-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q0TVjwJeUfojWidw7OAPWG1kRr9WfaPkwx1vB/1k1JxGsnanTcQSBABrrTUXL8W0 5WwOJhow++VQoLXL4K3R/w== 0000950137-07-004155.txt : 20070321 0000950137-07-004155.hdr.sgml : 20070321 20070321162307 ACCESSION NUMBER: 0000950137-07-004155 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070321 DATE AS OF CHANGE: 20070321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHICAGO RIVET & MACHINE CO CENTRAL INDEX KEY: 0000019871 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 360904920 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-01227 FILM NUMBER: 07709389 BUSINESS ADDRESS: STREET 1: 901 FRONTENAC RD STREET 2: P O BOX 3061 CITY: NAPERVILLE STATE: IL ZIP: 60566 BUSINESS PHONE: 6303578500 MAIL ADDRESS: STREET 1: 901 FRONTENAC RD STREET 2: P O BOX 3061 CITY: NAPERVILLE STATE: IL ZIP: 60566 10-K 1 c13090e10vk.txt FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2006 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-1227 CHICAGO RIVET & MACHINE CO. (Exact name of registrant as specified in its charter) ILLINOIS 36-0904920 (State of incorporation) (I.R.S. Employer Identification Number) 901 FRONTENAC ROAD, NAPERVILLE, ILLINOIS 60563 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (630) 357-8500 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered ------------------------------ ----------------------------------------- Common Stock - $1.00 Par Value American Stock Exchange (including Preferred Stock Purchase (Trading privileges only, not registered) Rights) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X] 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] 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 Act). Yes [ ] No [X] The aggregate market value of common stock held by non-affiliates of the Company as of June 30, 2006 was $18,104,818. As of March 19, 2007 966,132 shares of the Company's common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the Company's Annual Report to Shareholders for the year ended December 31, 2006 (the "2006 Report") are incorporated by reference in Parts I and II of this report. (2) Portions of the Company's definitive Proxy Statement which is to be filed with the Securities and Exchange Commission in connection with the Company's 2007 Annual Meeting of Shareholders are incorporated by reference in Part III of this report. ================================================================================ CHICAGO RIVET & MACHINE CO. PERIOD ENDING DECEMBER 31, 2006
Item Page No. No. - ---- ---- Part I 1. Business 3 1A. Risk Factors 4 1B. Unresolved Staff Comments 6 2. Properties 6 3. Legal Proceedings 7 4. Submission of Matters to a Vote of Security Holders 7 Part II 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 9 6. Selected Financial Data 9 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 7A. Quantitative and Qualitative Disclosures About Market Risk 14 8. Financial Statements and Supplementary Data 14 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 15 9A. Controls and Procedures 15 Part III 10. Directors, Executive Officers and Corporate Governance 16 11. Executive Compensation 16 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 16 13. Certain Relationships and Related Transactions, and Director Independence 16 14. Principal Accountant Fees and Services 16 Part IV 15. Exhibits and Financial Statement Schedules 17
2 PART I ITEM 1 - BUSINESS Chicago Rivet & Machine Co. (the "Company") was incorporated under the laws of the State of Illinois in December 1927, as successor to the business of Chicago Rivet & Specialty Co. The Company operates in two segments of the fastener industry: fasteners and assembly equipment. The fastener segment consists of the manufacture and sale of rivets, cold-formed fasteners and parts and screw machine products. The assembly equipment segment consists primarily of the manufacture of automatic rivet setting machines, automatic assembly equipment, parts and tools for such machines, and the leasing of automatic rivet setting machines. For further discussion regarding the Company's operations and segments, see Note 8 of the financial statements which appears on page 10 of the Company's 2006 Annual Report to Shareholders. The 2006 Annual Report is filed as an exhibit to this report. The principal market for the Company's products is the North American automotive industry. Sales are solicited by employees and by independent sales representatives. The segments in which the Company operates are characterized by active and substantial competition. No single company dominates the industry. The Company's competitors include both larger and smaller manufacturers, and segments or divisions of large, diversified companies with substantial financial resources. Principal competitive factors in the market for the Company's products are price, quality and service. The Company serves a variety of customers. Revenues are primarily derived from sales to customers involved, directly or indirectly, in the manufacture of automobiles and automotive components. Information concerning backlog of orders is not considered material to the understanding of the Company's business due to relatively short production cycles. The level of business activity for the Company is closely related to the overall level of industrial activity in the United States. During 2006, sales to two customers exceeded 10% of the Company's consolidated revenues. Sales to Fisher & Company accounted for approximately 28%, 24% and 22% of the Company's consolidated revenues in 2006, 2005, and 2004, respectively. Sales to TI Group Automotive Systems Corporation accounted for approximately 13% of the Company's consolidated revenues in 2006, 2005 and 2004. The Company's business has historically been stronger during the first half of the year. The Company purchases raw material from a number of sources, primarily within the United States. There are numerous sources of raw material, and the Company does not have to rely on a single source for any of its requirements. Beginning early in 2004, the cost of raw materials used in the manufacture of fasteners escalated sharply due to increased global demand, primarily in Asia. While prices for ferrous materials declined slightly in 2006, the price of non-ferrous materials continued to increase significantly during the year. Patents, trademarks, licenses, franchises and concessions are not of significant importance to the business of the Company. The Company does not engage in significant research activities, but rather in ongoing product improvement and development. The amounts spent on product development activities in the last three years were not material. At December 31, 2006, the Company employed 261 people. 3 The Company has no foreign operations, and sales to foreign customers represent only a minor portion of the Company's total sales. ITEM 1A - RISK FACTORS Our business is subject to a number of risks and uncertainties. If any of the events contemplated by the following risks actually occur, then our business, financial condition or results of operations could be materially adversely affected. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition and results of operations. WE ARE DEPENDENT ON THE DOMESTIC AUTOMOTIVE INDUSTRY. Demand for our products is directly related to conditions in the domestic automotive industry, which is highly cyclical and is affected by a variety of factors, including regulatory requirements, international trade policies, and consumer spending and preferences. The domestic automotive industry is characterized by significant overcapacity, fierce competition and significant pension and health care liabilities, and automotive production in the United States has declined between 1999 and 2006. Certain domestic automakers and component suppliers, including several of our customers, are financially distressed or may become financially distressed. In recent years, our gross margins have been negatively impacted in part due to the declines in domestic automotive production, and we have experienced increased accounts receivable write-offs as a result of bankruptcy filings by some of our customers. Any further decline in the domestic automotive industry could have a material adverse effect on our business, results of operations and financial condition. WE FACE INTENSE COMPETITION. We compete with a number of other manufacturers and distributors that produce and sell products similar to ours. Price, quality, and service are the primary elements of competition. Our competitors include a large number of independent domestic and international suppliers. We are not as large as a number of these companies and do not have as many financial or other resources. The competitive environment has also changed dramatically over the past several years as our customers, faced with intense international competition and pressure to reduce costs, have expanded their worldwide sourcing of components. As a result, we have experienced competition from suppliers in other parts of the world that enjoy economic advantages, such as lower labor costs and lower health care costs. There can be no assurance that we will be able to compete successfully with existing or new competitors. Increased competition could have a material adverse effect on our business, results of operations and financial condition. WE RELY ON SALES TO TWO MAJOR CUSTOMERS. Our sales in 2006 to two customers constituted approximately 41% of our consolidated revenues. Sales to Fisher & Company accounted for approximately 28%, 24% and 22% of the Company's consolidated revenues in 2006, 2005, and 2004, respectively. Sales to TI Group Automotive Systems Corporation accounted for approximately 13% of the Company's consolidated revenues in 2006, 2005 and 2004. The loss of any significant portion of our sales to these customers could have a material adverse effect on our business, results of operations and financial condition. 4 INCREASES IN OUR RAW MATERIAL COSTS OR DIFFICULTIES WITH OUR SUPPLIERS COULD NEGATIVELY AFFECT US. While we currently maintain alternative sources for raw materials, our business is subject to the risk of price fluctuations and periodic delays in the delivery of certain raw materials. In recent years, we have been adversely impacted by increased costs for steel, our principal raw material, which we have been unable to wholly mitigate. Any continued fluctuation in the price or availability of our raw materials could have a material adverse impact on our business, results of operations and financial condition. WE MAY BE ADVERSELY AFFECTED BY LABOR RELATIONS ISSUES. Although none of our employees are unionized, the domestic automakers and many of their suppliers, including many of our customers, have unionized work forces. Work stoppages or slow-downs experienced by automakers or their suppliers could result in slow-downs or closures of assembly plants where our products are included in assembled components. In the event that one or more of our customers or their customers experiences a material labor relations issue, our business, results of operations and financial condition could be materially adversely affected. WE MAY INCUR LOSSES AS A RESULT OF PRODUCTS LIABILITY, WARRANTY OR OTHER CLAIMS THAT MAY BE BROUGHT AGAINST US. We face risk of exposure to warranty and product liability claims in the event that our products fail to perform as expected or result, or are alleged to have resulted, in bodily injury, property damage or other losses. In addition, if any of our products are or are alleged to be defective, then we may be required to participate in a product recall. We may also be involved from time to time in legal proceedings and commercial or contractual disputes. Any losses or other liabilities related to these exposures could have a material adverse effect on our business, results of operations and financial condition. WE COULD BE ADVERSELY IMPACTED BY ENVIRONMENTAL LAWS AND REGULATIONS. Our operations are subject to environmental laws and regulations. Currently, environmental costs and liabilities with respect to our operations are not material, but there can be no assurance that we will not be adversely impacted by these costs and liabilities in the future either under present laws and regulations or those that may be adopted or imposed in the future. WE COULD BE ADVERSELY IMPACTED BY THE LOSS OF THE SERVICES OF KEY EMPLOYEES. Successful operations depend, in part, upon the efforts of executive officers and other key employees. Our future success will depend, in part, upon our ability to attract and retain qualified personnel. Loss of the services of any of our key employees, or the inability to attract or retain employees could have a material adverse affect upon our business, financial condition and results of operations. WE COULD BE ADVERSELY IMPACTED BY OUR FAILURE TO COMPLY WITH SECTION 404 OF THE SARBANES-OXLEY ACT As a public company we are required to comply with the reporting obligations of the Exchange Act and will be required to comply with Section 404 of the Sarbanes-Oxley Act of 2002. If we fail to comply with the reporting obligations of the Exchange Act and Section 404 of the Sarbanes-Oxley Act for our fiscal year ending December 31, 2007, or if we fail to achieve and maintain adequate internal controls over financial reporting, our business, results of operations and financial condition, and investors' confidence in us, could be materially adversely affected. 5 THE PRICE OF OUR COMMON STOCK IS SUBJECT TO VOLATILITY, AND OUR STOCK IS THINLY TRADED. Various factors, such as general economic changes in the financial markets, announcements or significant developments with respect to the automotive industry, actual or anticipated variations in our or our competitors' quarterly or annual financial results, the introduction of new products or technologies by us or our competitors, changes in other conditions or trends in our industry or in the markets of any of our significant customers, changes in governmental regulation, or changes in securities analysts' estimates of our competitors or our industry, could cause the market price of our common stock to fluctuate substantially. Our common stock is traded on the American Stock Exchange (not registered, trading privileges only). The average daily trading volume for our common stock on the American Stock Exchange is currently less than 1,000 shares per day, and on some days we have zero volume. As a result, you may have difficulty selling shares of our common stock, and the price of our common stock may vary significantly based on trading volume. ITEM 1B - UNRESOLVED STAFF COMMENTS Not applicable. ITEM 2 - PROPERTIES The Company's headquarters is located in Naperville, Illinois. It conducts its manufacturing and warehousing operations at four additional facilities. All of these facilities are described below. Each facility is owned by the Company and considered suitable and adequate for its present use. The Company also currently maintains a small sales and engineering office in Norwell, Massachusetts in a leased facility. Of the properties described below, the Jefferson, Iowa and the Madison Heights, Michigan facilities are used entirely in the fastener segment. The Albia, Iowa facility is used exclusively in the assembly equipment segment. The Tyrone, Pennsylvania and the Naperville, Illinois facilites are utilized in both operating segments. Plant Locations and Descriptions Naperville, Illinois Brick, concrete block and partial metal construction with metal roof. Tyrone, Pennsylvania Concrete block with small tapered beam type warehouse. Jefferson, Iowa Steel tapered beam construction. Albia, Iowa Concrete block with prestressed concrete roof construction. Madison Heights, Michigan Concrete, brick and partial metal construction with metal roof.
6 ITEM 3 - LEGAL PROCEEDINGS 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. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of the Company's shareholders during the fourth quarter of 2006. 7 Executive Officers of the Registrant The names, ages and positions of all executive officers of the Company, as of March 21, 2007, are listed below. Officers are elected annually by the Board of Directors at the meeting of the directors immediately following the Annual Meeting of Shareholders. There are no family relationships among these officers, nor any arrangement or understanding between any officer and any other person pursuant to which the officer was selected.
Name and Age of Officer Position Years an Officer - ----------------------- -------- ---------------- John A. Morrissey 71 Chairman, Chief Executive Officer 26 Michael J. Bourg 44 President, Chief Operating Officer and Treasurer 8 Kimberly A. Kirhofer 48 Secretary 16 Nirendu Dhar 65 General Manager, H & L Tool Company, Inc. 6
- - Mr. Morrissey has been Chairman of the Board of Directors of the Company since November 1979, and Chief Executive Officer since August 1981. He has been a director of the Company since 1968. - - Mr. Bourg has been President, Chief Operating Officer and Treasurer of the Company since May 2006. He was Corporate Controller from December 1998 to November 2005. He became Vice President - Finance in November 2005 and was named Executive Vice President in February 2006. He has been a director of the Company since May 2006. - - Mrs. Kirhofer has been Secretary of the Company since August 1991, and was Assistant Secretary of the Company from February 1991 through August 1991. Prior to that, she held various administrative positions with the Company since May 1983. - - Mr. Dhar has been employed as General Manager of the Company's subsidiary, H & L Tool Company, Inc., since 1996. Mr. Dhar was employed as Plant Manager and Chief Engineer of H & L Tool Company, Inc. prior to the Company's acquisition of H & L Tool Company, Inc. for more than five years. He has been a director of the Company since May 2001. 8 PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company's common stock is traded on the American Stock Exchange (trading privileges only, not registered). As of February 14, 2007 there were approximately 250 shareholders of record of such stock. The information on the market price of, and dividends paid with respect to, the Company's common stock, set forth in the section entitled "Information on Company's Common Stock" which appears on page 12 of the 2006 Annual Report is incorporated herein by reference. The 2006 Annual Report is filed as an exhibit to this report. See Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Dividends," for additional information about the Company's dividend policy. 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 - SELECTED FINANCIAL DATA The section entitled "Selected Financial Data" which appears on page 12 of the 2006 Annual Report is incorporated herein by reference. The 2006 Annual Report is filed as an exhibit to this report. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS 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 above under "Risk Factors" and elsewhere in this Form 10-K. As stated elsewhere in this filing, such 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. RESULTS OF OPERATIONS The past year began on a positive note, as net sales for the first six months increased 9% over the first half of 2005. This growth in sales contributed to the return to profitability in the first two quarters of 2006. However, the second half of the year proved to be more challenging. Net sales in the third and fourth 9 quarters each reflected declines of approximately 6% compared to the same period a year earlier. This resulted in a total net sales increase for 2006 of less than 2% compared to 2005. Despite the lower sales in the second half of the year, we were able to maintain profitability due in part to reductions in various expenditures throughout the year, finishing 2006 with net income per share of $1.16, compared to a year earlier loss. Results in 2006 were adversely impacted by costs related to closing our Jefferson, Iowa fastener manufacturing facility. 2006 COMPARED TO 2005 Net sales within the fastener segment increased $472,000, or 1.4%, during 2006 compared with 2005. The fastener segment started the year relatively strong and reflected an increase in net sales of 11.4% after the second quarter. However, the second half of the year was particularly weak, as sales in the third and fourth quarter declined 8.4% compared to the prior year. The up and down results were tied to changes in demand from our larger automotive customers. Production cuts by domestic automotive companies, in response to high inventory levels and reduced sales forecasts, were largely responsible for the weakness we experienced in the second half of the year. Gross margins within this segment improved by approximately $1,920,000 during 2006, aided by the net increase in sales and the decline of two expense items that had large increases in 2005. Tooling expense declined by more than $1 million during 2006, as cost controls were emphasized and better tool life was achieved during the year, and expediting costs declined by $130,000, returning to more normal levels. Additionally, material cost of sales declined $396,000, primarily due to lower average steel prices during 2006 compared with 2005. Revenues within the assembly equipment segment increased by $137,116, or 2.4%, to $5,948,579 in 2006, compared with $5,811,463 in 2005. Most of the increase was the result of an improved fourth quarter when net sales increased 11% compared with the fourth quarter of 2005. The improvement was primarily due to an increase in the number of specialty machines shipped during the current year and not the result of an overall improvement in the marketplace. Gross margins for 2006 increased approximately $220,000, benefiting not only from the increase in sales, but also a reduction in labor costs and labor related expenses, due to headcount reductions. Selling and administrative expenses declined $689,687 during 2006 compared with 2005. Professional fees declined $334,000 in 2006 due to initial procedures performed in 2005 related to compliance with the Sarbanes-Oxley Act of 2002. Selling and administrative expenses incurred in 2005 also included $315,000 to resolve a litigation matter. Expenses were further reduced by $103,000 due to the absence of bankruptcy filings of certain customers in the current year. Finally, salaries and related benefits declined by $84,000, primarily due to turnover and headcount reductions during the year. The reduction in these expense items was partially offset by the increase in profit sharing expense of $100,000, due to the profitable operating results in 2006. In May of 2006, a decision was made to close our Jefferson, Iowa fastener operation and transfer production activities to our facility in Tyrone, Pennsylvania, to better utilize manufacturing capacity. During the fourth quarter, manufacturing activities in Jefferson concluded. We are currently in the process of selling and or transferring the remaining assets of that location, and anticipate having the building ready for sale in the first quarter of 2007. As of December 31, 2006, a charge of $422,934 has been recorded related to the plant closing. Additional costs associated with the relocation of equipment and disposal of the facility are expected, but the amount and timing of such costs are not known at this time, nor are they expected to be material. 10 2005 COMPARED TO 2004 During 2005, revenues within the fastener segment increased by nearly $1.5 million, or 4.5%, compared with the prior year. However, a change in product mix, combined with ongoing competitive pressures within our markets, which adversely impacted selling prices, contributed to a decline in gross margins within this segment. Change in product mix was the primary factor causing material costs to increase $1.3 million compared to 2004 and was also the main factor contributing to a $757,000 increase in outside processing services. Labor and fringe benefit costs increased approximately $350,000. Tooling costs increased by approximately $518,000 compared to 2004, primarily due to costs related to the manufacture of new parts used in a number of new automotive platform launches. The Company also incurred an increase of $253,000 related to costs associated with expedited delivery due to shortened customer lead-time requirements. Weak demand continued to characterize the assembly equipment segment of our business in 2005, contributing to a decline in revenues of $944,000, or 14%, compared to the prior year. We were able to reduce most manufacturing costs in direct proportion to the decline in revenues. Labor and fringe benefit costs declined by $305,000, while raw material costs were $91,000 lower than the prior year. Additionally, most other elements of cost declined as a result of lower volumes. However, the net effect of lower volume was a decline of $491,000 in gross margins. Selling and administrative expenses increased by $682,000 in 2005 compared to 2004. The single largest factor affecting the change in total expenses in this category between the two years is that during 2004, the Company received a refund of the Michigan single business tax that amounted to $330,000. This refund was the result of a successful appeal of the tax calculation for the prior four years. Professional fees and expenses incurred, primarily related to compliance with the Sarbanes-Oxley Act of 2002, increased by $359,000 during 2005. Legal fees increased approximately $140,000 in 2005, primarily due to protracted litigation that was resolved that year. Bad debt expense increased $73,000, primarily in connection with the bankruptcy of certain customers. These increases were partially offset by reductions in a variety of other expenses; the most significant being a reduction in profit sharing expense of $127,000, due to the decrease in profitability, and lower depreciation of office equipment of $57,000. During the fourth quarter of 2005, the Company realized a gain of $256,660 from proceeds received due to the demutualization of an insurance provider. DIVIDENDS In determining to pay dividends, the Board considers current profitability, the outlook for longer-term profitability, known and potential cash requirements and the overall financial condition of the Company. The Company paid four regular quarterly dividends of $.18 per share during 2006, for a total dividend distribution of $.72 per share for the year. On February 19, 2007, your Board of Directors declared a regular quarterly dividend of $.18 per share, payable March 20, 2007 to shareholders of record on March 5, 2007. This continues the uninterrupted record of consecutive quarterly dividends paid by the Company to its shareholders that extends over 73 years. PROPERTY, PLANT AND EQUIPMENT Capital expenditures during 2006 totaled $1,451,756, of which $1,374,009 was invested in equipment for our fastener operations. Approximately $680,000 was spent on cold-heading equipment that will expand our capabilities to make larger parts and approximately $233,000 was spent on equipment for performing secondary operations, such as grinding and shaving of parts. Additionally, approximately $346,000 was spent on inspection equipment. The remaining additions were for computer hardware and other equipment not specifically assigned to a single segment. 11 Total capital expenditures in 2005 were $647,162. Of the total, $460,000 was invested in building improvements, including $422,495 for new roofs at two facilities. Fastener segment equipment additions amounted to $91,000, primarily for equipment related to plating of parts and quality control. Assembly equipment segment additions totaled $36,000, with approximately $32,000 expended for equipment used to manufacture perishable tooling. The remaining additions related primarily to computer equipment and other miscellaneous equipment benefiting both operating segments. Capital investments totaled $1.4 million during 2004. Capital expenditures were concentrated within the fastener segment, where investment totaled $1.3 million. Of this total, $1.1 million was invested to purchase cold-heading machinery and related equipment used in the manufacture of fasteners. The remainder of the expenditures within the fastener segment was for various building improvements, additional waste treatment equipment required to meet environmental requirements, and material handling equipment. The balance of the Company's 2004 capital expenditures covered a variety of smaller items, including computers and other office equipment. Depreciation expense amounted to $1,659,834 in 2006, $1,703,382 in 2005, and $1,757,962 in 2004. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital increased approximately $.4 million between December 31, 2005 and December 31, 2006. The Company's holdings in cash, cash equivalents and certificates of deposit amounted to approximately $5.7 million at the end of 2006, a slight increase compared with the prior year-end. Inventories were reduced by nearly $.5 million, as higher than normal quantities on hand during the last two years to guard against supply shortages were further reduced. Accounts receivable increased $.5 million compared with the prior year-end, primarily due to a change in the regular payment schedule for a certain customer and not due to any specific collection concern. The accrual for profit sharing contribution increased $.1 million compared to the prior year, due to more profitable operations in 2006, while the remaining accrued expenses decreased $.3 million as accrued plant closing expenses as of December 31, 2006 were offset by reductions in the liability for income taxes and customer deposits. The Company's investing activities in 2006 primarily consisted of capital expenditures of $1.3 million and the net investment in certificates of deposit of $4.4 million. The only financing activity during 2006 was the payment of $.7 million in dividends. The Company has a $1.0 million line of credit, which expires May 31, 2007. This line of credit remains unused. OFF-BALANCE SHEET ARRANGEMENTS The Company has not entered into, and has no current plans to enter into, any off-balance sheet financing arrangements. The following table presents a summary of the Company's contractual obligations as of December 31, 2006:
Payments Due By Period ------------------------------------------------------------- Less Than 1 - 3 4 - 5 More Than Contractual Obligation Total 1 Year Years Years 5 Years - ---------------------- -------- --------- -------- -------- ---------- Long-term Debt $ -- $ -- $ -- $ -- $ -- Capital Lease Obligations -- -- -- -- -- Operating Leases 39,934 29,830 10,104 -- -- Purchase Obligations 286,884 257,605 28,163 1,116 -- Total $326,818 $ 287,435 $ 38,267 $ 1,116 $ --
12 Management believes that current cash, cash equivalents, operating cash flow and available line of credit will be sufficient to provide adequate working capital for the foreseeable future. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of December 31, 2006, the Company did not have any outstanding debt. The Company did not use any derivative financial instruments during 2006. APPLICATION OF CRITICAL ACCOUNTING POLICIES The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of revenue and expenses during the reporting period. A summary of critical accounting policies can be found in Note 1 of the financial statements. NEW ACCOUNTING STANDARDS The Company's financial statements and financial condition were not, and are not expected to be, materially impacted by new, or proposed, accounting standards. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The firm of PricewaterhouseCoopers LLP served as the Company's independent registered public accounting firm for the year ended December 31, 2004. On February 28, 2005, the Company was notified by PricewaterhouseCoopers LLP that they would not stand for re-election as the Company's independent registered public accounting firm for the year ending December 31, 2005. PricewaterhouseCoopers LLP agreed, however, to continue to serve as the Company's independent registered public accounting firm until completion of its procedures on the financial statements of the Company for the year ended December 31, 2004. On March 21, 2005, PricewaterhouseCoopers LLP completed its procedures on the financial statements of the Company for the year ended December 31, 2004, and ceased serving as the Company's independent registered public accounting firm. On March 23, 2005, the Audit Committee engaged Grant Thornton LLP to serve as the Company's independent registered public accounting firm for the year ended December 31, 2005. The report of PricewaterhouseCoopers LLP on the Company's financial statements for the year ended December 31, 2004 did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principle. During the year ended December 31, 2004 and through March 21, 2005, there were no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers LLP, would have caused PricewaterhouseCoopers LLP to make reference thereto in its report on the Company's financial statements for that year. During the year ended December 31, 2004 and through March 21, 2005, there were no "reportable events" (as defined in SEC Regulation S-K Item 304(a)(1)(v)). Between January 1, 2003 and the engagement of Grant Thornton LLP on March 23, 2005, neither the Company nor anyone acting on behalf of the Company consulted with Grant Thornton LLP regarding either (i) the application of accounting principles to a specified completed or contemplated transaction or the type of audit opinion that might be rendered on the Company's financial statements; as such, no written or oral 13 advice was provided or (ii) any matter that was either the subject of a disagreement with PricewaterhouseCoopers LLP or a "reportable event." PERSONNEL On May 9, 2006, the Board of Directors elected Michael J. Bourg to the positions of President, Chief Operating Officer and Treasurer of the Company, replacing John C. Osterman who had announced on November 21, 2005 his intention to retire from the Company. OUTLOOK FOR 2007 While we are certainly pleased to report a return to profitable operations in 2006, many challenges are evident as we begin the new year. Automotive industry conditions continue to be challenging domestically due to overcapacity, high retiree benefits costs and intense competition. Due to our heavy reliance upon the domestic auto market we are impacted by these conditions. We expect these conditions to continue for the foreseeable future as end-users of our products continue to look for cost savings in their own operations. The domestic "Big Three" automakers are at varying stages of well-publicized restructurings and the effects of these restructurings on their suppliers remain unclear. At the same time, customer demand for higher quality and lower prices continues unabated. While we have obtained sales from customers that supply the import brands, we will need to further penetrate that market to offset production cuts of the domestic brands. Our ability to increase revenues as well as diversifying our customer base will be a significant factor in our future growth. Although we reported higher revenues and profits in the assembly equipment segment during 2006, our volume of activity measured in units sold actually declined. Given industrial output data currently available, we have no reason to expect any significant improvement in this segment in the near-term. The increase reported in 2006 was primarily due to specialty equipment sales, which although providing higher revenue opportunities, are also less predictable in nature. We will continue our efforts to increase our sales revenues in all markets by emphasizing value over price and will focus on more complex products used by customers for which our expertise, service and unsurpassed quality are important factors in making purchasing decisions. At the same time, we will continue to pursue solutions that help improve our operations at all levels while continuing our efforts to control operating costs. Our future success is dependent on how we anticipate, and respond to, many ever-changing factors. We believe that the valuable contributions of our employees, whose dedicated efforts allowed for the turnaround achieved in 2006, and our sound financial condition, will help us face the challenges ahead in 2007. We also wish to thank our customers and our shareholders for their continued support. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of December 31, 2006, the Company did not have any outstanding debt. During 2006 the Company did not use derivative financial instruments. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the sections entitled "Consolidated Financial Statements" and "Financial Statement Schedule" which appear on pages 19 through 22 of this report. 14 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On February 28, 2005, the Company was notified by PricewaterhouseCoopers LLP, the Company's independent registered public accounting firm that it declined to stand for re-election as the Company's independent registered public accounting firm for the year ending December 31, 2005, as reported on the Form 8-K filed on March 4, 2005. On March 21, 2005, PricewaterhouseCoopers LLP completed its procedures on the financial statements of the Company for the year ended December 31, 2004, and PricewaterhouseCoopers LLP ceased serving as the Company's independent registered public accounting firm, as reported on the Form 8-K/A filed on March 23, 2005. On March 23, 2005, the Company engaged Grant Thornton LLP as its independent registered public accounting firm for the year ending December 31, 2005, as reported on the Form 8-K filed on March 25, 2005. ITEM 9A - 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 quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 15 PART III ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information in the Company's 2007 Proxy Statement (i) with respect to the Board of Directors' nominees for directors that is not related to security ownership in "Security Ownership of Management" (ii) in the third paragraph in "Additional Information Concerning the Board of Directors and Committees" and (iii) in "Section 16(a) Beneficial Ownership Reporting Compliance" is incorporated herein by reference. The 2007 Proxy Statement is to be filed with the Securities and Exchange Commission in connection with the Company's 2007 Annual Meeting of Shareholders. The information called for with respect to executive officers of the Company is included in Part I of this Report on Form 10-K under the caption "Executive Officers of the Registrant." The Company has adopted a code of ethics for its principal executive officer, chief operating officer and senior financial officers. A copy of this code of ethics was filed as Exhibit 14 to the Company's Annual Report on Form 10-K dated March 29, 2005. ITEM 11 - EXECUTIVE COMPENSATION The information set forth in the Company's 2007 Proxy Statement in "Compensation of Directors and Executive Officers" is incorporated herein by reference. The Compensation Committee of the Board of Directors currently consists of Directors Edward L. Chott, William T. Divane, Jr., George P. Lynch and John R. Madden. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information set forth in the Company's 2007 Proxy Statement in "Principal Shareholders" and the information with respect to security ownership of the Company's directors and officers set forth in "Security Ownership of Management" is incorporated herein by reference. The Company does not have any equity compensation plans or arrangements. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information set forth the Company's 2007 Proxy Statement in (i) "Additional Information Concerning the Board of Directors and Committees - Policy Regarding Related Person Transactions" and (ii) the first paragraph under "Additional Information Concerning the Board of Directors and Committees" is incorporated herein by reference. ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES The information set forth in the Company's 2007 Proxy Statement in (i) "Independent Registered Public Accounting Firm - Fee Table" and (ii) the last paragraph under "Independent Registered Public Accounting Firm" is incorporated herein by reference. 16 PART IV ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as a part of this report: 1. Financial Statements: See the section entitled "Consolidated Financial Statements" which appears on page 19 of this report. 2. Financial statement schedule and supplementary information required to be submitted: See the section entitled "Financial Statement Schedule" which appears on pages 20 through 22 of this report. 3. Exhibits: See the section entitled "Exhibits" which appears on page 23 of this report. 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Chicago Rivet & Machine Co. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Chicago Rivet & Machine Co. By /s/ Michael J. Bourg ------------------------ Michael J. Bourg President and Chief Operating Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: /s/ John A. Morrissey Chairman of the Board of Directors, - -------------------- Chief Executive Officer (Principal John A. Morrissey Executive Officer) and Member of the Executive Committee March 21, 2007 /s/ Michael J. Bourg President, Chief Operating Officer, - ------------------- Treasurer (Principal Financial and Michael J. Bourg Accounting Officer), Member of the Executive Committee and Director March 21, 2007 /s/ Edward L. Chott Director, Member of the Audit Committee - ------------------ March 21, 2007 Edward L. Chott /s/ Kent H. Cooney Director, Member of the Audit Committee - ------------------ March 21, 2007 Kent H. Cooney /s/ Nirendu Dhar Director - --------------- March 21, 2007 Nirendu Dhar /s/ William T. Divane, Jr. Director, Member of the Audit Committee - ------------------------- March 21, 2007 William T. Divane /s/ George P. Lynch Director - ------------------ March 21, 2007 George P. Lynch /s/ John R. Madden Director, Member of the Executive - --------------------------- Committee and the Audit Committee John R. Madden March 21, 2007 /s/ Walter W. Morrissey Director, Member of Executive Committee - ---------------------- March 21, 2007 Walter W. Morrissey
18 CHICAGO RIVET & MACHINE CO. CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements, together with the notes thereto and the reports thereon of Grant Thornton LLP dated March 20, 2007 and PricewaterhouseCoopers LLP dated March 21, 2005, appearing on pages 5 to 11 of the accompanying 2006 Annual Report, and the section entitled "Quarterly Financial Data (Unaudited)" appearing on page 12 of the accompanying 2006 Annual Report are incorporated herein by reference. With the exception of the aforementioned information and the information incorporated in Items 1, 5, 6 and 8 herein, the 2006 Annual Report is not to be deemed filed as part of this Form 10-K Annual Report. Consolidated Financial Statements from 2006 Annual Report (Exhibit 13 hereto): Consolidated Balance Sheets (page 5 of 2006 Annual Report) Consolidated Statements of Income (page 6 of 2006 Annual Report) Consolidated Statements of Retained Earnings (page 6 of 2006 Annual Report) Consolidated Statements of Cash Flows (page 7 of 2006 Annual Report) Notes to Consolidated Financial Statements (pages 8, 9, and 10 of 2006 Annual Report) Reports of Independent Registered Public Accounting Firms (page 11 of 2006 Annual Report) Quarterly Financial Data (Unaudited) (page 12 of 2006 Annual Report) 19 FINANCIAL STATEMENT SCHEDULE 2006, 2005 AND 2004 The following financial statement schedule should be read in conjunction with the consolidated financial statements and the notes thereto in the 2006 Annual Report. Financial statement schedules not included herein have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
Page ---- Financial Statement Schedule: Valuation and Qualifying Accounts (Schedule II) 21 Reports of Independent Registered Public Accounting Firms on Financial Statement Schedule 22
20 CHICAGO RIVET & MACHINE CO. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
Balance at Additions Balance at Beginning Charged to End Classification of Year Expenses Deductions(1) of Year - -------------- ---------- ---------- ------------ ---------- 2006 Allowance for doubtful accounts, returns and allowances $210,000 $ (5,688) $ 54,312 $150,000 2005 Allowance for doubtful accounts, returns and allowances $130,000 $ 97,487 $ 17,487 $210,000 2004 Allowance for doubtful accounts, returns and allowances $220,000 $ 24,670 $114,670 $130,000
(1) Accounts receivable written off, net of recoveries. 21 Report of Independent Registered Public Accounting Firm on Financial Statement Schedule To the Board of Directors of Chicago Rivet & Machine Co. Our audits of the consolidated financial statements referred to in our report dated March 20, 2007 appearing in the 2006 Annual Report to Shareholders of Chicago Rivet & Machine Co. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Grant Thornton LLP Chicago, Illinois March 20, 2007 Report of Independent Registered Public Accounting Firm on Financial Statement Schedule To the Board of Directors of Chicago Rivet & Machine Co. Our audit of the consolidated financial statements referred to in our report dated March 21, 2005 appearing in the 2006 Annual Report to Shareholders of Chicago Rivet & Machine Co. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule as of and for the year ended December 31, 2004 listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Chicago, Illinois March 21, 2005 22 CHICAGO RIVET & MACHINE CO. EXHIBITS INDEX TO EXHIBITS
Exhibit Number Page - ------- ------- 3.1 Articles of Incorporation, as last amended August 18, 1997. Incorporated by reference to the Company's report on Form 10-K, dated March 27, 1998. File number 0000-01227 3.2 Amended and Restated By-Laws, as amended February 16, 2004. Incorporated by reference to the Company's report on Form 10-K, dated March 29, 2004. File number 0000-01227 4.1 Rights Agreement, dated November 22, 1999, between the Company and First Chicago Trust Company of New York as Rights Agent. Incorporated by reference to the Company's report on Form 10-K, dated March 29, 2000. File number 0000-01227 13* Annual Report to Shareholders for the year ended December 31, 2006. 24-40 14 Code of Ethics for Principal Executive and Senior Financial Officers. Incorporated by reference to the Company's report on Form 10-K, dated March 29, 2005. File number 0000-01227 21 Subsidiaries of the Registrant. 41 31.1 Certification of CEO Pursuant to Rule 13a-14(a) or 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 42 31.2 Certification of CFO Pursuant to Rule 13a-14(a) or 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 43 32.1 Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 44 32.2 Certification of CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 45
* Only the portions of this exhibit which are specifically incorporated herein by reference shall be deemed to be filed herewith. 23 EX-13 2 c13090exv13.txt ANNUAL REPORT TO SHAREHOLDERS EXHIBIT-13 [CHICAGO RIVET LOGO] Chicago Rivet & Machine Co. 2006 Annual Report . . . [CHICAGO RIVET LOGO] - -------------------------------------------------------------------------------- HIGHLIGHTS
- ------------------------------------------------------------------------------------------ 2006 2005 2004 - ------------------------------------------------------------------------------------------ NET SALES AND LEASE REVENUE.................... $40,369,977 $39,760,756 $39,232,866 NET INCOME (LOSS).............................. 1,120,627 (398,612) 1,523,434 NET INCOME (LOSS) PER SHARE.................... 1.16 (.41) 1.58 DIVIDENDS PER SHARE............................ .72 .87 .72 NET CASH PROVIDED BY OPERATING ACTIVITIES...... 2,036,841 693,152 2,320,060 EXPENDITURES FOR PROPERTY, PLANT AND EQUIPMENT.................................... 1,451,756 647,162 1,359,582 WORKING CAPITAL................................ 15,242,183 14,839,923 15,222,262 TOTAL SHAREHOLDERS' EQUITY..................... 24,003,168 23,578,156 24,817,303 COMMON SHARES OUTSTANDING AT YEAR-END.......... 966,132 966,132 966,132 SHAREHOLDERS' EQUITY PER COMMON SHARE.......... 24.84 24.40 25.69
ANNUAL MEETING The annual meeting of shareholders will be held on May 8, 2007 at 10:00 a.m. at 901 Frontenac Road Naperville, Illinois Chicago Rivet & Machine Co. - 901 Frontenac Road - P.O. Box 3061 - Naperville, Illinois 60566 - www.chicagorivet.com - -------------------------------------------------------------------------------- MANAGEMENT'S REPORT ON FINANCIAL CONDITION AND RESULTS OF OPERATIONS [CHIGAGO RIVET LOGO] - -------------------------------------------------------------------------------- TO OUR SHAREHOLDERS: RESULTS OF OPERATIONS The past year began on a positive note, as net sales for the first six months increased 9% over the first half of 2005. This growth in sales contributed to the return to profitability in the first two quarters of 2006. However, the second half of the year proved to be more challenging. Net sales in the third and fourth quarters each reflected declines of approximately 6% compared to the same period a year earlier. This resulted in a total net sales increase for 2006 of less than 2% compared to 2005. Despite the lower sales in the second half of the year, we were able to maintain profitability due in part to reductions in various expenditures throughout the year, finishing 2006 with net income per share of $1.16, compared to a year earlier loss. Results in 2006 were adversely impacted by costs related to closing our Jefferson, Iowa fastener manufacturing facility. 2006 COMPARED TO 2005 Net sales within the fastener segment increased $472,000, or 1.4%, during 2006 compared with 2005. The fastener segment started the year relatively strong and reflected an increase in net sales of 11.4% after the second quarter. However, the second half of the year was particularly weak, as sales in the third and fourth quarter declined 8.4% compared to the prior year. The up and down results were tied to changes in demand from our larger automotive customers. Production cuts by domestic automotive companies, in response to high inventory levels and reduced sales forecasts, were largely responsible for the weakness we experienced in the second half of the year. Gross margins within this segment improved by approximately $1,920,000 during 2006, aided by the net increase in sales and the decline of two expense items that had large increases in 2005. Tooling expense declined by more than $1 million during 2006, as cost controls were emphasized and better tool life was achieved during the year, and expediting costs declined by $130,000, returning to more normal levels. Additionally, material cost of sales declined $396,000, primarily due to lower average steel prices during 2006 compared with 2005. Revenues within the assembly equipment segment increased by $137,116, or 2.4%, to $5,948,579 in 2006, compared with $5,811,463 in 2005. Most of the increase was the result of an improved fourth quarter when net sales increased 11% compared with the fourth quarter of 2005. The improvement was primarily due to an increase in the number of specialty machines shipped during the current year and not the result of an overall improvement in the marketplace. Gross margins for 2006 increased approximately $220,000, benefiting not only from the increase in sales, but also a reduction in labor costs and labor related expenses, due to headcount reductions. Selling and administrative expenses declined $689,687 during 2006 compared with 2005. Professional fees declined $334,000 in 2006 due to initial procedures performed in 2005 related to compliance with the Sarbanes-Oxley Act of 2002. Selling and administrative expenses incurred in 2005 also included $315,000 to resolve a litigation matter. Expenses were further reduced by $103,000 due to the absence of bankruptcy filings of certain customers in the current year. Finally, salaries and related benefits declined by $84,000, primarily due to turnover and headcount reductions during the year. The reduction in these expense items was partially offset by the increase in profit sharing expense of $100,000, due to the profitable operating results in 2006. In May of 2006, a decision was made to close our Jefferson, Iowa fastener operation and transfer production activities to our facility in Tyrone, Pennsylvania, to better utilize manufacturing capacity. During the fourth quarter, manufacturing activities in Jefferson concluded. We are currently in the process of selling and or transferring the remaining assets of that location, and anticipate having the building ready for sale in the first quarter of 2007. As of December 31, 2006, a charge of $422,934 has been recorded related to the plant closing. Additional costs associated with the relocation of equipment and disposal of the facility are expected, but the amount and timing of such costs are not known at this time, nor are they expected to be material. 2005 COMPARED TO 2004 During 2005, revenues within the fastener segment increased by nearly $1.5 million, or 4.5%, compared with the prior year. However, a change in product mix, combined with ongoing competitive pressures within our markets, which adversely impacted selling prices, contributed to a decline in gross margins within this segment. Change in product mix was the primary factor causing material costs to increase $1.3 million compared to 2004 and was also the main factor contributing to a $757,000 increase in outside processing services. Labor and fringe benefit costs increased approximately $350,000. Tooling costs increased by approximately $518,000 compared to 2004, primarily due to costs related to the manufacture of new parts used in a number of new automotive platform launches. The Company also incurred an increase of $253,000 related to costs associated with expedited delivery due to shortened customer lead-time requirements. Weak demand continued to characterize the assembly equipment segment of our business in 2005, contributing to a decline in revenues of $944,000, or 14%, compared to the prior year. We were able to reduce most manufacturing costs in direct proportion to the decline in revenues. Labor and fringe benefit costs declined by $305,000, while raw material costs were $91,000 lower than the prior year. Additionally, - -------------------------------------------------------------------------------- 1 MANAGEMENT'S REPORT (Continued) - -------------------------------------------------------------------------------- most other elements of cost declined as a result of lower volumes. However, the net effect of lower volume was a decline of $491,000 in gross margins. Selling and administrative expenses increased by $682,000 in 2005 compared to 2004. The single largest factor affecting the change in total expenses in this category between the two years is that during 2004, the Company received a refund of the Michigan single business tax that amounted to $330,000. This refund was the result of a successful appeal of the tax calculation for the prior four years. Professional fees and expenses incurred, primarily related to compliance with the Sarbanes-Oxley Act of 2002, increased by $359,000 during 2005. Legal fees increased approximately $140,000 in 2005, primarily due to protracted litigation that was resolved that year. Bad debt expense increased $73,000, primarily in connection with the bankruptcy of certain customers. These increases were partially offset by reductions in a variety of other expenses; the most significant being a reduction in profit sharing expense of $127,000, due to the decrease in profitability, and lower depreciation of office equipment of $57,000. During the fourth quarter of 2005, the Company realized a gain of $256,660 from proceeds received due to the demutualization of an insurance provider. DIVIDENDS In determining to pay dividends, the Board considers current profitability, the outlook for longer-term profitability, known and potential cash requirements and the overall financial condition of the Company. The Company paid four regular quarterly dividends of $.18 per share during 2006, for a total dividend distribution of $.72 per share for the year. On February 19, 2007, your Board of Directors declared a regular quarterly dividend of $.18 per share, payable March 20, 2007 to shareholders of record on March 5, 2007. This continues the uninterrupted record of consecutive quarterly dividends paid by the Company to its shareholders that extends over 73 years. PROPERTY, PLANT AND EQUIPMENT Capital expenditures during 2006 totaled $1,451,756, of which $1,374,009 was invested in equipment for our fastener operations. Approximately $680,000 was spent on cold-heading equipment that will expand our capabilities to make larger parts and approximately $233,000 was spent on equipment for performing secondary operations, such as grinding and shaving of parts. Additionally, approximately $346,000 was spent on inspection equipment. The remaining additions were for computer hardware and other equipment not specifically assigned to a single segment. Total capital expenditures in 2005 were $647,162. Of the total, $460,000 was invested in building improvements, including $422,495 for new roofs at two facilities. Fastener segment equipment additions amounted to $91,000, primarily for equipment related to plating of parts and quality control. Assembly equipment segment additions totaled $36,000, with approximately $32,000 expended for equipment used to manufacture perishable tooling. The remaining additions related primarily to computer equipment and other miscellaneous equipment benefiting both operating segments. Capital investments totaled $1.4 million during 2004. Capital expenditures were concentrated within the fastener segment, where investment totaled $1.3 million. Of this total, $1.1 million was invested to purchase cold-heading machinery and related equipment used in the manufacture of fasteners. The remainder of the expenditures within the fastener segment was for various building improvements, additional waste treatment equipment required to meet environmental requirements, and material handling equipment. The balance of the Company's 2004 capital expenditures covered a variety of smaller items, including computers and other office equipment. Depreciation expense amounted to $1,659,834 in 2006, $1,703,382 in 2005, and $1,757,962 in 2004. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital increased approximately $.4 million between December 31, 2005 and December 31, 2006. The Company's holdings in cash, cash equivalents and certificates of deposit amounted to approximately $5.7 million at the end of 2006, a slight increase compared with the prior year-end. Inventories were reduced by nearly $.5 million, as higher than normal quantities on hand during the last two years to guard against supply shortages were further reduced. Accounts receivable increased $.5 million compared with the prior year-end, primarily due to a change in the regular payment schedule for a certain customer and not due to any specific collection concern. The accrual for profit sharing contribution increased $.1 million compared to the prior year, due to more profitable operations in 2006, while the remaining accrued expenses decreased $.3 million as accrued plant closing expenses as of December 31, 2006 were offset by reductions in the liability for income taxes and customer deposits. The Company's investing activities in 2006 primarily consisted of capital expenditures of $1.3 million and the net investment in certificates of deposit of $4.4 million. The only financing activity during 2006 was the payment of $.7 million in dividends. The Company has a $1.0 million line of credit, which expires May 31, 2007. This line of credit remains unused. - -------------------------------------------------------------------------------- 2 MANAGEMENT'S REPORT (Continued) [CHIGAGO RIVET LOGO] - -------------------------------------------------------------------------------- OFF-BALANCE SHEET ARRANGEMENTS The Company has not entered into, and has no current plans to enter into, any off-balance sheet financing arrangements. The following table presents a summary of the Company's contractual obligations as of December 31, 2006:
PAYMENTS DUE BY PERIOD ---------------------------------------------------- LESS MORE CONTRACTUAL THAN 1 - 3 4 - 5 THAN OBLIGATION TOTAL 1 YEAR YEARS YEARS 5 YEARS - ----------- -------- -------- -------- -------- -------- Long-term Debt....... $ -- $ -- $ -- $ -- $ -- Capital Lease Obligations......... -- -- -- -- -- Operating Leases..... 39,934 29,830 10,104 -- -- Purchase Obligations......... 286,884 257,605 28,163 1,116 -- -------- -------- -------- -------- -------- Total................ $326,818 $287,435 $ 38,267 $ 1,116 $ -- ======== ======== ======== ======== ========
Management believes that current cash, cash equivalents, operating cash flow and available line of credit will be sufficient to provide adequate working capital for the foreseeable future. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of December 31, 2006, the Company did not have any outstanding debt. The Company did not use any derivative financial instruments during 2006. APPLICATION OF CRITICAL ACCOUNTING POLICIES The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of revenue and expenses during the reporting period. A summary of critical accounting policies can be found in Note 1 of the financial statements. NEW ACCOUNTING STANDARDS The Company's financial statements and financial condition were not, and are not expected to be, materially impacted by new, or proposed, accounting standards. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The firm of PricewaterhouseCoopers LLP served as the Company's independent registered public accounting firm for the year ended December 31, 2004. On February 28, 2005, the Company was notified by PricewaterhouseCoopers LLP that they would not stand for re-election as the Company's independent registered public accounting firm for the year ending December 31, 2005. PricewaterhouseCoopers LLP agreed, however, to continue to serve as the Company's independent registered public accounting firm until completion of its procedures on the financial statements of the Company for the year ended December 31, 2004. On March 21, 2005, PricewaterhouseCoopers LLP completed its procedures on the financial statements of the Company for the year ended December 31, 2004, and ceased serving as the Company's independent registered public accounting firm. On March 23, 2005, the Audit Committee engaged Grant Thornton LLP to serve as the Company's independent registered public accounting firm for the year ended December 31, 2005. The report of PricewaterhouseCoopers LLP on the Company's financial statements for the year ended December 31, 2004 did not contain an adverse opinion or a disclaimer of opinion and is not qualified or modified as to uncertainty, audit scope or accounting principle. During the year ended December 31, 2004 and through March 21, 2005, there were no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers LLP, would have caused PricewaterhouseCoopers LLP to make reference thereto in its report on the Company's financial statements for that year. During the year ended December 31, 2004 and through March 21, 2005, there were no "reportable events" (as defined in SEC Regulation S-K Item 304(a)(1)(v)). Between January 1, 2003 and the engagement of Grant Thornton LLP on March 23, 2005, neither the Company nor anyone acting on behalf of the Company consulted with Grant Thornton LLP regarding either (i) the application of accounting principles to a specified completed or contemplated transaction or the type of audit opinion that might be rendered on the Company's financial statements; as such, no written or oral advice was provided or (ii) any matter that was either the subject of a disagreement with PricewaterhouseCoopers LLP or a "reportable event." - -------------------------------------------------------------------------------- 3 MANAGEMENT'S REPORT (Continued) - -------------------------------------------------------------------------------- PERSONNEL On May 9, 2006, the Board of Directors elected Michael J. Bourg to the positions of President, Chief Operating Officer and Treasurer of the Company, replacing John C. Osterman who had announced on November 21, 2005 his intention to retire from the Company. OUTLOOK FOR 2007 While we are certainly pleased to report a return to profitable operations in 2006, many challenges are evident as we begin the new year. Automotive industry conditions continue to be challenging domestically due to overcapacity, high retiree benefits costs and intense competition. Due to our heavy reliance upon the domestic auto market we are impacted by these conditions. We expect these conditions to continue for the foreseeable future as end-users of our products continue to look for cost savings in their own operations. The domestic "Big Three" automakers are at varying stages of well-publicized restructurings and the effects of these restructurings on their suppliers remain unclear. At the same time, customer demand for higher quality and lower prices continues unabated. While we have obtained sales from customers that supply the import brands, we will need to further penetrate that market to offset production cuts of the domestic brands. Our ability to increase revenues as well as diversifying our customer base will be a significant factor in our future growth. Although we reported higher revenues and profits in the assembly equipment segment during 2006, our volume of activity measured in units sold actually declined. Given industrial output data currently available, we have no reason to expect any significant improvement in this segment in the near-term. The increase reported in 2006 was primarily due to specialty equipment sales, which although providing higher revenue opportunities, are also less predictable in nature. We will continue our efforts to increase our sales revenues in all markets by emphasizing value over price and will focus on more complex products used by customers for which our expertise, service and unsurpassed quality are important factors in making purchasing decisions. At the same time, we will continue to pursue solutions that help improve our operations at all levels while continuing our efforts to control operating costs. Our future success is dependent on how we anticipate, and respond to, many ever-changing factors. We believe that the valuable contributions of our employees, whose dedicated efforts allowed for the turnaround achieved in 2006, and our sound financial condition, will help us face the challenges ahead in 2007. We also wish to thank our customers and our shareholders for their continued support. Respectfully, /s/ J. A. MORRISSEY /s/ MICHAEL J. BOURG John A. Morrissey Michael J. Bourg Chairman President
March 20, 2007 FORWARD-LOOKING STATEMENTS 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. - -------------------------------------------------------------------------------- 4 [CHICAGO RIVET LOGO] - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------- December 31 2006 2005 - ----------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and Cash Equivalents................................. $ 367,581 $ 4,730,837 Certificates of Deposit................................... 5,405,000 1,005,000 Accounts Receivable -- Less allowances of $150,000 and $210,000, respectively................................. 5,902,628 5,370,611 Inventories............................................... 5,481,309 5,971,695 Deferred Income Taxes..................................... 499,191 560,191 Prepaid Income Taxes...................................... 118,914 -- Other Current Assets...................................... 294,593 232,142 ----------- ----------- Total Current Assets...................................... 18,069,216 17,870,476 Net Property, Plant and Equipment........................... 9,837,260 10,051,508 ----------- ----------- Total Assets................................................ $27,906,476 $27,921,984 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts Payable.......................................... $ 1,431,468 $ 1,452,314 Accrued Wages and Salaries................................ 693,442 680,969 Accrued Profit Sharing Plan Contribution.................. 225,000 125,000 Accrued Plant Closing Expense............................. 217,443 -- Other Accrued Expenses.................................... 259,680 772,270 ----------- ----------- Total Current Liabilities................................. 2,827,033 3,030,553 Deferred Income Taxes....................................... 1,076,275 1,313,275 ----------- ----------- Total Liabilities......................................... 3,903,308 4,343,828 ----------- ----------- Commitments and Contingencies (Note 10)..................... -- -- 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......................................... 26,340,036 25,915,024 Treasury Stock, 171,964 Shares at cost.................... (3,922,098) (3,922,098) ----------- ----------- Total Shareholders' Equity................................ 24,003,168 23,578,156 ----------- ----------- Total Liabilities and Shareholders' Equity.................. $27,906,476 $27,921,984 =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 5 [CHICAGO RIVET LOGO] - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME
- ----------------------------------------------------------------------------------------------- For the Years Ended December 31 2006 2005 2004 - ----------------------------------------------------------------------------------------------- Net Sales and Lease Revenue....................... $40,369,977 $39,760,756 $39,232,866 Cost of Goods Sold and Costs Related to Lease Revenue......................................... 32,529,465 34,060,469 30,954,797 ----------- ----------- ----------- Gross Profit...................................... 7,840,512 5,700,287 8,278,069 Selling and Administrative Expenses............... 6,033,699 6,723,386 6,041,045 Plant Closing Expenses............................ 422,934 -- -- ----------- ----------- ----------- Operating Profit (Loss)........................... 1,383,879 (1,023,099) 2,237,024 Other Income, net................................. 264,748 418,487 78,410 ----------- ----------- ----------- Income (Loss) Before Income Taxes................. 1,648,627 (604,612) 2,315,434 Provision for Income Taxes........................ 528,000 (206,000) 792,000 ----------- ----------- ----------- Net Income (Loss)................................. $ 1,120,627 $ (398,612) $ 1,523,434 =========== =========== =========== Net Income (Loss) Per Share....................... $ 1.16 $ (.41) $ 1.58 =========== =========== ===========
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
- ----------------------------------------------------------------------------------------------- For the Years Ended December 31 2006 2005 2004 - ----------------------------------------------------------------------------------------------- Retained Earnings at Beginning of Year............ $25,915,024 $27,154,171 $26,326,352 Net Income (Loss)................................. 1,120,627 (398,612) 1,523,434 Cash Dividends Paid, $.72 Per Share in 2006, $.87 Per Share in 2005 and $.72 Per Share in 2004.... (695,615) (840,535) (695,615) ----------- ----------- ----------- Retained Earnings at End of Year.................. $26,340,036 $25,915,024 $27,154,171 =========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 6 [CHIGAGO RIVET LOGO] - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------- For the Years Ended December 31 2006 2005 2004 - --------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net Income (Loss)..................................... $ 1,120,627 $ (398,612) $ 1,523,434 Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: Depreciation and Amortization....................... 1,659,834 1,703,382 1,757,962 Net (Gain) Loss on the Sale of Properties........... (16,830) 38,088 2,148 Gain from Demutualization........................... -- (256,660) -- Deferred Income Taxes............................... (176,000) (244,000) 19,000 Changes in Operating Assets and Liabilities: Accounts Receivable, net.......................... (532,017) (502,996) (318,447) Inventories....................................... 490,386 270,775 (1,008,682) Other Current Assets.............................. (181,365) (12,645) (937) Accounts Payable.................................. (145,120) 81,239 40,501 Accrued Wages and Salaries........................ 12,473 (25,732) (47,693) Accrued Profit Sharing Plan Contribution.......... 100,000 (127,312) 119,069 Other Accrued Expenses............................ (295,147) 167,625 233,705 ----------- ----------- ----------- Net Cash Provided by Operating Activities.... 2,036,841 693,152 2,320,060 ----------- ----------- ----------- Cash Flows from Investing Activities: Capital Expenditures................................ (1,327,482) (643,308) (1,342,906) Proceeds from the Sale of Properties................ 23,000 500 2,730 Proceeds from Demutualization....................... -- 256,660 -- Proceeds from Certificates of Deposit............... 13,425,000 1,035,000 665,000 Purchases of Certificates of Deposit................ (17,825,000) (1,235,000) (1,015,000) ----------- ----------- ----------- Net Cash Used in Investing Activities.......... (5,704,482) (586,148) (1,690,176) ----------- ----------- ----------- Cash Flows from Financing Activities: Cash Dividends Paid................................. (695,615) (840,535) (695,615) ----------- ----------- ----------- Net Cash Used in Financing Activities.......... (695,615) (840,535) (695,615) ----------- ----------- ----------- Net Decrease in Cash and Cash Equivalents............. (4,363,256) (733,531) (65,731) Cash and Cash Equivalents: Beginning of Year................................... 4,730,837 5,464,368 5,530,099 ----------- ----------- ----------- End of Year......................................... $ 367,581 $ 4,730,837 $ 5,464,368 =========== =========== =========== Cash Paid During the Year for: Income Taxes........................................ $ 1,015,091 $ -- $ 573,307 Supplemental Schedule of Non-cash Investing Activities: Capital Expenditures in Accounts Payable............ $ 124,274 $ 3,854 $ 16,676
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 7 (CHIGAGO RIVET LOGO) - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1--NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS--The Company operates in the fastener industry and is in the business of producing and selling rivets, cold-formed fasteners, screw machine products, automatic rivet setting machines, parts and tools for such machines, and the leasing of automatic rivet setting machines. A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES FOLLOWS: PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the accounts of Chicago Rivet & Machine Co. and its wholly-owned subsidiary, H & L Tool Company, Inc. (H & L Tool). All significant intercompany accounts and transactions have been eliminated. REVENUE RECOGNITION--Revenues from product sales are recognized upon shipment and an allowance is provided for estimated returns and discounts based on experience in accordance with SEC Staff Accounting Bulletin No. 104. Cash received by the Company prior to shipment is recorded as deferred revenue. The Company experiences a certain degree of sales returns that varies over time. In accordance with Statement of Financial Accounting Standards No. 48 ("FAS 48"), "Revenue Recognition When Right of Return Exists," the Company is able to make a reasonable estimation of expected sales returns based upon history and as contemplated by the requirements of FAS 48. The Company records all shipping and handling fees billed to customers as revenue, and related costs as cost of sales, when incurred, in accordance with Emerging Issues Task Force "EITF" Abstract 00-10, "Accounting for Shipping and Handling Fees and Costs." LEASE INCOME--Automatic rivet setting machines are available to customers on either a sale or lease basis. The leases are generally for a quarterly or one-year term, are cancelable at the option of the Company or the customer and are accounted for under the operating method, whereby the Company recognizes lease revenue over the term of the lease. Rentals are billed in advance, and revenues attributable to future periods are included in unearned revenue in the consolidated balance sheets. Costs related to lease revenue, other than the cost of the machines, are expensed as incurred. CREDIT RISK--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. The Company has established an allowance for accounts that may become uncollectible in the future. This estimated allowance is based primarily on management's evaluation of the financial condition of the customer and historical experience. The Company monitors its accounts receivable and charges to expense an amount equal to its estimate of potential credit losses. The Company considers a number of factors in determining its estimates, including the length of time its trade accounts receivable are past due, the Company's previous loss history and the customer's current ability to pay its obligation. Accounts receivable balances are charged off against the allowance when it is determined that the receivable will not be recovered. CASH AND CASH EQUIVALENTS--The Company considers all highly liquid investments, including certificates of deposit, with a maturity of three months or less when purchased to be cash equivalents. FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents and certificates of deposit approximate fair value. INVENTORIES--Inventories are stated at the lower of cost or net realizable value, cost being determined by the first-in, first-out method. PROPERTY, PLANT AND EQUIPMENT--Properties are stated at cost and are depreciated over their estimated useful lives using the straight-line method for financial reporting purposes. Accelerated methods of depreciation are used for income tax purposes. Direct costs related to developing or obtaining software for internal use are capitalized as property and equipment. Capitalized software costs are amortized over the software's useful life when the software is placed in service. The estimated useful lives by asset category are:
Asset category Estimated useful life - ----------------------------------------------------------------- Land improvements.......................... 15 to 25 years Buildings and improvements................. 10 to 35 years Machinery and equipment.................... 7 to 15 years Automatic rivet setting machines on lease.................................... 10 years Capitalized software costs................. 3 to 5 years Other equipment............................ 3 to 15 years
The Company reviews the carrying value of property, plant and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. When properties are retired or sold, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss on disposition is recognized in current operations. Maintenance, repairs and minor betterments that do not improve the related asset or extend its useful life are charged to operations as incurred. INCOME TAXES--Deferred income taxes are determined under the asset and liability method in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Deferred income taxes arise from temporary differences between the income tax basis of assets and liabilities and their reported amounts in the financial statements. SEGMENT INFORMATION--The Company reports segment information in accordance with Statement of Financial Accounting Standards No. 131 ("FAS 131"), "Disclosures about Segments of an Enterprise and Related Information." FAS 131 requires that segments be based on the internal structure and reporting of the Company's operations. NET INCOME PER SHARE--Net income per share of common stock is based on the weighted average number of shares outstanding of 966,132 in 2006, 2005 and 2004. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Significant items subject to estimates and assumptions include deferred taxes and valuation allowances for accounts - -------------------------------------------------------------------------------- 8 (CHIGAGO RIVET LOGO) - -------------------------------------------------------------------------------- receivable and inventory obsolescence. Actual results could differ from those estimates. RECENT ACCOUNTING PRONOUNCEMENTS--In July 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN 48"), to create a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company will adopt FIN 48 as of January 1, 2007, as required. The Company has estimated that its potential impact to retained earnings will not be material. In September 2006, the SEC issued Staff Accounting Bulletin No. 108 ("SAB 108"), to address diversity in practice in quantifying financial statement misstatements. SAB 108 requires that the Company quantify misstatements based on their impact on each of its financial statements and related disclosures. SAB 108 is to become effective for fiscal years ending after November 15, 2006. The Company has adopted SAB 108 effective as of December 31, 2006. The adoption of this bulletin did not have a material impact on its financial position and results of operations. In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 ("FAS 157"), "Fair Value Measurements." FAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements and, accordingly, FAS 157 does not require any new fair value measurements. The Company is currently evaluating the impact this standard will have on its operating income and statement of financial position. This statement is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company will adopt FAS 157 as of January 1, 2008, as required. 2--BALANCE SHEET DETAILS
2006 2005 ------------ ------------ Inventories: Raw materials................. $ 1,333,857 $ 1,586,744 Work in process............... 1,907,653 2,218,774 Finished goods................ 2,239,799 2,166,177 ----------- ----------- $ 5,481,309 $ 5,971,695 =========== =========== Net Property, Plant and Equipment: Land and improvements......... $ 1,029,035 $ 1,029,035 Buildings and improvements.... 6,321,609 6,251,144 Machinery and equipment, leased machines and other... 29,411,746 29,163,667 ----------- ----------- 36,762,390 36,443,846 Accumulated depreciation...... 26,925,130 26,392,338 ----------- ----------- $ 9,837,260 $10,051,508 =========== =========== Other Accrued Expenses: Property taxes................ $ 116,250 $ 115,799 Unearned revenue and customer deposits.................... 104,676 339,943 All other items............... 38,754 316,528 ----------- ----------- $ 259,680 $ 772,270 =========== ===========
3--LEASED MACHINES--Lease revenue amounted to $100,948 in 2006, $107,298 in 2005 and $107,976 in 2004. Future minimum rentals on leases beyond one year are not significant. The cost and carrying value of leased automatic rivet setting machines at December 31 were:
2006 2005 --------- --------- Cost.................................. $232,499 $246,965 Accumulated depreciation.............. 221,356 233,873 -------- -------- Carrying value........................ $ 11,143 $ 13,092 ======== ========
4--INCOME TAXES--The provision for income tax expense (benefit) consists of the following:
2006 2005 2004 ---------- ---------- ----------- Current: Federal................ $ 699,000 $ 38,000 $ 766,000 State.................. 5,000 -- 7,000 Deferred................. (176,000) (244,000) 19,000 ---------- ---------- ----------- $ 528,000 $ (206,000) $ 792,000 ========== ========== ===========
The deferred tax liabilities and assets consist of the following:
2006 2005 ------------ ------------ Depreciation and amortization... $(1,076,275) $(1,319,998) ----------- ----------- Inventory....................... 292,133 307,912 Accrued vacation................ 152,993 176,076 Allowance for doubtful accounts...................... 51,960 72,700 Other, net...................... 2,105 10,226 ----------- ----------- 499,191 566,914 ----------- ----------- $ (577,084) $ (753,084) =========== ===========
The following is a reconciliation of the statutory federal income tax rate to the actual effective tax rate:
2006 2005 2004 ----------------- ----------------- ----------------- AMOUNT % Amount % Amount % ----------------- ----------------- ----------------- Expected tax at U.S. Statutory rate........... $560,000 34.0 $(206,000) (34.0) $787,000 34.0 Permanent differences..... (35,000) (2.1) -- -- -- -- State taxes, net of federal benefit.......... 3,000 .1 -- -- 5,000 .2 --------- ----- --------- ----- ---------- ---- Income tax expense (benefit)................ $528,000 32.0 $(206,000) (34.0) $792,000 34.2 ========= ===== ========= ===== ========== ====
5--NOTE PAYABLE--The Company has a $1 million line of credit, which expires May 31, 2007, and remained unused at December 31, 2006. The line is unsecured and bears interest at a variable rate that is based upon, at the election of the Company, Bank of America's prime rate less an applicable margin or the London Inter-Bank Offering Rate plus an applicable margin. 6--PROFIT SHARING PLAN--The Company has a noncontributory profit sharing plan covering substantially all employees. Total expenses relating to the profit sharing plan amounted to approximately $225,000 in 2006, $125,000 in 2005 and $252,000 in 2004. 7 -- OTHER INCOME, NET -- consists of the following:
2006 2005 2004 -------- -------- -------- Interest income.............. $249,618 $148,049 $ 64,488 Gain from demutualization.... -- 256,660 -- Other........................ 15,130 13,778 13,922 -------- -------- -------- $264,748 $418,487 $ 78,410 ======== ======== ========
During 2005, the Company realized a gain of $256,660 from proceeds received due to the demutualization of an insurance provider. - -------------------------------------------------------------------------------- 9 (CHIGAGO RIVET LOGO) - -------------------------------------------------------------------------------- 8--SEGMENT INFORMATION--The Company operates, primarily in the United States, in two business segments as determined by its products. The fastener segment, which comprises H & L Tool and the parent company's fastener operations, 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 ----------- ------------ ---------- ------------ YEAR ENDED DECEMBER 31, 2006: Net sales and lease revenue..... $34,421,398 $5,948,579 $ -- $40,369,977 Depreciation.................... 1,467,984 101,210 90,640 1,659,834 Segment profit.................. 2,454,068 1,493,852 -- 3,947,920 Selling and administrative expenses....................... (2,125,977) (2,125,977) Plant closing expenses.......... (422,934) -- -- (422,934) Interest income................. 249,618 249,618 ------------ Income before income taxes...... 1,648,627 ------------ Capital expenditures............ 1,374,009 -- 77,747 1,451,756 Segment assets: Accounts receivable............ 5,363,451 539,177 -- 5,902,628 Inventory...................... 3,877,545 1,603,764 -- 5,481,309 Property, plant and equipment.................... 7,712,639 1,182,414 942,207 9,837,260 Other assets................... -- -- 6,685,279 6,685,279 ------------ 27,906,476 ------------ Year Ended December 31, 2005: Net sales and lease revenue..... $33,949,293 $5,811,463 $ -- $39,760,756 Depreciation.................... 1,519,971 104,968 78,443 1,703,382 Segment profit.................. 180,156 1,249,094 -- 1,429,250 Selling and administrative expenses....................... (2,438,571) (2,438,571) Interest income................. 148,049 148,049 Gain from demutualization....... 256,660 256,660 ------------ Loss before income taxes........ (604,612) ------------ Capital expenditures............ 451,601 35,555 160,006 647,162 Segment assets: Accounts receivable............ 4,758,839 611,772 -- 5,370,611 Inventory...................... 4,113,081 1,858,614 -- 5,971,695 Property, plant and equipment.................... 7,807,711 1,283,624 960,173 10,051,508 Other assets................... -- -- 6,528,170 6,528,170 ------------ 27,921,984 ------------ Year Ended December 31, 2004: Net sales and lease revenue..... $32,477,800 $6,755,066 $ -- $39,232,866 Depreciation.................... 1,513,978 112,868 131,116 1,757,962 Segment profit.................. 2,884,308 1,648,034 -- 4,532,342 Selling and administrative expenses....................... (2,281,396) (2,281,396) Interest income................. 64,488 64,488 ------------ Income before income taxes...... 2,315,434 ------------ Capital expenditures............ 1,332,122 19,774 7,686 1,359,582 Segment assets: Accounts receivable............ 4,318,921 548,694 -- 4,867,615 Inventory...................... 4,313,907 1,928,563 -- 6,242,470 Property, plant and equipment.................... 8,912,268 1,355,437 878,611 11,146,316 Other assets................... -- -- 7,043,056 7,043,056 ------------ 29,299,457 ------------
The Company does not allocate certain selling and administrative expenses for internal reporting, thus, no allocation was made for these expenses for segment disclosure purposes. Segment assets reported internally are limited to accounts receivable, inventory and long-lived assets. Long-lived assets of one plant location are allocated between the two segments based on estimated plant utilization, as this plant serves both fastener and assembly equipment activities. Other assets are not allocated to segments internally and to do so would be impracticable. Sales to two customers in the fastener segment accounted for 28, 24 and 22 percent and 13, 13 and 13 percent of consolidated revenues during 2006, 2005 and 2004, respectively. The accounts receivable balances for these customers accounted for 37 and 22 percent of consolidated accounts receivable for the larger customer and 13 and 17 percent for the other customer, as of December 31, 2006 and 2005, respectively. 9--SHAREHOLDER RIGHTS AGREEMENT--On November 22, 1999, the Company adopted a shareholder rights agreement and declared a dividend distribution of one right for each outstanding share of Company common stock to shareholders of record at the close of business on December 3, 1999. Each right entitles the holder, upon occurrence of certain events, to buy one one-hundredth of a share of Series A Junior Participating Preferred Stock at a price of $90, subject to adjustment. The rights may only become exercisable under certain circumstances involving acquisition of the Company's common stock, including the purchase of 10 percent or more by any person or group. The rights will expire on December 2, 2009 unless they are extended, redeemed or exchanged. 10--COMMITMENTS AND CONTINGENCIES--The Company recorded rent expense aggregating approximately $48,000, $38,000 and $44,000 for 2006, 2005 and 2004, respectively. Total future minimum rentals at December 31, 2006 are not significant. 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. 11--PLANT CLOSING--The Company recorded various charges during 2006 related to the closure of its Jefferson, Iowa facility. The facility had been operating below capacity, and the Company determined to transfer production activities to Tyrone, Pennsylvania as part of its cost savings efforts. The Jefferson facility ceased operations in December 2006. As a result of the closure, the Company recorded plant closing expenses of $422,934. Additional expenses may be incurred in preparing the facility for sale. The following is a summary of liabilities recorded on the accompanying balance sheet as accrued plant closing expenses at December 31, 2006:
SEVERANCE FACILITY AND CLOSURE BENEFITS COSTS TOTAL ---------- --------- ---------- Balance at January 1, 2006..................... $ -- $ -- $ -- Charge................... 347,929 75,005 422,934 Payments................. (170,855) (34,636) (205,491) Non-cash reduction....... -- -- -- ---------- --------- ---------- Balance at December 31, 2006..................... $ 177,074 $ 40,369 $ 217,443 ========== ========= ==========
Future cash outlays related to the closure are anticipated to be $217,443 in fiscal year 2007. 12--SUBSEQUENT EVENT--On February 19, 2007, the Board of Directors declared a regular quarterly dividend of $.18 per share, payable March 20, 2007 to shareholders of record on March 5, 2007. - -------------------------------------------------------------------------------- 10 [CHIGAGO RIVET LOGO] - -------------------------------------------------------------------------------- REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS To the Board of Directors and Shareholders of Chicago Rivet & Machine Co. We have audited the accompanying consolidated balance sheets of Chicago Rivet & Machine Co. (an Illinois corporation) and subsidiary as of December 31, 2006 and 2005, and the related consolidated statements of income, retained earnings and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of Chicago Rivet & Machine Co. and subsidiary as of and for the year ended December 31, 2004, were audited by other auditors. Those auditors expressed an unqualified opinion on those financial statements in their report dated March 21, 2005. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Chicago Rivet & Machine Co. and subsidiary as of December 31, 2006 and 2005, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. - -s- Grant Thornton LLP Chicago, Illinois March 20, 2007 To the Board of Directors and Shareholders of Chicago Rivet & Machine Co. In our opinion, the consolidated statements of income, retained earnings and cash flows for the year ended December 31, 2004 present fairly, in all material respects, the results of operations and cash flows of Chicago Rivet & Machine Co. and its subsidiary for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. - -s- PricewaterhouseCoopers LLP Chicago, Illinois March 21, 2005 - -------------------------------------------------------------------------------- 11 [CHICAGO RIVET LOGO] - -------------------------------------------------------------------------------- QUARTERLY FINANCIAL DATA (UNAUDITED)
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ----------- ----------- ---------- ---------- 2006 Net Sales and Lease Revenue............. $10,940,951 $11,057,366 $9,132,463 $9,239,197 Gross Profit......... 2,155,170 2,677,842 1,779,827 1,227,673 Net Income........... 389,284 468,526 238,179 24,638 Per Share Data: Net Income Per Share............. .40 .49 .24 .03 Average Common Shares Outstanding....... 966,132 966,132 966,132 966,132 2005 Net Sales and Lease Revenue............. $10,082,862 $10,064,392 $9,718,361 $9,895,141 Gross Profit......... 1,602,439 1,417,751 1,459,759 1,220,338 Net Income (Loss).... (76,765) (152,487) (169,780) 420 Per Share Data: Net Income (Loss) Per Share......... (.08) (.16) (.17) .00 Average Common Shares Outstanding....... 966,132 966,132 966,132 966,132 2004 Net Sales and Lease Revenue............. $10,168,964 $10,237,556 $9,324,695 $9,501,651 Gross Profit......... 2,022,406 2,230,568 2,154,471 1,870,624 Net Income........... 290,988 386,276 601,615 244,555 Per Share Data: Net Income Per Share............. .30 .40 .62 .26 Average Common Shares Outstanding....... 966,132 966,132 966,132 966,132
INFORMATION ON COMPANY'S COMMON STOCK The Company's common stock is traded on the American Stock Exchange (trading privileges only, not registered.) The ticker symbol is: CVR. At December 31, 2006, there were approximately 250 shareholders of record. The transfer agent and registrar for the Company's common stock is: Computershare Trust Company, N.A. P.O. Box 43078 Providence, Rhode Island 02940-3078 The following table shows the dividends declared and the quarterly high and low prices of the common stock for the last two years.
Dividends Declared Market Range ---------------------------------------------------- Quarter 2006 2005 2006 2005 - --------------------- ---- ---- ---------------- ---------------- First................ $.18 $.33* $21.00 $17.50 $32.69 $27.40 Second............... .18 .18 $24.25 $19.45 $32.25 $28.60 Third................ .18 .18 $24.89 $22.00 $29.25 $24.20 Fourth............... .18 .18 $24.55 $20.29 $24.37 $20.00
- --------------- * Includes an extra dividend of $.15 per share. SELECTED FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------------- 2006 2005 2004 2003 2002 - ------------------------------------------------------------------------------------------------------------------------------- Net Sales and Lease Revenue $40,369,977 $39,760,756 $39,232,866 $38,190,908 $43,012,766 - ------------------------------------------------------------------------------------------------------------------------------- Income (Loss) Before Income Taxes 1,648,627 (604,612) 2,315,434 1,242,527 3,961,075 - ------------------------------------------------------------------------------------------------------------------------------- Net Income (Loss) 1,120,627 (398,612) 1,523,434 817,527 2,604,075 - ------------------------------------------------------------------------------------------------------------------------------- Net Income (Loss) Per Share 1.16 (.41) 1.58 .85 2.69 - ------------------------------------------------------------------------------------------------------------------------------- Dividends Per Share .72 .87 .72 .97 .87 - ------------------------------------------------------------------------------------------------------------------------------- Average Common Shares Outstanding 966,132 966,132 966,132 966,132 966,537 - ------------------------------------------------------------------------------------------------------------------------------- Working Capital 15,242,183 14,839,923 15,222,262 14,020,185 12,874,182 - ------------------------------------------------------------------------------------------------------------------------------- Total Assets 27,906,476 27,921,984 29,299,457 28,138,380 30,088,173 - ------------------------------------------------------------------------------------------------------------------------------- Total Debt -- -- -- -- 1,632,760 - ------------------------------------------------------------------------------------------------------------------------------- Shareholders' Equity 24,003,168 23,578,156 24,817,303 23,989,484 24,109,105 - -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 12 [CHICAGO RIVET LOGO] - -------------------------------------------------------------------------------- STOCK PERFORMANCE GRAPH The graph set forth below shows the cumulative total return to shareholders for the five-year period ended December 31, 2006 for the Company's common stock, as compared to the Total Return Index for the American Stock Exchange (US) and the Dow Jones US Auto Parts Index. The graph assumes $100 was invested on December 31, 2001, in Chicago Rivet & Machine Co., in the American Stock Exchange (US) and the Dow Jones US Auto Parts Index. Cumulative total shareholder return assumes all dividends are reinvested. The values shown in the graph are as of the end of each period indicated. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN Among Chicago Rivet & Machine Co., the Total Return Index for the American Stock Exchange (US) and the Dow Jones US Auto Parts Index (LINE GRAPH)
- -------------------------------------------------------------------------------------------- 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 - -------------------------------------------------------------------------------------------- Chicago Rivet & Machine Co. ...... 100 104 129 133 101 110 - -------------------------------------------------------------------------------------------- Dow Jones US Auto Parts Index....... 100 90 128 135 114 122 - -------------------------------------------------------------------------------------------- Amex Total Return US................ 100 82 111 128 138 160 - --------------------------------------------------------------------------------------------
BOARD OF DIRECTORS MICHAEL J. BOURG(e) President of the Company EDWARD L. CHOTT(a)(c)(n) Chairman of the Board and Chief Executive Officer of The Broaster Co. Beloit, Wisconsin KENT H. COONEY(a) Chief Financial Officer of Heldon Bay Limited Partnership Bigfork, Montana NIRENDU DHAR General Manager of H & L Tool Company, Inc. WILLIAM T. DIVANE, JR.(a)(c)(n) Chairman of the Board and Chief Executive Officer of Divane Bros. Electric Co. Franklin Park, Illinois GEORGE P. LYNCH(c) Attorney at Law George Patrick Lynch, Ltd. Lisle, Illinois JOHN R. MADDEN(a)(c)(e)(n) Chairman of the Board of First National Bank of La Grange La Grange, Illinois JOHN A. MORRISSEY(e) Chairman of the Board of the Company President and Director of Algonquin State Bank Algonquin, Illinois WALTER W. MORRISSEY(e) Attorney at Law Morrissey & Robinson Oakbrook Terrace, Illinois (a) Member of Audit Committee (c) Member of Compensation Committee (e) Member of Executive Committee (n) Member of Nominating Committee CORPORATE OFFICERS JOHN A. MORRISSEY Chairman, Chief Executive Officer MICHAEL J. BOURG President, Chief Operating Officer and Treasurer NIRENDU DHAR General Manager of H & L Tool Company, Inc. KIMBERLY A. KIRHOFER Secretary Chicago Rivet & Machine Co. - 901 Frontenac Road - P.O. Box 3061 - Naperville, Illinois 60566 - www.chicagorivet.com - -------------------------------------------------------------------------------- [CHICAGO RIVET GRAPHIC & LETTERHEAD] - -------------------------------------------------------------------------------- EX-21 3 c13090exv21.txt SUBSIDIARIES EXHIBIT 21 CHICAGO RIVET & MACHINE CO. SUBSIDIARIES OF THE REGISTRANT The Company's only subsidiary is H & L Tool Company, Inc., which is wholly-owned and is organized in the State of Illinois. 41 EX-31.1 4 c13090exv31w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 302 EXHIBIT 31.1 I, John A. Morrissey, certify that: 1. I have reviewed this annual report on Form 10-K of Chicago Rivet & Machine Co.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 21, 2007 /s/ John A. Morrissey ------------------------ John A. Morrissey Chief Executive Officer 42 EX-31.2 5 c13090exv31w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 302 EXHIBIT 31.2 I, Michael J. Bourg, certify that: 1. I have reviewed this annual report on Form 10-K of Chicago Rivet & Machine Co.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 21, 2007 /s/ Michael J. Bourg -------------------- Michael J. Bourg Chief Financial Officer 43 EX-32.1 6 c13090exv32w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 906 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Chicago Rivet & Machine Co. (the "Company") for the period ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John A. Morrissey, as Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ John A. Morrissey - --------------------------------- Name: John A. Morrissey Title: Chief Executive Officer Date: March 21, 2007 44 EX-32.2 7 c13090exv32w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 906 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Chicago Rivet & Machine Co. (the "Company") for the period ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael J. Bourg, as Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Michael J. Bourg - -------------------------------- Name: Michael J. Bourg Title: Chief Financial Officer Date: March 21, 2007 45 -----END PRIVACY-ENHANCED MESSAGE-----