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 JuneSeptember 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 JuneSeptember 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
PART I. FINANCIAL INFORMATION Page
Condensed Consolidated Balance Sheets at September 30, 2006
and December 31, 2005 2-3
Condensed Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 2006 and 2005 4
Condensed Consolidated Statements of Retained Earnings for the
Nine Months Ended September 30, 2006 and 2005 5
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 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 13-23
1
Item 1. Financial Statements.
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Balance Sheets
JuneSeptember 30, 2006 and December 31, 2005
JuneSeptember 30, December 31,
2006 2005
------------- -----------
------------
(Unaudited)
Assets
Assets
Current Assets:
Cash and cash equivalents $ 304,008169,029 $ 4,730,837
Certificates of deposit 4,505,0005,005,000 1,005,000
Accounts receivable, net of allowance
of $203,000$178,000 and $210,000, respectively 7,264,1116,666,881 5,370,611
Inventories:
Raw materials 1,515,9301,442,751 1,586,744
Work in process 2,248,4682,309,076 2,218,774
Finished goods 2,030,4192,463,165 2,166,177
----------- -----------
Total inventories 5,794,8176,214,992 5,971,695
----------- -----------
Deferred income taxes 555,191529,191 560,191
Other current assets 165,352348,663 232,142
----------- -----------
Total current assets 18,588,47918,933,756 17,870,476
----------- -----------
Property, Plant and Equipment:
Land and improvements 1,029,035 1,029,035
Buildings and improvements 6,264,1446,323,931 6,251,144
Production equipment, leased machines and other 29,838,23429,597,136 29,163,667
----------- -----------
37,131,41336,950,102 36,443,846
Less accumulated depreciation 26,968,11326,951,457 26,392,338
----------- -----------
Net property, plant and equipment 10,163,3009,998,645 10,051,508
----------- -----------
Total assets $28,751,779$28,932,401 $27,921,984
=========== ===========
See Notes to the Condensed Consolidated Financial Statements
2
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Balance Sheets
JuneSeptember 30, 2006 and December 31, 2005
JuneSeptember 30, December 31,
2006 2005
------------------------ ------------
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable 1,478,252$ 1,644,736 $ 1,452,314
Accrued wages and salaries 871,164907,644 680,969
Contributions due profit sharing plan 190,000252,000 125,000
Accrued plant closing expenses 399,746 --
Other accrued expenses 656,184502,567 772,270
----------- ----------------------- ------------
Total current liabilities 3,595,3463,706,693 3,030,553
Deferred income taxes 1,068,2751,073,275 1,313,275
----------- ----------------------- ------------
Total liabilities 4,663,6214,779,968 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 26,425,02626,489,301 25,915,024
Treasury stock, 171,964 shares at cost (3,922,098) (3,922,098)
----------- ----------------------- ------------
Total shareholders' equity 24,088,15824,152,433 23,578,156
----------- ----------------------- ------------
Total liabilities and shareholders' equity $28,751,779 $27,921,984
=========== ===========$ 28,932,401 $ 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 SixNine Months Ended JuneSeptember 30, 2006 and 2005
(Unaudited)
Three Months Ended SixNine Months Ended
JuneSeptember 30, JuneSeptember 30,
------------------------- ------------------------------------------------------ -----------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Net sales $11,032,015 $10,036,880 $21,945,917 $20,091,999$ 9,107,430 $ 9,691,683 $ 31,053,347 $ 29,783,682
Lease revenue 25,351 27,512 52,400 55,255
----------- ----------- ----------- -----------
11,057,366 10,064,392 21,998,317 20,147,25425,033 26,678 77,433 81,933
------------ ------------ ------------ ------------
9,132,463 9,718,361 31,130,780 29,865,615
Cost of goods sold and costs
related to lease revenue 8,379,524 8,646,641 17,165,305 17,127,064
----------- ----------- ----------- -----------7,352,636 8,258,602 24,517,941 25,385,666
------------ ------------ ------------ ------------
Gross profit 2,677,842 1,417,751 4,833,012 3,020,1901,779,827 1,459,759 6,612,839 4,479,949
Selling and administrative expenses 1,637,046 1,683,491 3,266,849 3,433,2571,491,616 1,759,263 4,758,465 5,192,520
Plant closing expenses 400,4018,204 -- 400,401408,605 --
----------- ----------- ----------- ----------------------- ------------ ------------ ------------
Operating profit (loss) 640,395 (265,740) 1,165,762 (413,067)280,007 (299,504) 1,445,769 (712,571)
Other income and expenses:
Interest income 53,954 33,275 109,918 60,03766,572 41,124 176,490 101,161
Other income 4,177 2,978 9,130 7,778
----------- ----------- ----------- -----------3,600 3,600 12,730 11,378
------------ ------------ ------------ ------------
Income (loss) before income taxes 698,526 (229,487) 1,284,810 (345,252)350,179 (254,780) 1,634,989 (600,032)
Provision (benefit) for income taxes 230,000 (77,000) 427,000 (116,000)
----------- ----------- ----------- -----------112,000 (85,000) 539,000 (201,000)
------------ ------------ ------------ ------------
Net income (loss) $ 468,526238,179 $ (152,487)(169,780) $ 857,8101,095,989 $ (229,252)
=========== =========== =========== ===========(399,032)
============ ============ ============ ============
Average common shares outstanding 966,132 966,132 966,132 966,132
=========== =========== =========== ======================= ============ ============ ============
Per share data:
Net income (loss) per share 0.24 $ 0.49(0.17) $ (0.16)1.13 $ 0.89 $ (0.24)
=========== =========== =========== ===========(0.41)
============ ============ ============ ============
Cash dividends declared per share $ 0.18 $ 0.18 $ 0.360.54 $ 0.51
=========== =========== =========== ===========0.69
============ ============ ============ ============
See Notes to the Condensed Consolidated Financial Statements
4
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Statements of Retained Earnings
For the SixNine Months Ended JuneSeptember 30, 2006 and 2005
(Unaudited)
2006 2005
----------- ----------------------- ------------
Retained earnings at beginning of period $25,915,024 $27,154,171$ 25,915,024 $ 27,154,171
Net income (loss) for the sixnine months ended 857,810 (229,252)1,095,989 (399,032)
Cash dividends declared in the period,
$.36$.54 and $.51$.69 per share in 2006 and 2005, respectively (347,808) (492,727)
----------- -----------(521,712) (666,632)
------------ ------------
Retained earnings at end of period $26,425,026 $26,432,192
=========== ===========$ 26,489,301 $ 26,088,507
============ ============
See Notes to the Condensed Consolidated Financial Statements
5
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Statements of Cash Flows
For the SixNine Months Ended JuneSeptember 30, 2006 and 2005
(Unaudited)
2006 2005
----------- ----------------------- ------------
Cash flows from operating activities:
Net income (loss) $ 857,8101,095,989 $ (229,252)(399,032)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation 817,410 839,8261,234,514 1,270,532
Net gain(gain) loss on the sale of equipment (2,830) (300)(10,330) 8,003
Deferred income taxes (240,000) (215,000)(209,000) (133,000)
Changes in operating assets and liabilities:
Accounts receivable, net (1,893,500) (1,571,266)(1,296,270) (1,929,881)
Inventories 176,878 399,071(243,297) 318,433
Other current assets 66,790 52,337(116,521) (75,266)
Accounts payable (2,445) 483,562
Accrued wages and salaries 190,195 142,240
Accrued profit sharing 65,000 --159,361 560,267
Other accrued expenses 283,660 73,487
----------- -----------483,718 (105,966)
------------ ------------
Net cash provided by (used in) operating activities 318,968 (25,295)
----------- -----------1,098,164 (485,910)
------------ ------------
Cash flows from investing activities:
Capital expenditures (906,989) (269,878)(1,154,760) (573,924)
Proceeds from the sale of equipment 9,000 30016,500 500
Proceeds from held-to-maturity securities 2,475,000 405,0006,275,000 805,000
Purchases of held-to-maturity securities (5,975,000) (405,000)
----------- -----------(10,275,000) (1,005,000)
------------ ------------
Net cash used in investing activities (4,397,989) (269,578)
----------- -----------(5,138,260) (773,424)
------------ ------------
Cash flows from financing activities:
Cash dividends paid (347,808) (492,727)
----------- -----------(521,712) (666,632)
------------ ------------
Net cash used in financing activities (347,808) (492,727)
----------- -----------(521,712) (666,632)
------------ ------------
Net decrease in cash and cash equivalents (4,426,829) (787,600)(4,561,808) (1,925,966)
Cash and cash equivalents at beginning of period 4,730,837 5,464,368
----------- ----------------------- ------------
Cash and cash equivalents at end of period $ 304,008169,029 $ 4,676,768
=========== ===========3,538,402
============ ============
Supplemental schedule of noncashnon-cash investing activities:
Capital expenditures in accounts payable $ 28,38333,061 $ 229,06127,401
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 JuneSeptember 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-monthnine-month period ending
JuneSeptember 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 has recorded a one-time charge of $400,401$408,605, through September 30, 2006, relating to
termination benefits and equipment moving expenses 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 JuneSeptember 30, 2006:
Net sales and lease revenue $ 9,529,364 $1,528,002 $11,057,3667,833,763 $ 1,298,700 $ -- $ 9,132,463
Depreciation 361,486368,575 25,377 22,370 409,23323,152 417,104
Segment profit 1,201,970 402,778 1,604,748
Plant closing expenses (400,401) (400,401)441,743 348,214 789,957
Selling and administrative expenses (559,775) (559,775)(498,146) (498,146)
Plant closing expenses (8,204) (8,204)
Interest income 53,954 53,954
-----------66,572 66,572
------------
Income before income taxes 698,526
-----------350,179
------------
Capital expenditures 858,459194,275 -- 14,543 873,00258,174 252,449
Segment assets:
Accounts receivable, net 6,552,671 711,440 7,264,1115,907,432 759,449 6,666,881
Inventories 4,185,252 1,609,565 5,794,8174,544,100 1,670,892 6,214,992
Property, plant and equipment, net 8,004,727 1,232,870 925,703 10,163,3007,830,427 1,207,493 960,725 9,998,645
Other assets 5,529,551 5,529,551
-----------
28,751,779
-----------6,051,883 6,051,883
------------
28,932,401
------------
Three Months Ended JuneSeptember 30, 2005:
Net sales and lease revenue $ 8,444,808 $1,619,584 $10,064,3928,488,640 $ 1,229,721 $ -- $ 9,718,361
Depreciation 376,125 26,106 17,787 420,018384,206 26,404 20,096 430,706
Segment profit 37,349 359,887 397,236118,115 202,214 320,329
Selling and administrative expenses (659,998) (659,998)(616,233) (616,233)
Interest income 33,275 33,275
-----------
Income (loss)41,124 41,124
------------
Loss before income taxes (229,487)
-----------(254,780)
------------
Capital expenditures 351,785 -- 122,245 474,03039,155 33,169 30,062 102,386
------------
Segment assets:
Accounts receivable, net 5,654,635 784,246 6,438,8816,245,497 551,999 6,797,496
Inventories 3,972,629 1,870,770 5,843,3994,030,738 1,893,299 5,924,037
Property, plant and equipment, net 8,532,793 1,304,745 967,891 10,805,4298,179,240 1,311,511 977,855 10,468,606
Other assets 6,220,119 6,220,119
-----------
29,307,828
-----------5,378,356 5,378,356
------------
28,568,495
------------
8
CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Assembly
Fastener Equipment Other Consolidated
----------- ---------- ------------------ --------- ------------- ------------
SixNine Months Ended JuneSeptember 30, 2006:
Net sales and lease revenue $18,710,087 $3,288,230 $21,998,317$ 26,543,850 $ 4,586,930 $ -- $ 31,130,780
Depreciation 722,716 50,754 43,940 817,4101,091,291 76,131 67,092 1,234,514
Segment profit 1,850,105 853,550 2,703,655
Plant closing expenses (400,401) (400,401)2,291,848 1,201,764 3,493,612
Selling and administrative expenses (1,128,362) (1,128,362)(1,626,508) (1,626,508)
Plant closing expenses (408,605) (408,605)
Interest income 109,918 109,918
-----------176,490 176,490
------------
Income before income taxes 1,284,810
-----------1,634,989
------------
Capital expenditures 920,829 14,543 935,372
Six1,115,104 -- 72,717 1,187,821
Nine Months Ended JuneSeptember 30, 2005:
Net sales and lease revenue $16,792,366 $3,354,888 $20,147,254$ 25,281,006 $ 4,584,609 $ -- $ 29,865,615
Depreciation 752,040 52,212 35,574 839,8261,136,246 78,616 55,670 1,270,532
Segment profit 112,492 782,548 895,040230,607 984,762 -- 1,215,369
Selling and administrative expenses (1,300,329) (1,300,329)(1,916,562) (1,916,562)
Interest income 60,037 60,037
-----------
Income (loss)101,161 101,161
------------
Loss before income taxes (345,252)
-----------(600,032)
------------
Capital expenditures 372,565 1,520 124,854 498,939411,720 34,689 154,916 601,325
9
CHICAGO RIVET & MACHINE CO.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
ResultsRevenues for the secondthird quarter of 2006 declined $585,898, or 6%,
compared to the third quarter of 2005, as well asan increase in assembly equipment
segment sales was more than offset by reduced fastener segment demand; however,
year to date revenues remain ahead of 2005, reflecting an increase of
$1,265,165, or 4%. The decrease in revenues during the quarter was more than
offset by reductions in certain manufacturing costs and administrative expenses,
which resulted in net income for the quarter of $238,179, or $.24 per share,
compared to a loss of $169,780, or $.17 per share, for the third quarter of
2005. This brings the current year to date reflect continuednet income to $1,095,989, or $1.13
per share, compared to a net loss of $399,032, or $.41 per share, for the first
nine months of 2005.
Third quarter revenues within the fastener segment totaled $7,833,763,
a decrease of $654,877, or 7.7%, compared to the third quarter of 2005. The
reduction in fastener segment sales was due to lower demand from automotive
industry customers. Despite the lower sales, we realized a net improvement overin
gross margin of approximately $156,000 during the quarter due primarily to a
reduction in tooling costs of $132,000 and lower average material prices during
the quarter. Additionally, labor costs declined in the quarter by approximately
$113,000, as work schedules were adjusted to match production needs, and
expediting costs declined $56,000 as such costs returned to more normal levels
compared to the third quarter of 2005. The balance of the improvement in gross
margin was the net result of a variety of overhead components. Fastener segment
revenues have increased $1,262,844, or 5%, in the first nine months of 2006
compared with 2005, totaling $26,543,850. Gross margins have improved by
approximately $1,946,000 in the current year. The combination of higher sales
and a $670,000 reduction in tooling expense were the primary factors in this
improvement. The reduction in tooling expense is attributed to a higher than
normal number of parts being designed during 2005, and the overall longer life
of certain tools during the current year. The increased manufacturing volume in
the current year has also allowed for greater utilization of plant resources,
further contributing to the improvement in margins in 2006.
Revenues within the assembly equipment segment increased by $68,979, or
5.6%, during the third quarter of 2006, compared with the third quarter of 2005.
The improvement was primarily due to an increase in the number of machines
shipped during the quarter. The third quarter increase brings year to date
revenues for this segment to $4,586,930, fractionally ahead of 2005. Gross
margins for the third quarter of 2006 increased $164,000, benefiting not only
from the increase in sales during the quarter, but also a reduction in labor
costs and labor related expenses, due to turnover and headcount reductions.
Similarly, the results for the same periods last
year. Forfirst nine months of 2006 also reflect 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
reductionaforementioned changes, resulting 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$187,000
compared to the second
quarter ofwith 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 secondthird quarter of 2006
were
approximately $46,000 lower than duringdeclined by $268,000 compared with the secondthird quarter of 2005. Professional servicesfees
were $85,000$72,000 lower in the third quarter primarilyof 2006 due to initial procedures
performed in 2005 related to compliance with the Sarbanes-Oxley Act of 2002, while legal
fees declined $35,0002002.
Expenses were further reduced by $149,000 due to the settlement of a litigation
and other matters resolvedmatter in 2005. Further, salaries and wages declined $42,000 duringBad debt expense was $63,000 lower in the second quarter due to reduced headcount. These decreases were partially offset bythe
bankruptcy of a certain customer in the third quarter of 2005, and salaries
declined $38,000 due to headcount reductions. Partially offsetting these lower
expense items is an increase in profit sharing expense of $125,000 resulting from more profitable operations$62,000, related to
higher profits for the third quarter of 2006. For the first nine months of 2006,
selling and administrative expenses have declined $434,000 compared to 2005.
Professional fees have declined $289,000 due to initial consulting incurred in
2005 related to Sarbanes-Oxley compliance. Selling and administrative expenses
incurred in 2005 also included $312,000 to resolve a litigation matter. The
absence of a bankruptcy filing of a certain customer in the current year. Onyear has
resulted in a net decline in bad debt expense of $73,000. The reduction in these
expense items 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 wereis partially offset by the increase in
profit sharing expense which has increased by $190,000of $252,000, due to the return to profitabilitymore profitable operating results in the current year.2006.
During May of the current year, a decision was made to close our
Jefferson, Iowa fastener operation located in Jefferson, Iowa and transfer production activities of that
location to our facility in Tyrone, Pennsylvania, to better utilize
manufacturing capacity. Approximately $400,000 was accrued duringWe continue to make progress in that effort, and expect
the quarter for one-time termination
benefitstransfer to be completed before December 31, 2006. As of September 30, 2006,
a charge of $408,605 has been recorded related to the plant 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,expected, but the amount and timing of such costs are not known at this
time.
Working capital at JuneSeptember 30, 2006 amounted to $15$15.2 million, an
increase of $.2$.4 million from the beginning of the year. Accounts receivable
balances have increased $1.3 million since the beginning of the year due to
higher sales volumes. Offsetting this amount is an increase in current
liabilities of nearly $.7 million, of which $.4 million relates to the accrual
for termination benefits for the Jefferson, Iowa plant closing. Holdings in
cash, cash equivalents and certificates of
10
deposit amounted to $4.8$5.2 million at the end of the secondthird quarter, a year to date
decline of $.9$.5 million. In the current year, almost $1.2 million which is approximately equal tohas been spent
for capital outlays in 2006 that have beenitems, 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 theto report a return to profitability for the
third quarter and the first nine months of the year, the decline in sales for
the third quarter is a matter of concern. News accounts related to the
automotive sector, upon which we have achievedrely for revenue, continue to be dominated by
reports on the challenging conditions in the first six monthsdomestic market. Given the current
environment, we do not foresee significant improvements in that market in the
short term. Competition from foreign sources also continues to be a significant
factor, as domestic manufacturers struggle to deal with higher legacy costs,
while their share of 2006, the competitive landscape remains challenging, andautomotive market continues to decline. In response, we
mustwill continue our efforts to develop relationships with foreign manufacturers to
supplement our existing customer base. We will also continue to focus on controllingwork to control
costs and make the most of available resources while investing wisely for the
future.actively pursuing new
business from both new and existing customers.
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 to5. Other Information.
On November 9, 2006, the Company entered into a Vote of Security Holders
TheConsulting Agreement with
John C. Osterman, the Company's Annual Meeting of Stockholders was heldformer President, Chief Operating Officer and
Treasurer. Mr. Osterman retired from the Company on May 9, 2006. Under the terms
of the consulting agreement, Mr. Osterman will receive a quarterly consulting
fee of $15,000. The only proposal voted upon wasconsulting agreement is effective as of July 1, 2006, and
unless terminated earlier by either party, the electionterm of nine directors for a term ending at
the Annual Meeting inagreement is through
June 30, 2007. The nine persons nominated byA copy of 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
consulting agreement is attached hereto as Exhibit
10.1.
Item 6. Exhibits
Exhibits.
10.1 Consulting Agreement, dated November 9, 2006, between the
Company and John C. Osterman
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,November 13, 2006
/s/ John A. Morrissey
---------------------------------------------------------------------------
John A. Morrissey
Chairman of the Board of Directors
and Chief Executive Officer
Date: August 11,November 13, 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
- ------- ----
10.1 Consulting Agreement, dated November 9, 2006, between the
Company and John C. Osterman 16-19
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 1620
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 1721
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 1822
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 1923
15