10-Q 1 c04919e10vq.txt QUARTERLY REPORT 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, 2006 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer X --- --- --- Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X --- --- As of March 31, 2006, 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 March 31, 2006 and December 31, 2005 2-3 Consolidated Statements of Operations for the Three Months Ended March 31, 2006 and 2005 4 Consolidated Statements of Retained Earnings for the Three Months Ended March 31, 2006 and 2005 5 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2006 and 2005 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 12-18
1 Item 1. Financial Statements. CHICAGO RIVET & MACHINE CO. Consolidated Balance Sheets March 31, 2006 and December 31, 2005
March 31, December 31, 2006 2005 ----------- ------------ (Unaudited) Assets Current Assets: Cash and cash equivalents $ 1,709,511 $ 4,730,837 Certificates of deposit 3,305,000 1,005,000 Accounts receivable - net of allowances 7,042,609 5,370,611 Inventories: Raw materials 1,512,646 1,586,744 Work in process 2,374,413 2,218,774 Finished goods 2,034,848 2,166,177 ----------- ----------- Total inventories 5,921,907 5,971,695 ----------- ----------- Deferred income taxes 531,191 560,191 Other current assets 247,332 232,142 ----------- ----------- Total current assets 18,757,550 17,870,476 ----------- ----------- Property, Plant and Equipment: Land and improvements 1,029,035 1,029,035 Buildings and improvements 6,251,144 6,251,144 Production equipment, leased machines and other 29,219,217 29,163,667 36,499,396 36,443,846 Less accumulated depreciation 26,793,695 26,392,338 ----------- ----------- Net property, plant and equipment 9,705,701 10,051,508 ----------- ----------- Total assets $28,463,251 $27,921,984 =========== ===========
See Notes to the Consolidated Financial Statements 2 CHICAGO RIVET & MACHINE CO. Consolidated Balance Sheets March 31, 2006 and December 31, 2005
March 31, December 31, 2006 2005 ----------- ------------ (Unaudited) Liabilities and Shareholders' Equity Current Liabilities: Accounts payable 1,771,919 1,452,314 Accrued wages and salaries 857,669 680,969 Contributions due profit sharing plan 65,000 125,000 Other accrued expenses 734,851 772,270 ----------- ----------- Total current liabilities 3,429,439 3,030,553 Deferred income taxes 1,240,275 1,313,275 ----------- ----------- Total liabilities 4,669,714 4,343,828 ----------- ----------- 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 26,130,405 25,915,024 Treasury stock, 171,964 shares at cost (3,922,098) (3,922,098) ----------- ----------- Total shareholders' equity 23,793,537 23,578,156 ----------- ----------- Total liabilities and shareholders' equity $28,463,251 $27,921,984 =========== ===========
See Notes to the Consolidated Financial Statements 3 CHICAGO RIVET & MACHINE CO. Consolidated Statements of Operations For the Three Months Ended March 31, 2006 and 2005 (Unaudited)
2006 2005 ----------- ----------- Net sales $10,913,902 $10,055,119 Lease revenue 27,049 27,743 ----------- ----------- 10,940,951 10,082,862 Cost of goods sold and costs related to lease revenue 8,785,781 8,480,423 ----------- ----------- Gross profit 2,155,170 1,602,439 Selling and administrative expenses 1,629,803 1,749,766 ----------- ----------- Operating profit (loss) 525,367 (147,327) Other income and expenses: Interest income 55,964 26,762 Other income, net of other expense 4,953 4,800 ----------- ----------- Income (loss) before income taxes 586,284 (115,765) Provision (benefit) for income taxes 197,000 (39,000) ----------- ----------- Net Income (loss) $ 389,284 $ (76,765) =========== =========== Average common shares outstanding 966,132 966,132 =========== =========== Per share data: Net income (loss) per share $ 0.40 $ (0.08) =========== =========== Cash dividends declared per share $ 0.18 $ 0.33 =========== ===========
See Notes to the Consolidated Financial Statements 4 CHICAGO RIVET & MACHINE CO. Consolidated Statements of Retained Earnings For the Three Months Ended March 31, 2006 and 2005 (Unaudited)
2006 2005 ----------- ----------- Retained earnings at beginning of period $25,915,024 $27,154,171 Net income (loss) for the three months ended 389,284 (76,765) Cash dividends declared in the period; $.18 per share in 2006 and $.33 in 2005 (173,903) (318,823) ----------- ----------- Retained earnings at end of period $26,130,405 $26,758,583 =========== ===========
See Notes to the Consolidated Financial Statements 5 CHICAGO RIVET & MACHINE CO. Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2006 and 2005 (Unaudited)
2006 2005 ----------- ---------- Cash flows from operating activities: Net income (loss) $ 389,284 $ (76,765) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 408,177 419,808 Net gain on the sale of equipment -- (300) Deferred income taxes (44,000) (57,000) Changes in operating assets and liabilities: Accounts receivable, net (1,671,998) (831,580) Inventories 49,788 (215,108) Other current assets (15,190) (73,711) Accounts payable 301,313 526,838 Accrued wages and salaries 176,700 109,768 Accrued profit sharing (60,000) (252,312) Other accrued expenses (37,419) 38,857 ----------- ---------- Net cash used in operating activities (503,345) (411,505) ----------- ---------- Cash flows from investing activities: Capital expenditures (44,078) (24,909) Proceeds from the sale of properties -- 300 Proceeds from held-to-maturity securities 775,000 225,000 Purchases of held-to-maturity securities (3,075,000) (225,000) ----------- ---------- Net cash used in investing activities (2,344,078) (24,609) ----------- ---------- Cash flows from financing activities: Cash dividends paid (173,903) (173,904) ----------- ---------- Net cash used in financing activities (173,903) (173,904) ----------- ---------- Net decrease in cash and cash equivalents (3,021,326) (610,018) Cash and cash equivalents at beginning of period 4,730,837 5,464,368 ----------- ---------- Cash and cash equivalents at end of period $ 1,709,511 $4,854,350 =========== ========== Supplemental schedule of noncash investing activities: Capital expenditures in accounts payable $ 18,292 $ --
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, 2006 (unaudited) and December 31, 2005 (audited) and the results of operations and changes in cash flows for the indicated periods. 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, 2006 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, 2006: Net sales and lease revenue $9,180,723 $1,760,228 $10,940,951 Depreciation 361,230 25,377 21,570 408,177 Segment profit 648,135 450,772 1,098,907 Selling and administrative expenses (568,587) (568,587) Interest income 55,964 55,964 ----------- Income before income taxes 586,284 ----------- Capital expenditures 62,370 -- 62,370 Segment assets: Accounts receivable, net 6,436,087 606,522 7,042,609 Inventory 4,227,711 1,694,196 5,921,907 Property, plant and equipment, net 7,508,851 1,258,247 938,603 9,705,701 Other assets 5,793,034 5,793,034 ----------- 28,463,251 ----------- 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 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 -----------
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 2006 reflect significant improvement over the results for the same period last year, as we report net income of $389,284 compared to a net loss of $76,765 for the first quarter of 2005. An increase in fastener segment sales was the primary factor resulting in the improvement. Additionally, administrative expenses declined during the quarter due to lower consulting and legal expenses in the current year. Within the fastener segment, revenues increased 10%, from $8,347,558 in the first quarter of 2005 to $9,180,723 in the first quarter of 2006. Gross margins within this segment improved by approximately $566,000 compared with the first quarter of 2005. Despite the increase in volume, tooling expense was nearly $185,000 lower than the first quarter of 2005 as our product mix included a higher percentage of parts for which tooling designs were fully developed, resulting in lower tooling expense. A slight reduction in the price of raw material contributed approximately $72,000 to the improved gross margins, and the balance of the improvement is primarily due to the impact of higher volumes. Demand within the assembly equipment segment remained relatively unchanged, and as a result, revenues within this segment increased only slightly in the first quarter of 2006, to $1,760,228, from $1,735,304 in the first quarter of 2005. Overall, costs of manufacturing remained consistent with the year earlier period, but increases in raw material costs and wages contributed to a $4,000 reduction in gross margins compared to the first quarter of 2005. Selling and administrative expenses during the first quarter of 2006 were $120,000 lower than during the first quarter of 2005. Contributing to this change was a decline in professional services of $132,000, primarily due to procedures performed in 2005 related to compliance with the Sarbanes-Oxley Act of 2002. In addition, legal fees decreased approximately $73,000 due to litigation and other matters resolved in 2005. These decreases were partially offset by an increase of $65,000 in profit sharing expense and smaller, net increases in a variety of other expenses. Working capital increased by $488,000 from the beginning of the quarter and amounted to $15.3 million at the end of the first quarter. Accounts receivable balances increased by $1.7 million during the quarter as a result of first quarter 2006 sales being higher than fourth quarter 2005 sales. Total cash, cash equivalents and certificates of deposit amounted to $5 million at the end of the quarter, a decline of $.7 million from the beginning of the year. This decline is primarily the result of inventory purchases to support first quarter sales growth. Current liabilities increased by $399,000 during the quarter, primarily due to an increase in accounts payable that reflects greater purchasing activity to support the increased sales volume in the first quarter of this year. The Company has a $1.0 million line of credit, which expires May 31, 2006. 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 first quarter of 2006 reflects significant improvement over the first quarter of 2005 when demand from our major customers weakened. Along with the 8.5% improvement in sales, we were able to realize improved gross margins for the first time in five quarters on a comparable quarter basis. However, these improvements come against the backdrop of an automotive industry that remains extremely challenging. Domestic automobile production, upon which we rely for revenue, has been declining. Foreign competition continues to exert downward pressure on prices for many of our customers, and consequently we experience indirect as well as direct effects of competition from lower cost suppliers from other countries. This competition for available market share continues to limit our ability to raise prices. We have been fairly successful in controlling manufacturing costs, with the notable exception of raw material costs which have increased significantly in recent years. While raw material prices have retreated slightly in the first quarter of 2006, they remain at levels significantly higher than historical levels, 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 change appreciably in the near term. Although costs associated with Sarbanes-Oxley compliance were lower in 2006, final regulations as they relate to companies our size may change, resulting in further expenses that cannot be estimated at this time. While we are pleased with the improvement in 9 results achieved during the first quarter of 2006, we recognize that additional challenges lie ahead. We will continue to seek opportunities to expand our market and to increase our share of the existing market, while working to control and further reduce our costs. Our future success is tied to our ability to accomplish these two objectives. 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, those disclosed under "Risk Factors" in our Annual Report on Form 10-K and in the other filings we make with the United States Securities and Exchange Commission. These factors, include among other things: conditions in the domestic automotive industry, upon which we rely for sales revenue, the intense competition in our markets, the concentration of our sales to two major customers, the price and availability of raw materials, labor relations issues, losses related to product liability, warranty and recall claims, costs relating to environmental laws and regulations, and the loss of the services of our key employees. 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 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.
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 3, 2006 /s/ John A. Morrissey ---------------------------------------- John A. Morrissey Chairman of the Board of Directors and Chief Executive Officer Date: May 3, 2006 /s/ John C. Osterman ---------------------------------------- John C. Osterman President, Chief Operating Officer and Treasurer (Principal Financial Officer) Date: May 3, 2006 /s/ Michael J. Bourg ---------------------------------------- Michael J. Bourg Executive Vice-President and 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
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