UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-1227
Chicago Rivet & Machine Co.
(Exact Name of Registrant as Specified in Its Charter)
Illinois 36-0904920
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
901 Frontenac Road, Naperville, Illinois 60563
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (630) 357-8500
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer Accelerated filer Non-accelerated filer X
--- --- ---
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
As of March 31, 2007, 966,132 shares of the registrant's common stock were
outstanding.
CHICAGO RIVET & MACHINE CO.
INDEX
Page
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PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets at
March 31, 2007 and December 31, 2006 2-3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2007 and 2006 4
Condensed Consolidated Statements of Retained Earnings for the
Three Months Ended March 31, 2007 and 2006 5
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2007 and 2006 6
Notes to the Condensed Consolidated Financial Statements 7-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
Controls and Procedures 11
PART II. OTHER INFORMATION 12-18
1
Item 1. Financial Statements.
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Balance Sheets
March 31, 2007 and December 31, 2006
March 31, December 31,
2007 2006
----------- ------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 464,060 $ 367,581
Certificates of deposit 5,380,000 5,405,000
Accounts receivable, net of allowance
of $147,000 and $150,000, respectively 6,244,565 5,902,628
Inventories:
Raw materials 1,380,169 1,333,857
Work in process 2,229,968 1,907,653
Finished goods 2,322,355 2,239,799
----------- -----------
Total inventories 5,932,492 5,481,309
----------- -----------
Deferred income taxes 503,191 499,191
Prepaid income taxes -- 118,914
Other current assets 294,084 294,593
----------- -----------
Total current assets 18,818,392 18,069,216
----------- -----------
Property, Plant and Equipment:
Land and improvements 1,029,035 1,029,035
Buildings and improvements 6,321,609 6,321,609
Production equipment, leased
machines and other 29,395,488 29,411,746
----------- -----------
36,746,132 36,762,390
Less accumulated depreciation 27,029,837 26,925,130
----------- -----------
Net property, plant and equipment 9,716,295 9,837,260
----------- -----------
Total assets $28,534,687 $27,906,476
=========== ===========
See Notes to the Condensed Consolidated Financial Statements
2
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Balance Sheets
March 31, 2007 and December 31, 2006
March 31, December 31,
2007 2006
----------- ------------
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 1,930,778 $ 1,431,468
Accrued wages and salaries 861,164 693,442
Contributions due profit sharing plan 54,244 225,000
Accrued plant closing expenses 140,715 217,443
Other accrued expenses 356,974 259,680
----------- -----------
Total current liabilities 3,343,875 2,827,033
Deferred income taxes 1,051,275 1,076,275
----------- -----------
Total liabilities 4,395,150 3,903,308
----------- -----------
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 26,476,405 26,340,036
Treasury stock, 171,964 shares at cost (3,922,098) (3,922,098)
----------- -----------
Total shareholders' equity 24,139,537 24,003,168
----------- -----------
Total liabilities and shareholders' equity $28,534,687 $27,906,476
=========== ===========
See Notes to the Condensed Consolidated Financial Statements
3
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2007 and 2006
(Unaudited)
2007 2006
---------- -----------
Net sales $9,924,333 $10,913,902
Lease revenue 23,243 27,049
---------- -----------
9,947,576 10,940,951
Cost of goods sold and costs related
to lease revenue 8,016,515 8,785,781
---------- -----------
Gross profit 1,931,061 2,155,170
Selling and administrative expenses 1,528,346 1,629,803
Plant closing expenses 18,074 --
---------- -----------
Operating profit 384,641 525,367
Other income and expenses:
Interest income 74,431 55,964
Other income 1,200 4,953
---------- -----------
Income before income taxes 460,272 586,284
Provision for income taxes 150,000 197,000
---------- -----------
Net Income $ 310,272 $ 389,284
========== ===========
Average common shares outstanding 966,132 966,132
========== ===========
Per share data:
Net income per share $ 0.32 $ 0.40
========== ===========
Cash dividends declared per share $ 0.18 $ 0.18
========== ===========
See Notes to the Condensed Consolidated Financial Statements
4
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Statements of Retained Earnings
For the Three Months Ended March 31, 2007 and 2006
(Unaudited)
2007 2006
----------- -----------
Retained earnings at beginning of period $26,340,036 $25,915,024
Net income for the three months ended 310,272 389,284
Cash dividends declared in the period;
$.18 per share in 2007 and 2006 (173,903) (173,903)
----------- -----------
Retained earnings at end of period $26,476,405 $26,130,405
=========== ===========
See Notes to the Condensed Consolidated Financial Statements
5
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2007 and 2006
(Unaudited)
2007 2006
----------- -----------
Cash flows from operating activities:
Net income $ 310,272 $ 389,284
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 280,583 408,177
Net gain on the sale of equipment (8,020) --
Deferred income taxes (29,000) (44,000)
Changes in operating assets and liabilities:
Accounts receivable, net (341,937) (1,671,998)
Inventories (451,183) 49,788
Other current assets 119,423 (15,190)
Accounts payable 342,739 301,313
Accrued wages and salaries 167,722 176,700
Accrued profit sharing contribution (170,756) (60,000)
Other accrued expenses 20,566 (37,419)
----------- -----------
Net cash provided by (used in) operating activities 240,409 (503,345)
----------- -----------
Cash flows from investing activities:
Capital expenditures (3,047) (44,078)
Proceeds from the sale of equipment 8,020 --
Proceeds from certificates of deposit 5,255,000 775,000
Purchases of certificates of deposit (5,230,000) (3,075,000)
----------- -----------
Net cash provided by (used in) investing activities 29,973 (2,344,078)
----------- -----------
Cash flows from financing activities:
Cash dividends paid (173,903) (173,903)
----------- -----------
Net cash used in financing activities (173,903) (173,903)
----------- -----------
Net increase (decrease) in cash and cash equivalents 96,479 (3,021,326)
Cash and cash equivalents at beginning of period 367,581 4,730,837
----------- -----------
Cash and cash equivalents at end of period $ 464,060 $ 1,709,511
=========== ===========
Supplemental schedule of non-cash investing activities:
Capital expenditures in accounts payable $ 156,571 $ 18,292
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 financial statements contain
all adjustments necessary to present fairly the financial position of the
Company as of March 31, 2007 (unaudited) and December 31, 2006 (audited) and the
results of operations and changes in cash flows for the indicated periods.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. The results of operations for the three-month period ended March 31, 2007 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. The Company adopted the provisions of Financial Accounting Standards Board
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN 48"),
on January 1, 2007. There was no effect on retained earnings related to this
adoption. Consistent with FIN 48, the Company classifies interest and penalties
related to unrecognized tax benefits as a component of income tax expense.
The Company's federal income tax returns for the 2005 and 2006 tax years are
subject to examination by the Internal Revenue Service ("IRS"). While it may be
possible that a reduction could occur with respect to the Company's unrecognized
tax benefits as an outcome of an IRS examination, management does not anticipate
any adjustments that would result in a material change to the results of
operations or financial condition of the Company. The 2004 federal income tax
return was examined by the IRS and no adjustments were made as a result of the
examination.
No statutes have been extended on any of the Company's federal income tax
filings. The statute of limitations on the Company's 2005 and 2006 federal
income tax returns will expire on September 15, 2009 and 2010, respectively.
The Company's state income tax returns for the 2004 through 2006 tax years
remain subject to examination by various state authorities with the latest
closing period on October 31, 2010. The Company is currently not under
examination by any state authority for income tax purposes and no statutes for
state income tax filings have been extended.
6. The Company recorded various charges during 2006 and 2007 related to the
closure of its Jefferson, Iowa facility. The facility had been operating below
capacity and after the transfer of production activities to Tyrone,
Pennsylvania, operations ceased in December 2006. As a result of the closure,
the Company recorded plant closing expenses of $422,934 in the year ended
December 31, 2006, and $18,074 in the quarter ended March 31, 2007.
The following is a summary of liabilities recorded on the accompanying balance
sheets as accrued plant closing expenses:
Severance Facility
and Benefits Closure Costs Total
------------ ------------- --------
Balance at December 31, 2006 $177,074 $ 40,369 $217,443
Charge -- 18,074 18,074
Payments (36,359) (58,443) (94,802)
Non-cash reduction -- -- --
-------- -------- --------
Balance at March 31, 2007 $140,715 $ -- $140,715
======== ======== ========
7
CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Segment Information--The Company operates in two business segments as
determined by its products. The fastener segment includes rivets, cold-formed
fasteners and screw machine products. The assembly equipment segment includes
automatic rivet setting machines, parts and tools for such machines and the
leasing of automatic rivet setting machines. Information by segment is as
follows:
Assembly
Fastener Equipment Other Consolidated
---------- ---------- --------- ------------
Three Months Ended March 31, 2007:
Net sales and lease revenue $8,725,371 $1,222,205 $ 9,947,576
Depreciation 235,898 21,069 23,616 280,583
Segment profit 726,469 235,097 961,566
Selling and administrative expenses (557,651) (557,651)
Plant closing expenses (18,074) (18,074)
Interest income 74,431 74,431
------------
Income before income taxes 460,272
------------
Capital expenditures 159,618 -- 159,618
Segment assets:
Accounts receivable, net 5,692,469 552,096 6,244,565
Inventories 4,282,783 1,649,709 5,932,492
Property, plant and equipment, net 7,636,359 1,161,345 918,591 9,716,295
Other assets 6,641,335 6,641,335
------------
28,534,687
------------
Three Months Ended March 31, 2006:
Net sales and lease revenue $9,180,723 $1,760,228 $10,940,951
Depreciation 361,230 25,377 21,570 408,177
Segment profit 648,135 450,772 1,098,907
Selling and administrative expenses (568,587) (568,587)
Interest income 55,964 55,964
------------
Loss before income taxes 586,284
------------
Capital expenditures 62,370 -- 62,370
Segment assets:
Accounts receivable, net 6,436,087 606,522 7,042,609
Inventories 4,227,711 1,694,196 5,921,907
Property, plant and equipment, net 7,508,851 1,258,247 938,603 9,705,701
Other assets 5,793,034 5,793,034
------------
28,463,251
------------
8
CHICAGO RIVET & MACHINE CO.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Revenues for the first quarter of 2007 were $9,947,576, a decline of
$993,375, or 9.1%, compared to the first quarter of last year. Reduced demand in
the domestic automotive market resulted in lower fastener segment sales, while
equipment segment sales weakened further. Despite the lower revenues in the
current year, the reduction in certain expenses and continued cost controls
allowed us to achieve net income of $310,272, or $0.32 per share, compared to
$389,284, or $0.40 per share in 2006.
In the first quarter, fastener segment revenues declined $455,352, or 5%,
from $9,180,723 in 2006 to $8,725,371 in 2007. Despite lower sales volume, gross
margins within this segment improved by approximately $12,000 compared with the
first quarter of 2006 due to reductions in certain expense items. Depreciation
in the current year is $125,000 lower than last year as certain equipment became
fully depreciated in 2006. This favorable change is expected to be present
throughout the year. Expediting and rejection expenses declined $83,000 during
the quarter due in part to investments in inspection equipment made since last
year. Outside machining declined $142,000, primarily due to a change in product
mix. The transfer of production activities from Jefferson, Iowa to Tyrone,
Pennsylvania in 2006 resulted in further improvement as certain expenses were
eliminated.
Demand within the assembly equipment segment weakened considerably in the
first quarter of 2007, resulting in revenues of only $1,222,205, a reduction of
$538,023 compared to 2006. While manufacturing costs declined due to the lower
level of production activity, the reduction was not sufficient to offset the
lower volume, resulting in a $236,000 decline in gross margin compared to the
first quarter of 2006.
Selling and administrative expenses during the first quarter of 2007 were
$101,000 lower than the first quarter of 2006. Payroll and payroll related
expenses account for approximately $45,000 of the decline, due to turnover and
headcount reductions since the first quarter of last year. Profit sharing
expense has declined $11,000 due to the lower level of profitability. The
remaining net decrease relates to various other expenses.
First quarter 2007 results also include $18,074 for expenses related to the
previously disclosed Jefferson, Iowa plant closing. These expenses relate to
preparing the building for sale and the transfer of assets to our Tyrone,
Pennsylvania location. Further expenses related to the closing are not expected
to be material.
Working capital increased by $.2 million from the beginning of the year and
amounted to $15.4 million at the end of the first quarter. Accounts receivable
balances increased by $.3 million during the quarter as a result of first
quarter 2007 sales being higher than fourth quarter 2006 sales. In support of
the higher level of operating activity in the first quarter, compared with the
fourth quarter of last year, inventory increased by $.5 million and accounts
payable increased by a like amount. Similarly, the increase in accrued wages and
salaries of $.2 million and the decline in accrued profit sharing of $.2
million, reflect normal annual changes. The net result of these changes and
other cash flow items on cash and certificates of deposit was an increase of $.1
million, to $5.8 million, as of March 31, 2007. 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 and operating cash flow
will provide adequate working capital for the foreseeable future.
The decline in revenues and net income in the first quarter of 2007 is
indicative of the lower level of production activity in our primary markets.
Fastener segment sales reflect the reduced production in the domestic automotive
market as manufacturers adjust their activities due to reduced demand. While
weakness in this market continues to be a concern, our fastener segment sales
decline is actually less than the decline in domestic automotive production
during the first quarter, as we were able to increase sales to certain
non-automotive customers. The assembly equipment segment reflects the continuing
decline in manufacturing activity overall in the United States. We have adjusted
our work schedules in response to changing customer demand and will continue to
do so. The decline in assembly equipment activity is significant not only due to
the historically greater margins achieved on such sales, but also due to the
anticipated difficulty in recovering such losses. In the near-
9
term, we do not anticipate any significant changes in the markets in which we
are active. In response to this difficult environment, we will continue our
efforts to increase revenues while also controlling costs.
This discussion contains certain "forward-looking statements" which are
inherently subject to risks and uncertainties that may cause actual events to
differ materially from those discussed herein. Factors which may cause such
differences in events include, those disclosed under "Risk Factors" in our
Annual Report on Form 10-K and in the other filings we make with the United
States Securities and Exchange Commission. These factors, include among other
things: conditions in the domestic automotive industry, upon which we rely for
sales revenue, the intense competition in our markets, the concentration of our
sales to two major customers, the price and availability of raw materials, labor
relations issues, losses related to product liability, warranty and recall
claims, costs relating to environmental laws and regulations, and the loss of
the services of our key employees. Many of these factors are beyond our ability
to control or predict. Readers are cautioned not to place undue reliance on
these forward-looking statements. We undertake no obligation to publish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
10
CHICAGO RIVET & MACHINE CO.
Item 4. Controls and Procedures.
(a) Disclosure Controls and Procedures. The Company's management, with the
participation of the Company's Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company's disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the
end of the period covered by this report. Based on such evaluation, the
Company's Chief Executive Officer and Chief Financial Officer have concluded
that, as of the end of such period, the Company's disclosure controls and
procedures are effective in recording, processing, summarizing and reporting, on
a timely basis, information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act.
(b) Internal Control Over Financial Reporting. There have not been any
changes in the Company's internal control over financial reporting (as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting.
11
PART II -- OTHER INFORMATION
Item 6. Exhibits.
31 Rule 13a-14(a) or 15d-14(a) Certifications
31.1 Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Section 1350 Certifications
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHICAGO RIVET & MACHINE CO.
(Registrant)
Date: May 4, 2007 /s/ John A. Morrissey
----------------------------------------
John A. Morrissey
Chairman of the Board of Directors
and Chief Executive Officer
Date: May 4, 2007 /s/ Michael J. Bourg
----------------------------------------
Michael J. Bourg
President, Chief Operating
Officer and Treasurer
(Principal Financial Officer)
13
CHICAGO RIVET & MACHINE CO.
EXHIBITS
INDEX TO EXHIBITS
Exhibit
Number Page
------- ----
31 Rule 13a-14(a) or 15d-14(a) Certifications
31.1 Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 15
31.2 Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 16
32 Section 1350 Certifications
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 17
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 18
14