464,368
Certificates of deposit 805,000 805,000
Accounts receivable - net of allowances 5,699,195 4,867,615
Inventories:
Raw materials 1,799,100 1,693,341
Work in process 2,267,379 2,136,996
Finished goods 2,391,099 2,412,133
----------- -----------
Total inventories 6,457,578 6,242,470
----------- -----------
Deferred income taxes 561,191 554,191
Other current assets 293,208 219,497
----------- -----------
Total current assets 18,670,522 18,153,141
----------- -----------
Property, Plant and Equipment:
Land and improvements 1,015,635 1,015,635
Buildings and improvements 5,823,984 5,823,984
Production equipment, leased
machines and other 29,290,409 29,272,638
----------- -----------
36,130,028 36,112,257
Less accumulated depreciation 25,378,611 24,965,941
----------- -----------
Net property, plant and equipment 10,751,417 11,146,316
----------- -----------
Total assets $29,421,939 $29,299,457
=========== ===========
See Notes to the Consolidated Financial Statements
2
CHICAGO RIVET & MACHINE CO.
Consolidated Balance Sheets
March 31, 2005 and December 31, 2004
March 31, December 31,
2005 2004
---- ----
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable 2,038,978 1,367,221
Accrued wages and salaries 816,469 706,701
Contributions due profit sharing plan -- 252,312
Other accrued expenses 643,502 604,645
------------ ------------
Total current liabilities 3,498,949 2,930,879
Deferred income taxes 1,501,275 1,551,275
------------ ------------
Total liabilities 5,000,224 4,482,154
------------ ------------
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 26,758,583 27,154,171
Treasury stock, 171,964 shares at cost (3,922,098) (3,922,098)
------------ ------------
Total shareholders' equity 24,421,715 24,817,303
------------ ------------
Total liabilities and shareholders' equity $ 29,421,939 $ 29,299,457
============ ============
See Notes to the Consolidated Financial Statements
3
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Operations
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
2005 2004
---- ----
Net sales $ 10,055,119 $ 10,141,957
Lease revenue 27,743 27,007
------------ ------------
10,082,862 10,168,964
Cost of goods sold and costs
related to lease revenue 8,480,423 8,146,558
------------ ------------
Gross profit 1,602,439 2,022,406
Selling and administrative expenses 1,749,766 1,596,349
------------ ------------
Operating profit (loss) (147,327) 426,057
Other income and expenses:
Interest income 26,762 14,381
Other income, net of other expense 4,800 2,550
------------ ------------
Income (loss) before income taxes (115,765) 442,988
Provision (benefit) for income taxes (39,000) 152,000
------------ ------------
Net Income (loss) $ (76,765) $ 290,988
============ ============
Average common shares outstanding 966,132 966,132
============ ============
Per share data:
Net income (loss) per share $ (0.08) $ 0.30
============ ============
Cash dividends declared per share $ 0.33 $ 0.18
============ ============
See Notes to the Consolidated Financial Statements
4
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Retained Earnings
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
2005 2004
---- ----
Retained earnings at beginning of period $ 27,154,171 $ 26,326,352
Net income (loss) for the three months ended (76,765) 290,988
Cash dividends declared in the period;
$.33 per share in 2005 and $.18 in 2004 (318,823) (173,904)
------------ ------------
Retained earnings at end of period $ 26,758,583 $ 26,443,436
============ ============
See Notes to the Consolidated Financial Statements
5
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
2005 2004
---- ----
Cash flows from operating activities:
Net income (loss) $ (76,765) $ 290,988
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation 419,808 432,678
Net gain on the sale of equipment (300) (430)
Deferred income taxes (57,000) (39,000)
Changes in operating assets and liabilities:
Accounts receivable, net (831,580) (1,095,255)
Inventories (215,108) (103,929)
Other current assets (73,711) (45,205)
Accounts payable 526,838 444,781
Accrued wages and salaries 109,768 182,574
Accrued profit sharing (252,312) (70,257)
Other accrued expenses 38,857 236,362
----------- -----------
Net cash (used in) provided by operating activities (411,505) 233,307
----------- -----------
Cash flows from investing activities:
Capital expenditures (24,909) (61,512)
Proceeds from the sale of properties 300 430
Proceeds from held-to-maturity securities 225,000 200,000
Purchases of held-to-maturity securities (225,000) (200,000)
----------- -----------
Net cash used in investing activities (24,609) (61,082)
----------- -----------
Cash flows from financing activities:
Cash dividends paid (173,904) (173,904)
----------- -----------
Net cash used in financing activities (173,904) (173,904)
----------- -----------
Net decrease in cash and cash equivalents (610,018) (1,679)
Cash and cash equivalents at beginning of period 5,464,368 5,530,099
----------- -----------
Cash and cash equivalents at end of period $ 4,854,350 $ 5,528,420
=========== ===========
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 financial statements contain
all adjustments necessary to present fairly the financial position of the
Company as of March 31, 2005 (unaudited) and December 31, 2004 (audited) 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-month period ended March 31, 2005 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, including
environmental claims and contract disputes, 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 March 31, 2005:
Net sales and lease revenue $ 8,347,558 $ 1,735,304 $ 10,082,862
Depreciation 375,915 26,106 17,787 419,808
Segment profit 57,643 440,161 497,804
Selling and administrative expenses 640,331 640,331
Interest expense -- --
Interest income (26,762) (26,762)
------------
Loss before income taxes (115,765)
------------
Capital expenditures 20,780 1,520 2,609 24,909
Segment assets:
Accounts receivable, net 5,058,367 640,828 5,699,195
Inventory 4,521,144 1,936,434 6,457,578
Property, plant and equipment, net 8,557,133 1,330,851 863,433 10,751,417
Other assets 6,513,749 6,513,749
------------
29,421,939
------------
Three Months Ended March 31, 2004:
Net sales and lease revenue $ 8,261,283 $ 1,907,681 $ -- $ 10,168,964
Depreciation 371,340 28,518 32,820 432,678
Segment profit 574,733 434,003 -- 1,008,736
Selling and administrative expenses 580,129 580,129
Interest expense -- --
Interest income (14,381) (14,381)
------------
Income before income taxes 442,988
------------
Capital expenditures 61,512 -- -- 61,512
Segment assets:
Accounts receivable, net 4,767,831 876,592 -- 5,644,423
Inventory 3,396,822 1,940,895 -- 5,337,717
Property, plant and equipment, net 8,789,175 1,420,013 969,220 11,178,408
Other assets -- -- 6,849,376 6,849,376
------------
29,009,924
------------
8
CHICAGO RIVET & MACHINE CO.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results for the first quarter of 2005 were quite disappointing. As a
result of lower assembly equipment sales revenue, higher raw material costs and
a significant increase in administrative expenses, the Company recorded its
first quarterly loss in over 17 years.
Within the fastener segment, revenues increased approximately 1%, from
$8,261,283 in the first quarter of 2004 to $8,347,558 in the first quarter of
2005. However, that change includes the pass through of a portion of higher raw
material prices that were incurred in the first quarter of 2005. First quarter
revenues, excluding the portion attributable to recovery of raw material price
increases, were nearly 4.5% lower than in the first quarter of 2004. Gross
margins declined $403,000 compared to the first quarter of 2004. The major
factors contributing to the decrease in margins were an increase of $476,000 in
the cost of raw material and outside services, due primarily to increases in the
price of steel, partially offset by a reduction in tooling expense of $117,000.
The balance represents the net effect of various smaller changes in other
components of cost of sales.
Revenues within the assembly equipment segment declined 9% in the first
quarter of 2005 compared to the first quarter of 2004. Demand for our products
in this segment continues to be comparatively weak. We were able to reduce most
costs of manufacturing by amounts consistent with the reduction in volume and as
a result, gross margins declined by $17,000, which is a 2% reduction from the
year earlier period.
Selling and administrative expenses during the first quarter of 2005
were $153,000 higher than during the first quarter of 2004. Major factors
contributing to this increase included an increase in professional services of
$145,000 primarily related to reviews of procedures and documentation in
connection with Sarbanes-Oxley Act of 2002 compliance. In addition, legal fees
increased approximately $86,000 in connection with ongoing litigation and other
matters. These increases were partially offset by a reduction of $63,000 in
profit sharing expense and smaller, net reductions in a variety of other
expenses.
Working capital declined by $52,000 from the beginning of the quarter
and amounted to $15.2 million at the end of the first quarter. Inventory
balances increased by $215,000 during the quarter. During the latter part of
2004, inventory levels increased in response to concerns about availability and
rising prices for raw material. Although those concerns eased during the
quarter, the decline in demand for our products limited our ability to reduce
inventory levels during the quarter. Holdings in cash, cash equivalents and
certificates of deposit amounted to $5.7 million at the end of the quarter, a
decline of $.6 million. Accounts receivable balances increased by $.8 million
during the quarter as a result of first quarter 2005 sales being higher than
fourth quarter 2004 sales. Current liabilities increased by $568,000 during the
quarter, primarily due to increases in accounts payable that are related to an
extra dividend, declared in February 2005 and paid in April 2005, with the
balance of the change due primarily to timing of payments to vendors.
The Company has a $1.0 million line of credit, which expires May 31,
2005. This line of credit remains unused. Management believes that current cash,
cash equivalents, operating cash flow and the available line of credit will
provide adequate working capital for the foreseeable future.
The recent quarter has been a very difficult one. Demand from our major
customers weakened during the first quarter. While we anticipate that demand
will improve, the amount and timing is uncertain and dependent upon factors that
are beyond our control. Domestic automobile production, especially that of the "
Big Three," is one such factor. Overall domestic manufacturing levels are
another factor. The customers that we serve are increasingly subject to foreign
competition. In response, they are increasingly turning to foreign sources for
product or have outsourced portions of their operations to other, lower cost
countries. In either case, the result adversely impacts our potential market and
increases the competition for available market share. These conditions continue
to limit our pricing ability. We have been fairly successful in controlling
manufacturing costs, with the notable exception of raw material costs which have
increased significantly over the past year. While prices have recently softened
slightly, raw material prices remain much higher than one year ago and our
ability to pass these higher costs on to customers remains limited by the
factors described above. We do not anticipate that the situation will
9
change appreciably in the near term. While we anticipate that costs associated
with Sarbanes-Oxley compliance will eventually decline somewhat, we expect that
second quarter costs will be approximately equal to those incurred in the first
quarter. We also expect legal expenses will be higher than usual during the
coming months. We will continue to seek opportunities to expand our market and
to increase our share of the existing market, while working to further reduce
our costs. Our future success is tied to our ability to successfully accomplish
these two objectives.
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; 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.
10
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.
11
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 March 31,
2005.
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: May 9, 2005
/s/ John A. Morrissey
----------------------------------
John A. Morrissey
Chairman of the Board of Directors
and Chief Executive Officer
Date: May 9, 2005
/s/ John C. Osterman
----------------------------------
John C. Osterman
President, Chief Operating
Officer and Treasurer
(Principal Financial Officer)
Date: May 9, 2005
/s/ Michael J. Bourg
----------------------------------
Michael J. Bourg
Controller (Principal Accounting
Officer)
13
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 15
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 16
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 17
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 18
99.1 Interim Report to Shareholders for the quarter ended March 31, 2005 19 - 20
14