10-Q 1 c07674e10vq.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2006 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 0-1227 Chicago Rivet & Machine Co. (Exact Name of Registrant as Specified in Its Charter) Illinois 36-0904920 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.)
901 Frontenac Road, Naperville, Illinois 60563 (Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (630) 357-8500 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer X --- --- --- Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X --- --- As of June 30, 2006, 966,132 shares of the registrant's common stock were outstanding. CHICAGO RIVET & MACHINE CO. INDEX
Page ----- PART I. FINANCIAL INFORMATION Condensed Consolidated Balance Sheets at June 30, 2006 and December 31, 2005 2-3 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2006 and 2005 4 Condensed Consolidated Statements of Retained Earnings for the Six Months Ended June 30, 2006 and 2005 5 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005 6 Notes to the Condensed Consolidated Financial Statements 7-9 Management's Discussion and Analysis of Financial Condition and Results of Operations 10-11 Controls and Procedures 12 PART II. OTHER INFORMATION 13-19
1 Item 1. Financial Statements. CHICAGO RIVET & MACHINE CO. Condensed Consolidated Balance Sheets June 30, 2006 and December 31, 2005
June 30, December 31, 2006 2005 ----------- ------------ (Unaudited) Assets Current Assets: Cash and cash equivalents $ 304,008 $ 4,730,837 Certificates of deposit 4,505,000 1,005,000 Accounts receivable, net of allowance of $203,000 and $210,000, respectively 7,264,111 5,370,611 Inventories: Raw materials 1,515,930 1,586,744 Work in process 2,248,468 2,218,774 Finished goods 2,030,419 2,166,177 ----------- ----------- Total inventories 5,794,817 5,971,695 ----------- ----------- Deferred income taxes 555,191 560,191 Other current assets 165,352 232,142 ----------- ----------- Total current assets 18,588,479 17,870,476 ----------- ----------- Property, Plant and Equipment: Land and improvements 1,029,035 1,029,035 Buildings and improvements 6,264,144 6,251,144 Production equipment, leased machines and other 29,838,234 29,163,667 ----------- ----------- 37,131,413 36,443,846 Less accumulated depreciation 26,968,113 26,392,338 ----------- ----------- Net property, plant and equipment 10,163,300 10,051,508 ----------- ----------- Total assets $28,751,779 $27,921,984 =========== ===========
See Notes to the Condensed Consolidated Financial Statements 2 CHICAGO RIVET & MACHINE CO. Condensed Consolidated Balance Sheets June 30, 2006 and December 31, 2005
June 30, December 31, 2006 2005 ----------- ------------ (Unaudited) Liabilities and Shareholders' Equity Current Liabilities: Accounts payable 1,478,252 1,452,314 Accrued wages and salaries 871,164 680,969 Contributions due profit sharing plan 190,000 125,000 Accrued plant closing expenses 399,746 -- Other accrued expenses 656,184 772,270 ----------- ----------- Total current liabilities 3,595,346 3,030,553 Deferred income taxes 1,068,275 1,313,275 ----------- ----------- Total liabilities 4,663,621 4,343,828 ----------- ----------- Commitments and contingencies (Note 4) Shareholders' Equity: Preferred stock, no par value, 500,000 shares authorized: none outstanding -- -- Common stock, $1.00 par value, 4,000,000 shares authorized: 1,138,096 shares issued 1,138,096 1,138,096 Additional paid-in capital 447,134 447,134 Retained earnings 26,425,026 25,915,024 Treasury stock, 171,964 shares at cost (3,922,098) (3,922,098) ----------- ----------- Total shareholders' equity 24,088,158 23,578,156 ----------- ----------- Total liabilities and shareholders' equity $28,751,779 $27,921,984 =========== ===========
See Notes to the Condensed Consolidated Financial Statements 3 CHICAGO RIVET & MACHINE CO. Condensed Consolidated Statements of Operations For the Three and Six Months Ended June 30, 2006 and 2005 (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------------- ------------------------- 2006 2005 2006 2005 ----------- ----------- ----------- ----------- Net sales $11,032,015 $10,036,880 $21,945,917 $20,091,999 Lease revenue 25,351 27,512 52,400 55,255 ----------- ----------- ----------- ----------- 11,057,366 10,064,392 21,998,317 20,147,254 Cost of goods sold and costs related to lease revenue 8,379,524 8,646,641 17,165,305 17,127,064 ----------- ----------- ----------- ----------- Gross profit 2,677,842 1,417,751 4,833,012 3,020,190 Selling and administrative expenses 1,637,046 1,683,491 3,266,849 3,433,257 Plant closing expenses 400,401 -- 400,401 -- ----------- ----------- ----------- ----------- Operating profit (loss) 640,395 (265,740) 1,165,762 (413,067) Other income and expenses: Interest income 53,954 33,275 109,918 60,037 Other income 4,177 2,978 9,130 7,778 ----------- ----------- ----------- ----------- Income (loss) before income taxes 698,526 (229,487) 1,284,810 (345,252) Provision (benefit) for income taxes 230,000 (77,000) 427,000 (116,000) ----------- ----------- ----------- ----------- Net income (loss) $ 468,526 $ (152,487) $ 857,810 $ (229,252) =========== =========== =========== =========== Average common shares outstanding 966,132 966,132 966,132 966,132 =========== =========== =========== =========== Per share data: Net income (loss) per share $ 0.49 $ (0.16) $ 0.89 $ (0.24) =========== =========== =========== =========== Cash dividends declared per share $ 0.18 $ 0.18 $ 0.36 $ 0.51 =========== =========== =========== ===========
See Notes to the Condensed Consolidated Financial Statements 4 CHICAGO RIVET & MACHINE CO. Condensed Consolidated Statements of Retained Earnings For the Six Months Ended June 30, 2006 and 2005 (Unaudited)
2006 2005 ----------- ----------- Retained earnings at beginning of period $25,915,024 $27,154,171 Net income (loss) for the six months ended 857,810 (229,252) Cash dividends declared in the period, $.36 and $.51 per share in 2006 and 2005, respectively (347,808) (492,727) ----------- ----------- Retained earnings at end of period $26,425,026 $26,432,192 =========== ===========
See Notes to the Condensed Consolidated Financial Statements 5 CHICAGO RIVET & MACHINE CO. Condensed Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2006 and 2005 (Unaudited)
2006 2005 ----------- ----------- Cash flows from operating activities: Net income (loss) $ 857,810 $ (229,252) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 817,410 839,826 Net gain on the sale of equipment (2,830) (300) Deferred income taxes (240,000) (215,000) Changes in operating assets and liabilities: Accounts receivable, net (1,893,500) (1,571,266) Inventories 176,878 399,071 Other current assets 66,790 52,337 Accounts payable (2,445) 483,562 Accrued wages and salaries 190,195 142,240 Accrued profit sharing 65,000 -- Other accrued expenses 283,660 73,487 ----------- ----------- Net cash provided by (used in) operating activities 318,968 (25,295) ----------- ----------- Cash flows from investing activities: Capital expenditures (906,989) (269,878) Proceeds from the sale of equipment 9,000 300 Proceeds from held-to-maturity securities 2,475,000 405,000 Purchases of held-to-maturity securities (5,975,000) (405,000) ----------- ----------- Net cash used in investing activities (4,397,989) (269,578) ----------- ----------- Cash flows from financing activities: Cash dividends paid (347,808) (492,727) ----------- ----------- Net cash used in financing activities (347,808) (492,727) ----------- ----------- Net decrease in cash and cash equivalents (4,426,829) (787,600) Cash and cash equivalents at beginning of period 4,730,837 5,464,368 ----------- ----------- Cash and cash equivalents at end of period $ 304,008 $ 4,676,768 =========== =========== Supplemental schedule of noncash investing activities: Capital expenditures in accounts payable $ 28,383 $ 229,061
See Notes to the Condensed Consolidated Financial Statements 6 CHICAGO RIVET & MACHINE CO. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. In the opinion of the Company, the accompanying unaudited interim financial statements contain all adjustments necessary to present fairly the financial position of the Company as of June 30, 2006 (unaudited) and December 31, 2005 (audited) and the results of operations and changes in cash flows for the indicated periods. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. The results of operations for the three and six-month period ending June 30, 2006 are not necessarily indicative of the results to be expected for the year. 3. The Company extends credit on the basis of terms that are customary within our markets to various companies doing business primarily in the automotive industry. The Company has a concentration of credit risk primarily within the automotive industry and in the Midwestern United States. 4. The Company is, from time to time, involved in litigation, including environmental claims and contract disputes, in the normal course of business. While it is not possible at this time to establish the ultimate amount of liability with respect to contingent liabilities, including those related to legal proceedings, management is of the opinion that the aggregate amount of any such liabilities, for which provision has not been made, will not have a material adverse effect on the Company's financial position. 5. On May 30, 2006 the Board of Directors of Chicago Rivet & Machine Co. determined that the Company would close its fastener operation in Jefferson, Iowa and transfer production activities to its facility in Tyrone, Pennsylvania. The Jefferson, Iowa facility had been operating below capacity, and the Company determined to close the facility as part of its cost savings efforts. While the exact timing is unknown at this time, it is expected that the transfer will be substantially complete by December 31, 2006. The Company recorded a one-time charge of $400,401 relating to termination benefits in connection with the closing of the Jefferson facility. The Company does not anticipate that it will record a material charge related to asset impairment as a result of this closing. Additional costs associated with the relocation of equipment and closing and disposal of the facility are anticipated, but the amount and timing of such costs are not known at this time. 7 CHICAGO RIVET & MACHINE CO. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 6. Segment Information--The Company operates in two business segments as determined by its products. The fastener segment includes rivets, cold-formed fasteners and screw machine products. The assembly equipment segment includes automatic rivet setting machines, parts and tools for such machines and the leasing of automatic rivet setting machines. Information by segment is as follows:
Assembly Fastener Equipment Other Consolidated ----------- ---------- ---------- ------------ Three Months Ended June 30, 2006: Net sales and lease revenue $ 9,529,364 $1,528,002 $11,057,366 Depreciation 361,486 25,377 22,370 409,233 Segment profit 1,201,970 402,778 1,604,748 Plant closing expenses (400,401) (400,401) Selling and administrative expenses (559,775) (559,775) Interest income 53,954 53,954 ----------- Income before income taxes 698,526 ----------- Capital expenditures 858,459 -- 14,543 873,002 Segment assets: Accounts receivable, net 6,552,671 711,440 7,264,111 Inventories 4,185,252 1,609,565 5,794,817 Property, plant and equipment, net 8,004,727 1,232,870 925,703 10,163,300 Other assets 5,529,551 5,529,551 ----------- 28,751,779 ----------- Three Months Ended June 30, 2005: Net sales and lease revenue $ 8,444,808 $1,619,584 $10,064,392 Depreciation 376,125 26,106 17,787 420,018 Segment profit 37,349 359,887 397,236 Selling and administrative expenses (659,998) (659,998) Interest income 33,275 33,275 ----------- Income (loss) before income taxes (229,487) ----------- Capital expenditures 351,785 -- 122,245 474,030 Segment assets: Accounts receivable, net 5,654,635 784,246 6,438,881 Inventories 3,972,629 1,870,770 5,843,399 Property, plant and equipment, net 8,532,793 1,304,745 967,891 10,805,429 Other assets 6,220,119 6,220,119 ----------- 29,307,828 -----------
8 CHICAGO RIVET & MACHINE CO. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Assembly Fastener Equipment Other Consolidated ----------- ---------- ---------- ------------ Six Months Ended June 30, 2006: Net sales and lease revenue $18,710,087 $3,288,230 $21,998,317 Depreciation 722,716 50,754 43,940 817,410 Segment profit 1,850,105 853,550 2,703,655 Plant closing expenses (400,401) (400,401) Selling and administrative expenses (1,128,362) (1,128,362) Interest income 109,918 109,918 ----------- Income before income taxes 1,284,810 ----------- Capital expenditures 920,829 14,543 935,372 Six Months Ended June 30, 2005: Net sales and lease revenue $16,792,366 $3,354,888 $20,147,254 Depreciation 752,040 52,212 35,574 839,826 Segment profit 112,492 782,548 895,040 Selling and administrative expenses (1,300,329) (1,300,329) Interest income 60,037 60,037 ----------- Income (loss) before income taxes (345,252) ----------- Capital expenditures 372,565 1,520 124,854 498,939
9 CHICAGO RIVET & MACHINE CO. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results for the second quarter of 2006, as well as the current year to date, reflect continued improvement over the results for the same periods last year. For the quarter, sales have increased $993,000, bringing the increase for the year to $1,851,000. The combination of improved sales volume and the reduction in certain expenses has helped the Company to report net income of $469,000 in the quarter and $858,000 for the first half of the year, compared to net losses in the year earlier periods. Within the fastener segment, revenues increased from $8,445,000 to $9,529,000, or 12.8%, during the second quarter of 2006. The increase in sales, combined with a reduction in tooling expense of $353,000, contributed to an increase in gross margin of approximately $1,234,000 compared to the second quarter of 2005. Two factors contributed to the tooling reduction in 2006: the first was the greater than normal expenditure for tool development during 2005 when parts were being designed prior to shipment to customers, the second was the overall longer life on certain tools during the current year. Margins were further improved due to higher production volume in the current year that has allowed for greater utilization of labor and overhead costs compared to 2005. For the first six months, fastener segment revenues increased by $1,918,000, or 11.4%, from $16,792,000 to $18,710,000. Gross margins for the first six months of 2006 increased $1,790,000 compared to the first half of 2005. Higher sales volume was the primary factor behind the improvement in margins. Tooling expense has declined $537,000 year to date for the reasons outlined above. Revenues within the assembly equipment segment totaled $1,528,000 in the second quarter of 2006, a decline of $92,000, or 5.7%, compared to the second quarter of 2005, when revenues were $1,620,000. Demand for our products in this segment continues to show weakness after rebounding slightly in the first quarter. Gross margins for this segment improved approximately $27,000 in the quarter, however, as headcount reductions that took place during the second quarter of 2005 have resulted in lower payroll and related benefits in the current year. For the first six months of 2006, revenues in this segment amounted to $3,288,000, a decline of approximately $67,000, or 2%, compared to the first six months of 2005. The current year to date reduction in payroll and related benefits offset the year to date decline in revenues and resulted in an improvement in gross margin of approximately $23,000. Selling and administrative expenses for the second quarter of 2006 were approximately $46,000 lower than during the second quarter of 2005. Professional services were $85,000 lower in the quarter primarily due to procedures performed in 2005 related to compliance with the Sarbanes-Oxley Act of 2002, while legal fees declined $35,000 due to litigation and other matters resolved in 2005. Further, salaries and wages declined $42,000 during the second quarter due to reduced headcount. These decreases were partially offset by an increase in profit sharing expense of $125,000 resulting from more profitable operations in the current year. On a year to date basis, selling and administrative expenses declined $166,000 compared to the first six months of 2005. Professional services were $217,000 lower, legal fees declined $108,000 and salaries and wages declined by $29,000, for the reasons stated above. These reductions were partially offset by profit sharing expense which has increased by $190,000 due to the return to profitability in the current year. During May of the current year, a decision was made to close our fastener operation located in Jefferson, Iowa and transfer production activities to our facility in Tyrone, Pennsylvania to better utilize manufacturing capacity. Approximately $400,000 was accrued during the quarter for one-time termination benefits related to the closing. While the exact timing is unknown, the process of transferring activities is underway and is expected to be substantially completed by December 31, 2006. Additional costs associated with the relocation of equipment and closing and disposal of the facility are anticipated, but the amount and timing of such costs are not known at this time. Working capital at June 30, 2006 amounted to $15 million, an increase of $.2 million from the beginning of the year. Holdings in cash, cash equivalents and certificates of deposit amounted to $4.8 million at the end of the second quarter, a year to date decline of $.9 million, which is approximately equal to capital outlays in 2006 that have been primarily to expand our fastener segment production capabilities. Offsetting this decline, accounts receivable balances have increased by $1.9 million this year. This increase is expected as sales in the latter portion of the second quarter typically exceed those towards the end of the calendar year. Current liabilities are $.6 million higher than at the beginning of the year, primarily due to the accrual of termination benefits related to the Jefferson, Iowa plant closing. 10 The Company has a $1.0 million line of credit, which expires May 31, 2007. This line of credit remains unused. Management believes that current cash, cash equivalents, operating cash flow and the available line of credit will provide adequate working capital for the foreseeable future. The second quarter of 2006 reflects the continued improvement in customer demand that began in the first quarter. Along with the 9.9% improvement in sales, we were able to once again realize improved gross margins on a comparable quarter basis due to a significant reduction in tooling expense and greater utilization of plant capacity. However, we rely on the domestic automotive industry for revenue, and that reliance keeps us cautious as we look ahead. The domestic automotive industry has been declining for some time as it faces challenges related to labor issues, over-capacity and lower-cost foreign competition. Overall, raw material costs in the first half of 2006 receded slightly compared to the first half of 2005. However, some prices have increased again recently, and they remain significantly higher than historical levels. Competition for available market share continues to restrict our ability to raise prices. Although costs associated with Sarbanes-Oxley compliance have been lower thus far in 2006, final regulations as they relate to companies our size may change, resulting in further expenses that cannot be estimated at this time. While we are pleased with the return to profitability we have achieved in the first six months of 2006, the competitive landscape remains challenging, and we must continue to focus on controlling costs while investing wisely for the future. 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, the loss of the services of our key employees and difficulties in achieving expected cost savings. Many of these factors are beyond our ability to control or predict. Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to publish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. 11 CHICAGO RIVET & MACHINE CO. Item 4. Controls and Procedures. (a) Disclosure Controls and Procedures. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act. (b) Internal Control Over Financial Reporting. There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 12 PART II -- OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Stockholders was held on May 9, 2006. The only proposal voted upon was the election of nine directors for a term ending at the Annual Meeting in 2007. The nine persons nominated by the Company's Board of Directors received the following votes and were elected:
NAME VOTES FOR VOTES WITHHELD ---- --------- -------------- Michael J. Bourg 793,426 84,369 Edward L. Chott 791,114 85,294 Kent H. Cooney 791,849 84,844 Nirendu Dhar 791,040 85,444 William T. Divane, Jr. 792,975 84,269 George P. Lynch 791,078 85,314 John R. Madden 788,756 87,529 John A. Morrissey 792,339 84,739 Walter W. Morrissey 789,717 86,794
Item 6. Exhibits 31 Rule 13a-14(a) or 15d-14(a) Certifications 31.1 Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Section 1350 Certifications 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHICAGO RIVET & MACHINE CO. (Registrant) Date: August 11, 2006 /s/ John A. Morrissey ---------------------------------------- John A. Morrissey Chairman of the Board of Directors and Chief Executive Officer Date: August 11, 2006 /s/ Michael J. Bourg ---------------------------------------- Michael J. Bourg President, Chief Operating Officer and Treasurer (Principal Financial Officer) 14 CHICAGO RIVET & MACHINE CO. EXHIBITS INDEX TO EXHIBITS
Exhibit Number Page ------- ---- 31 Rule 13a-14(a) or 15d-14(a) Certifications 31.1 Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 16 31.2 Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 17 32 Section 1350 Certifications 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 18 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 19