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, 2008
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, a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer", "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if smaller reporting company)
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, 2008, 966,132 shares of the registrant's common stock were
outstanding.
CHICAGO RIVET & MACHINE CO.
INDEX
Page
-----
PART I. FINANCIAL INFORMATION (Unaudited)
Condensed Consolidated Balance Sheets at
March 31, 2008 and December 31, 2007 2-3
Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 2008 and 2007 4
Condensed Consolidated Statements of Retained Earnings for the
Three Months Ended March 31, 2008 and 2007 5
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2008 and 2007 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, 2008 and December 31, 2007
March 31, December 31,
2008 2007
----------- ------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 1,654,379 $ 665,072
Certificates of deposit 5,680,000 6,880,000
Accounts receivable, net of allowance
of $104,000 and $95,000, respectively 5,362,814 5,329,413
Inventories 5,484,929 4,975,833
Deferred income taxes 462,191 451,191
Prepaid income taxes 10,481 211,025
Other current assets 283,283 287,542
----------- -----------
Total current assets 18,938,077 18,800,076
----------- -----------
Property, Plant and Equipment:
Land and improvements 1,029,035 1,029,035
Buildings and improvements 6,391,952 6,385,831
Production equipment, leased machines and other 28,249,265 28,124,007
----------- -----------
35,670,252 35,538,873
Less accumulated depreciation 26,698,549 26,431,936
----------- -----------
Net property, plant and equipment 8,971,703 9,106,937
----------- -----------
Total assets $27,909,780 $27,907,013
=========== ===========
See Notes to the Condensed Consolidated Financial Statements
2
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Balance Sheets
March 31, 2008 and December 31, 2007
March 31, December 31,
2008 2007
----------- ------------
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 1,651,863 $ 1,147,014
Accrued wages and salaries 782,258 679,233
Accrued profit sharing plan contribution 15,000 201,000
Other accrued expenses 223,919 319,866
----------- -----------
Total current liabilities 2,673,040 2,347,113
Deferred income taxes 953,275 985,275
----------- -----------
Total liabilities 3,626,315 3,332,388
----------- -----------
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 26,620,333 26,911,493
Treasury stock, 171,964 shares at cost (3,922,098) (3,922,098)
----------- -----------
Total shareholders' equity 24,283,465 24,574,625
----------- -----------
Total liabilities and shareholders' equity $27,909,780 $27,907,013
=========== ===========
See Notes to the Condensed Consolidated Financial Statements
3
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Statements of Income
For the Three Months Ended March 31, 2008 and 2007
(Unaudited)
2008 2007
---------- ----------
Net sales $8,391,778 $9,924,333
Lease revenue 22,548 23,243
---------- ----------
8,414,326 9,947,576
Cost of goods sold and costs
related to lease revenue 7,102,362 8,053,389
---------- ----------
Gross profit 1,311,964 1,894,187
Selling and administrative expenses 1,347,823 1,464,472
Plant closing expenses -- 18,074
---------- ----------
Operating profit (loss) (35,859) 411,641
Other income and expenses:
Interest income 75,922 74,431
Other income 3,600 1,200
---------- ----------
Income before income taxes 43,663 487,272
Provision for income taxes 16,000 177,000
---------- ----------
Net Income $ 27,663 $ 310,272
========== ==========
Average common shares outstanding 966,132 966,132
========== ==========
Per share data:
Net income per share $ 0.03 $ 0.32
========== ==========
Cash dividends declared per share $ 0.33 $ 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, 2008 and 2007
(Unaudited)
2008 2007
----------- -----------
Retained earnings at beginning of period $26,911,493 $26,340,036
Net income for the three months ended 27,663 310,272
Cash dividends declared in the period;
$.33 per share in 2008 and $.18 per share in 2007 (318,823) (173,903)
----------- -----------
Retained earnings at end of period $26,620,333 $26,476,405
=========== ===========
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, 2008 and 2007
(Unaudited)
2008 2007
----------- -----------
Cash flows from operating activities:
Net income $ 27,663 $ 310,272
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 266,613 280,583
Net gain on the sale of equipment -- (8,020)
Deferred income taxes (43,000) (29,000)
Changes in operating assets and liabilities:
Accounts receivable, net (33,401) (341,937)
Inventories (509,096) (451,183)
Other current assets 204,803 119,423
Accounts payable 343,290 342,739
Accrued wages and salaries 103,025 167,722
Accrued profit sharing contribution (186,000) (170,756)
Other accrued expenses (95,947) 20,566
----------- -----------
Net cash provided by operating activities 77,950 240,409
----------- -----------
Cash flows from investing activities:
Capital expenditures (114,740) (3,047)
Proceeds from the sale of equipment -- 8,020
Proceeds from certificates of deposit 4,600,000 5,255,000
Purchases of certificates of deposit (3,400,000) (5,230,000)
----------- -----------
Net cash provided by investing activities 1,085,260 29,973
----------- -----------
Cash flows from financing activities:
Cash dividends paid (173,903) (173,903)
----------- -----------
Net cash used in financing activities (173,903) (173,903)
----------- -----------
Net increase in cash and cash equivalents 989,307 96,479
Cash and cash equivalents at beginning of period 665,072 367,581
----------- -----------
Cash and cash equivalents at end of period $ 1,654,379 $ 464,060
=========== ===========
Supplemental schedule of non-cash investing activities: $ 16,639 $ 156,571
Capital expenditures in accounts payable
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 March 31, 2008 (unaudited) and December 31, 2007
(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.
Certain items in 2007 have been reclassified to conform to the presentation in
2008. These changes have no effect on the results of operations or the financial
position of the Company.
2. The results of operations for the three month period ended March 31, 2008 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's federal income tax returns for the 2005, 2006 and 2007 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, 2006 and 2007 federal
income tax returns will expire on September 15, 2009, 2010 and 2011,
respectively.
The Company's state income tax returns for the 2005 through 2007 tax years
remain subject to examination by various state authorities with the latest
closing period on October 31, 2011. 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. Inventories are stated at the lower of cost or net realizable value, cost
being determined by the first-in, first-out method. A summary of inventories is
as follows:
March 31, 2008 December 31, 2007
-------------- -----------------
Raw Material $1,541,610 $1,275,595
Work-in-process 1,920,966 1,597,483
Finished goods 2,512,353 2,577,755
---------- ----------
5,974,929 5,450,833
Valuation reserves (490,000) (475,000)
---------- ----------
$5,484,929 $4,975,833
========== ==========
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, 2008:
Net sales and lease revenue $7,326,127 $1,088,199 $ 8,414,326
Depreciation 226,650 18,522 21,441 266,613
Segment profit 326,878 202,105 528,983
Selling and administrative expenses (561,242) (561,242)
Interest income 75,922 75,922
-----------
Income before income taxes 43,663
-----------
Capital expenditures 131,379 131,379
Segment assets:
Accounts receivable, net 4,942,192 420,622 5,362,814
Inventories 4,017,096 1,467,833 5,484,929
Property, plant and equipment, net 7,037,168 1,107,778 826,757 8,971,703
Other assets 8,090,334 8,090,334
-----------
27,909,780
-----------
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 751,453 235,097 986,550
Selling and administrative expenses (555,635) (555,635)
Plant closing expenses (18,074) (18,074)
Interest income 74,431 74,431
-----------
Income before income taxes 487,272
-----------
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
-----------
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 2008 were $8,414,326, a decline of
$1,533,250, or 15%, compared to the first quarter of last year. Reduced demand
in the domestic automotive market, and a decline in domestic economic activity
impacting virtually all the markets we serve, resulted in lower fastener segment
and assembly equipment segment sales. Although we reduced expenses wherever
possible during the quarter, cost reductions were not sufficient to offset the
effects of the decline in sales. The net result was net income of $27,663, or
$0.03 per share, in the first quarter of 2008 compared to net income of
$310,272, or $0.32 per share, in 2007.
In the first quarter, fastener segment revenues declined $1,399,244, or
16%, from $8,725,371 in 2007 to $7,326,127 in 2008. The decline was primarily
due to a reduction in domestic automotive production and a slowdown in the U.S.
economy. Overall, manufacturing costs declined during the quarter due to the
lower level of production activity. Additionally, the closing of the Jefferson,
Iowa plant in 2007 resulted in approximately $56,000 in overhead cost reductions
during the first quarter of 2008. The only significant increase during the
quarter was tooling expense, which increased $76,000 as certain design work was
performed in an attempt to improve production efficiency. The net result of
these factors was a $521,000 reduction in fastener segment gross margin.
Demand within the assembly equipment segment continues to be weak as
evidenced by the 11% decline in sales, from $1,222,205 to $1,088,199, in the
first quarter of 2008. 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 $61,000 decline in gross margin compared to the first
quarter of 2007.
Selling and administrative expenses during the first quarter of 2008 were
$117,000 lower than the first quarter of 2007. Payroll and payroll related
expenses account for approximately $43,000 of the decline, as a result of
headcount reductions since the first quarter of last year. Commissions have
declined $39,000 due to the lower sales activity in the current year quarter,
while profit sharing expense has declined $40,000 due to the lower level of
profitability.
First quarter 2007 results included $18,074 for expenses related to the
previously disclosed Jefferson, Iowa plant closing. These expenses related to
preparing the building for sale and the transfer of assets to our Tyrone,
Pennsylvania location.
Working capital declined by $.2 million from the beginning of the year and
amounted to $16.3 million at the end of the first quarter. While inventories and
accounts payable have both increased $.5 million since the beginning of the
year, their balances are down approximately $.4 million and $.3 million,
respectively, compared to March 31, 2007. The decline since the beginning of the
year in accrued profit sharing of $.2 million reflects the contribution for 2007
made to the Company plan during the first quarter. This amount is offset by a
reduction in prepaid income taxes since the beginning of the year. The net
result of these changes and other cash flow items on cash and certificates of
deposit was a decrease of $.2 million, to $7.3 million, as of March 31, 2008.
The Company has a $1.0 million line of credit, which expires May 31, 2008. 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 2008 is
primarily due to the impact of the weakening economy on our primary markets.
Fastener segment sales have already been impacted in recent quarters by reduced
production in the domestic automotive market as manufacturers adjusted their
activities for reduced demand. With the slowdown in the domestic economy, we
have seen a reduction in demand from other markets we serve. The assembly
equipment segment has been weak for some time now, and reflects the continuing
decline in manufacturing activity overall in the United States. We have adjusted
our work schedules in response to reduced customer demand and will continue to
emphasize cost controls wherever possible. In the near-term, we do not
anticipate any significant improvements in the markets in which we are active,
but 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
9
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 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.
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 (the Company's principal
executive officer) and President, Chief Operating Officer and Treasurer (the
Company's principal 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 principal executive officer and principal
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 4. 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 9, 2008
/s/ John A. Morrissey
----------------------------------------
John A. Morrissey
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
Date: May 9, 2008
/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