10-Q 1 c87198e10vq.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, 2004 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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X ----- ----- As of June 30, 2004, 966,132 shares of the registrant's common stock were outstanding. CHICAGO RIVET & MACHINE CO. INDEX

Page PART I. FINANCIAL INFORMATION Consolidated Balance Sheets at June 30, 2004 and December 31, 2003 2-3 Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003 4 Consolidated Statements of Retained Earnings for the Six Months Ended June 30, 2004 and 2003 5 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 6 Notes to the 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 13-21

1 Item 1. Financial Statements. CHICAGO RIVET & MACHINE CO. Consolidated Balance Sheets June 30, 2004 and December 31, 2003

June 30, December 31, 2004 2003 ----------- ------------ (Unaudited) Assets Current Assets: Cash and cash equivalents $ 5,943,757 $ 5,530,099 Certificates of deposit 455,000 455,000 Accounts receivable - net of allowances 5,581,243 4,549,168 Inventories: Raw materials 1,180,926 1,109,463 Work in process 1,678,736 1,760,990 Finished goods 2,266,972 2,363,335 ----------- ----------- Total inventories 5,126,634 5,233,788 ----------- ----------- Deferred income taxes 599,191 602,191 Other current assets 163,749 218,560 ----------- ----------- Total current assets 17,869,574 16,588,806 ----------- ----------- Property, Plant and Equipment: Land and improvements 1,015,635 1,015,635 Buildings and improvements 5,782,062 5,779,993 Production equipment, leased machines and other 28,500,171 28,201,191 ----------- ----------- 35,297,868 34,996,819 Less accumulated depreciation 24,229,235 23,447,245 ----------- ----------- Net property, plant and equipment 11,068,633 11,549,574 ----------- ----------- Total assets $28,938,207 $28,138,380 =========== ===========

See Notes to the Consolidated Financial Statements 2 CHICAGO RIVET & MACHINE CO. Consolidated Balance Sheets June 30, 2004 and December 31, 2003

June 30, December 31, 2004 2003 ------------ ------------ (Unaudited) Liabilities and Shareholders' Equity Current Liabilities: Accounts payable 1,515,237 1,310,044 Accrued wages and salaries 866,014 754,394 Contributions due profit sharing plan 140,986 133,243 Other accrued expenses 707,755 370,940 Total current liabilities 3,229,992 2,568,621 ------------ ------------ Deferred income taxes 1,389,275 1,580,275 ------------ ------------ Total liabilities 4,619,267 4,148,896 ------------ ------------ 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 26,655,808 26,326,352 Treasury stock, at cost, 171,964 shares (3,922,098) (3,922,098) ------------ ------------ Total shareholders' equity 24,318,940 23,989,484 ------------ ------------ Total liabilities and shareholders' equity $ 28,938,207 $ 28,138,380 ============ ============

See Notes to the Consolidated Financial Statements 3 CHICAGO RIVET & MACHINE CO. Consolidated Statements of Operations For the Three and Six Months Ended June 30, 2004 and 2003 (Unaudited)

Three Months Ended Six Months Ended June 30, June 30, ------------------------------- ------------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- Net sales $ 10,209,944 $ 9,966,997 $ 20,351,901 $ 20,156,255 Lease revenue 27,612 38,947 54,619 86,152 ------------ ------------ ------------ ------------ 10,237,556 10,005,944 20,406,520 20,242,407 Cost of goods sold and costs related to lease revenue 8,006,988 8,076,311 16,153,546 15,927,245 ------------ ------------ ------------ ------------ Gross profit 2,230,568 1,929,633 4,252,974 4,315,162 Selling and administrative expenses 1,660,438 1,614,924 3,257,217 3,309,601 ------------ ------------ ------------ ------------ 570,130 314,709 995,757 1,005,561 Other income and expenses: Interest income 13,974 19,066 28,355 38,865 Interest expense -- (6,652) -- (16,237) Gain from disposal of equipment -- 1,199 430 5,499 Other income, net of other expense 4,172 4,299 6,722 8,174 ------------ ------------ ------------ ------------ Income before income taxes 588,276 332,621 1,031,264 1,041,862 Provision for income taxes 202,000 111,000 354,000 355,000 ------------ ------------ ------------ ------------ Net income $ 386,276 $ 221,621 $ 677,264 $ 686,862 ============ ============ ============ ============ Average common shares outstanding 966,132 966,132 966,132 966,132 ============ ============ ============ ============ Per share data: Net income per share $ 0.40 $ 0.23 $ 0.70 $ 0.71 ============ ============ ============ ============ Cash dividends declared per share $ 0.18 $ 0.18 $ 0.36 $ 0.61 ============ ============ ============ ============

See Notes to the Consolidated Financial Statements 4 CHICAGO RIVET & MACHINE CO. Consolidated Statements of Retained Earnings For the Six Months Ended June 30, 2004 and 2003 (Unaudited)

2004 2003 ------------ ------------ Retained earnings at beginning of period $ 26,326,352 $ 26,445,973 Net income for the six months ended 677,264 686,862 Cash dividends declared in the period, $.36 and $.61 per share in 2004 and 2003, respectively (347,808) (589,340) ------------ ------------ Retained earnings at end of period $ 26,655,808 $ 26,543,495 ============ ============

See Notes to the Consolidated Financial Statements 5 CHICAGO RIVET & MACHINE CO. Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2004 and 2003 (Unaudited)

2004 2003 ----------- ----------- Cash flows from operating activities: Net income $ 677,264 $ 686,862 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 865,356 926,032 Net gain on the sale of properties (430) (5,499) Deferred income taxes (188,000) (23,000) Changes in operating assets and liabilities: Accounts receivable, net (1,032,075) (686,393) Inventories 107,154 306,947 Other current assets 54,811 93,954 Accounts payable 53,630 332,170 Accrued wages and salaries 111,620 36,815 Accrued profit sharing 7,743 (279,556) Other accrued expenses 336,815 (96,809) ----------- ----------- Net cash provided by operating activities 993,888 1,291,523 ----------- ----------- Cash flows from investing activities: Capital expenditures (232,852) (147,161) Proceeds from the sale of properties 430 5,499 Proceeds from held-to-maturity securities 105,000 3,057,733 Purchases of held-to-maturity securities (105,000) (355,000) ----------- ----------- Net cash provided by (used in) investing activities (232,422) 2,561,071 ----------- ----------- Cash flows from financing activities: Payments under term loan agreement -- (900,000) Cash dividends paid (347,808) (589,340) ----------- ----------- Net cash used in financing activities (347,808) (1,489,340) ----------- ----------- Net increase in cash and cash equivalents 413,658 2,363,254 Cash and cash equivalents at beginning of period 5,530,099 2,204,430 ----------- ----------- Cash and cash equivalents at end of period $ 5,943,757 $ 4,567,684 =========== =========== Supplemental schedule of noncash investing activities: Capital expenditures in accounts payable $ 151,563 $ --

See Notes to the Consolidated Financial Statements 6 CHICAGO RIVET & MACHINE CO. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. In the opinion of the Company, the accompanying unaudited interim financial statements contain all adjustments necessary to present fairly the financial position of the Company as of June 30, 2004 and December 31,2003 and the results of operations and changes in cash flows for the indicated periods. The Company uses estimated gross profit rates to determine the cost of goods sold during interim periods on a portion of its operations. Actual results could differ from those estimates and will be adjusted, as necessary, following the Company's annual physical inventory in the fourth quarter. 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, 2004 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, in the normal course of business. While it is not possible at this time to establish the ultimate amount of liability with respect to contingent liabilities, including those related to legal proceedings, management is of the opinion that the aggregate amount of any such liabilities, for which provision has not been made, will not have a material adverse effect on the Company's financial position. 7 CHICAGO RIVET & MACHINE CO. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 5. Segment Information--The Company operates in two business segments as determined by its products. The fastener segment includes rivets, cold-formed fasteners and screw machine products. The assembly equipment segment includes automatic rivet setting machines, parts and tools for such machines and the leasing of automatic rivet setting machines. Information by segment is as follows:

Assembly Fastener Equipment Other Consolidated ----------- ------------ ----------- ------------ Three Months Ended June 30, 2004: Net sales and lease revenue $ 8,391,416 $ 1,846,140 $ -- $10,237,556 Depreciation 371,340 28,518 32,820 432,678 Segment profit 717,247 456,233 -- 1,173,480 Selling and administrative expenses 599,178 599,178 Interest expense -- -- Interest income (13,974) (13,974) ----------- Income before income taxes 588,276 ----------- Capital expenditures 313,853 9,050 -- 322,903 Segment assets: Accounts receivable, net 4,778,575 802,668 -- 5,581,243 Inventory 3,335,421 1,791,213 -- 5,126,634 Property, plant and equipment, net 8,731,688 1,400,545 936,400 11,068,633 Other assets -- -- 7,161,697 7,161,697 ----------- 28,938,207 ----------- Three Months Ended June 30, 2003: Net sales and lease revenue $ 7,933,029 $ 2,072,915 $ -- $10,005,944 Depreciation 370,130 40,063 52,521 462,714 Segment profit 486,869 549,771 -- 1,036,640 Selling and administrative expenses 716,433 716,433 Interest expense 6,652 6,652 Interest income (19,066) (19,066) ----------- Income before income taxes 332,621 ----------- Capital expenditures 59,746 3,594 1,523 64,863 Segment assets: Accounts receivable, net 4,706,113 974,977 -- 5,681,090 Inventory 3,592,843 2,190,151 -- 5,782,994 Property, plant and equipment, net 9,445,128 1,464,808 1,093,391 12,003,327 Other assets -- -- 5,770,904 5,770,904 ----------- 29,238,315 -----------

8 CHICAGO RIVET & MACHINE CO. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Assembly Fastener Equipment Other Consolidated -------- --------- ----- ------------ Six Months Ended June 30, 2004: Net sales and lease revenue $ 16,652,699 $ 3,753,821 $ -- $ 20,406,520 Depreciation 742,680 57,036 65,640 865,356 Segment profit 1,291,980 890,236 -- 2,182,216 Selling and administrative expenses 1,179,307 1,179,307 Interest expense -- -- Interest income (28,355) (28,355) ------------ Income before income taxes 1,031,264 ------------ Capital expenditures 375,365 9,050 -- 384,415 Six Months Ended June 30, 2003: Net sales and lease revenue $ 16,293,180 $ 3,949,227 $ -- $ 20,242,407 Depreciation 740,826 80,164 105,042 926,032 Segment profit 1,489,981 993,226 -- 2,483,207 Selling and administrative expenses 1,463,973 1,463,973 Interest expense 16,237 16,237 Interest income (38,865) (38,865) ------------ Income before income taxes 1,041,862 ------------ Capital expenditures 131,627 14,011 1,523 147,161

9 CHICAGO RIVET & MACHINE CO. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Overall, results for the second quarter of 2004 were positive. For the quarter, revenues increased by approximately $232,000, and net income grew by approximately $165,000, compared with the second quarter of 2003. Despite the relatively strong second quarter results, net income for the first six months of 2004 trails that of 2003 by about $10,000. In 2004, second quarter revenues within the fastener segment were 6% higher than in the second quarter of 2003. In addition to increased volumes during the second quarter, the Company benefited from reductions in expenditures for tooling and repairs and maintenance. These benefits were partially offset by significant increases in the cost of raw materials. Our efforts to recover these higher costs have included price increases and the implementation of raw material surcharges. However, prices for nearly all metals increased during the quarter, and our suppliers recently announced an additional price increase for steel wire and rod, our primary raw materials. The net, unrecovered cost associated with higher raw material prices was approximately $180,000 during the second quarter and $305,000 for the first six months. We have seen no indication that prices for raw materials will decline in the near term, and we are vigorously continuing our efforts to recover these higher costs. For the first six months, fastener segment revenues are 2% above those recorded in the first six months of 2003. Indirect labor and repairs and maintenance expense were lower during 2004 than during the first six months of 2003. The company incurred significant tooling costs late in 2003 and early in 2004 in connection with pre-production approval for a number of new parts. While these costs are behind us, and the new parts are beginning to go into production, the impact of these higher costs in the first quarter of 2004 contributed to year to date tooling costs being disproportionately high for the first half of 2004. Raw material costs are also higher than during the first half of 2003 due to the price increases discussed above, and similar increases that were incurred in the first quarter of 2004. Weak demand for our products within the assembly equipment segment contributed to an 11% decline in revenues within this segment during the second quarter of 2004 compared to the second quarter of 2003. Reductions in indirect labor and depreciation expense partially offset this decline in revenues. Raw material costs have also increased within this segment, although the impact has not been as significant as in the fastener segment. On a year to date basis, revenues within this segment trail last year by nearly 5%. As was the case in the second quarter, year to date reductions in indirect labor and depreciation expense were not sufficient to offset the impact of lower sales revenues and higher raw material prices. Selling and administrative expenses have declined approximately $52,000 in 2004 compared to 2003, even though these expenses increased by approximately $46,000 during the second quarter of 2004. The year to date decline primarily relates to lower depreciation on office equipment. During the second quarter of 2004, commissions expense increased approximately $18,000 compared to 2003 due to higher sales in the quarter, and profit sharing expense increased $26,000, due to improved profitability. Total inventory levels at the end of the second quarter were slightly below those at the beginning of the year, although raw material inventories are somewhat higher than at the beginning of the year. We anticipate continuing to carry somewhat more raw materials as availability continues to be of concern in the face of rising global demand for basic raw materials. Accounts receivable declined slightly during the quarter and are at levels consistent with recent sales volumes. With the exception of trade payables, the company has no outstanding debt. The Company placed an order for new equipment to be used in the manufacture of fasteners, valued at approximately $690,000, for which delivery is expected in the third quarter of 2004. The Company's $1.0 million dollar line of credit was extended through May 2005, and as of June 30, 2004 it remained unused. Management believes that the Company's current cash, cash equivalents, operating cash flow and available line of credit will be sufficient to provide adequate working capital for the foreseeable future. While general economic conditions continue to improve, our business has not enjoyed a proportionate improvement. This is especially true within the assembly equipment segment where demand for new assembly equipment and for perishable tooling remains weak. While fastener sales have shown some improvement, the lack of a similar improvement in demand for assembly equipment is troubling and may be an indication that demand for these products will not return to levels enjoyed in the past. We continue to be concerned with the escalating price of raw materials and have some continuing uncertainty with respect to supply availability. Although the market for fasteners has shown some improvement, especially compared to the recent past, excess market capacity continues to limit our pricing ability, 10 and we expect margins will remain under pressure as long as these conditions persist. On the positive side, efforts to win new business have met with some success, and we will continue our efforts in that regard. 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, among other things, our ability to maintain our relationships with our significant customers; increased global competition; increases in the prices of, or limitations on the availability of, our primary raw materials; or a downturn in the automotive industry, upon which we rely for sales revenue, and which is cyclical and dependent on, among other things, consumer spending, international economic conditions and regulations and policies regarding international trade. 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 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities. 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 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Stockholders was held on May 11, 2004. The only proposal voted upon was the election of seven directors for a term ending at the Annual Meeting in 2004. The nine persons nominated by the Company's Board of Directors received the following votes and were elected:

NAME VOTES FOR VOTES WITHHELD ---- --------- -------------- Edward L. Chott 913,577 27,568 Kent H. Cooney 1,019,816 3,826 Nirendu Dhar 909,558 29,768 William T. Divane, Jr. 914,237 27,168 George P. Lynch 1,019,486 4,046 John R. Madden 904,525 34,288 John A. Morrissey 909,918 29,568 Walter W. Morrissey 909,888 29,588 John C. Osterman 914,238 27,168

Item 6. Exhibits and Reports on Form 8-K (a) 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. 99.1 Interim Report to Shareholders for the quarter ended June 30, 2004. (b) Reports on Form 8-K Current Report on Form 8-K, Item 12, Results of Operations and Financial Condition, dated August 3, 2004. 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 3, 2004 /s/ John A. Morrissey ---------------------------------- John A. Morrissey Chairman of the Board of Directors and Chief Executive Officer Date: August 3, 2004 /s/ John C. Osterman ---------------------------------- John C. Osterman President, Chief Operating Officer and Treasurer (Principal Financial Officer) Date: August 3, 2004 /s/ Michael J. Bourg ---------------------------------- Michael J. Bourg Controller (Principal Accounting 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 99.1 Interim Report to Shareholders for the quarter ended June 30, 2004 20 -- 21

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