10-Q 1 c71154e10vq.txt QUARTERLY REPORT 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 ------------- --------- CHICAGO RIVET & MACHINE CO. --------------------------- (Exact Name of Registrant as Specified in Its Charter) ILLINOIS 36-0904920 -------- ---------- (State or Other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) P.O. Box 3061 90l Frontenac Road Naperville, Illinois 60566 -------------------- ----- (Address of Principal Executive Office) (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 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 ----------------------------- -------------- 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 ----------- ----------- Total inventories 5,669,706 6,050,668 ----------- ----------- 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, --------------------------- --------------------------- 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 ----------- ----------- 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) ----------- ----------- Net cash used in investing activities (1,033,509) (3,997) ----------- ----------- 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 ------------ 31,045,438 ------------
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