SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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, 2003
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 March 31, 2003, 966,132 shares of the registrant's common stock were
outstanding.
CHICAGO RIVET & MACHINE CO.
INDEX
PART I. FINANCIAL INFORMATION Page
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Consolidated Balance Sheets at March 31, 2003 and December 31, 2002 2-3
Consolidated Statements of Operations for the Three Months Ended March 31,
2003 and 2002 4
Consolidated Statements of Retained Earnings for the Three Months Ended
March 31, 2003 and 2002 5
Consolidated Statements of Cash Flows for the Three Months Ended March 31,
2003 and 2002 6
Notes to the Consolidated Financial Statements 7-8
Management's Discussion and Analysis of Financial Condition and Results of
Operations 9
Quantitative and Qualitative Information About Market Risk 10
Controls and Procedures 10
PART II. OTHER INFORMATION 11-19
1
CHICAGO RIVET & MACHINE CO.
Consolidated Balance Sheets
March 31, 2003 and December 31, 2002
<Table>
<Caption>
March 31, December 31,
2003 2002
----------- ------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $4,960,627 $2,204,430
Certificates of deposit 457,733 3,157,733
Accounts receivable - net of allowances 5,348,484 4,994,697
Inventories:
Raw materials 1,624,639 1,636,216
Work in process 2,024,153 1,818,106
Finished goods 2,784,865 2,635,619
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Total inventories 6,433,657 6,089,941
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Deferred income taxes 581,191 581,191
Other current assets 274,589 277,893
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Total current assets 18,056,281 17,305,975
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Property, Plant and Equipment:
Land and improvements 1,010,595 1,010,595
Buildings and improvements 5,748,125 5,743,325
Production equipment, leased
machines and other 27,825,795 27,774,278
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34,584,515 34,528,198
Less accumulated depreciation 22,183,337 21,746,000
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Net property, plant and equipment 12,401,178 12,782,198
----------- -----------
Total assets $30,457,459 $30,088,173
=========== ===========
</Table>
See Notes to the Consolidated Financial Statements
2
CHICAGO RIVET & MACHINE CO.
Consolidated Balance Sheets
March 31, 2003 and December 31, 2002
<Table>
<Caption>
March 31, December 31,
2003 2002
----------- ------------
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of note payable $1,182,760 $1,632,760
Accounts payable 1,650,084 1,121,195
Accrued wages and salaries 1,023,164 795,920
Contributions due profit sharing plan 103,986 435,542
Other accrued expenses 510,539 397,634
Federal and state income taxes payable 280,742 48,742
----------- -----------
Total current liabilities 4,751,275 4,431,793
Deferred income taxes 1,547,275 1,547,275
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Total liabilities 6,298,550 5,979,068
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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 26,495,777 26,445,973
Treasury stock, 171,964 shares at cost (3,922,098) (3,922,098)
----------- -----------
Total shareholders' equity 24,158,909 24,109,105
----------- -----------
Total liabilities and shareholders' equity $30,457,459 $30,088,173
=========== ===========
</Table>
See Notes to the Consolidated Financial Statements
3
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Operations
For the Three Months Ended March 31, 2003 and 2002
(Unaudited)
<Table>
<Caption>
2003 2002
----------- -----------
Net sales $10,189,258 $10,398,136
Lease revenue 47,205 54,190
----------- -----------
10,236,463 10,452,326
Cost of goods sold and costs
related to lease revenue 7,850,934 7,876,521
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Gross profit 2,385,529 2,575,805
Selling and administrative expenses 1,694,677 1,654,723
----------- -----------
690,852 921,082
Other income and expenses:
Interest income 19,799 21,956
Interest expense (9,585) (24,374)
Gain from the disposal of equipment 4,300 24,577
Other income, net of other expense 3,875 3,875
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Income before income taxes 709,241 947,116
Provision for income taxes 244,000 322,000
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Net income $ 465,241 $ 625,116
=========== ===========
Average common shares outstanding 966,132 967,132
=========== ===========
Per share data:
Net income per share $ 0.48 $ 0.65
=========== ===========
Cash dividends declared per share $ 0.43 $ 0.33
=========== ===========
</Table>
See Notes to the Consolidated Financial Statements
4
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Retained Earnings
For the Three Months Ended March 31, 2003 and 2002
(Unaudited)
<Table>
<Caption>
2003 2002
----------- -----------
Retained earnings at beginning of period $26,445,973 $24,682,816
Net income for the three months ended 465,241 625,116
Cash dividends declared in the period:
$.43 per share in 2003 and $.33 in 2002 (415,437) (319,154)
----------- -----------
Retained earnings at end of period $26,495,777 $24,988,778
=========== ===========
</Table>
See Notes to the Consolidated Financial Statements
5
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2003 and 2002
(Unaudited)
<Table>
<Caption>
2003 2002
----------- -----------
Cash flows from operating activities:
Net income $ 465,241 $ 625,116
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 463,318 484,012
Net gain on the sale of equipment (4,300) (24,577)
Changes in operating assets and liabilities:
Accounts receivable, net (353,787) (1,307,000)
Inventories (343,716) (432,422)
Other current assets 3,394 (38,519)
Accounts payable 287,356 426,106
Accrued wages and salaries 227,244 264,310
Accrued profit sharing (331,556) (179,000)
Other accrued expenses 112,905 215,698
Income taxes payable 232,000 317,000
----------- -----------
Net cash provided by operating activities 758,099 350,724
----------- -----------
Cash flows from investing activities:
Capital expenditures (82,298) (104,327)
Proceeds from the sale of properties 4,300 26,170
Proceeds from held-to-maturity securities 2,900,000 21,281
Purchases of held-to-maturity securities (200,000) (400,000)
----------- -----------
Net cash provided by (used in) investing activities 2,622,002 (456,876)
----------- -----------
Cash flows from financing activities:
Payments under term loan agreement (450,000) (450,000)
Cash dividends paid (173,904) (174,084)
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Net cash used in financing activities (623,904) (624,084)
----------- -----------
Net increase (decrease) in cash and cash equivalents 2,756,197 (730,236)
Cash and cash equivalents at beginning of period 2,204,430 4,692,999
----------- -----------
Cash and cash equivalents at end of period $ 4,960,627 $ 3,962,763
=========== ===========
</Table>
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 financial
statements contain all adjustments necessary to present fairly the financial
position of the Company as of March 31, 2003 and December 31, 2002 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-month period ended March 31, 2003 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, 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:
<Table>
<Caption>
Fastener Equipment Other Consolidated
----------- ----------- ---------- --------------
Three Months Ended March 31, 2003:
Net sales and lease revenue $ 8,360,151 $ 1,876,312 $ -- $ 10,236,463
Depreciation 370,696 40,101 52,521 463,318
Segment profit 1,003,112 443,455 -- 1,446,567
Selling and administrative expenses 747,540 747,540
Interest expense 9,585 9,585
Interest income (19,799) (19,799)
------------
Income before income taxes 709,241
------------
Capital expenditures 71,881 10,417 -- 82,298
Segment assets:
Accounts receivable, net 4,468,032 880,452 -- 5,348,484
Inventory 4,123,346 2,310,311 -- 6,433,657
Property, plant and equipment, net 9,755,512 1,501,276 1,144,390 12,401,178
Other assets -- -- 6,274,140 6,274,140
------------
30,457,459
------------
Three Months Ended March 31, 2002:
Net sales and lease revenue $ 8,639,317 $ 1,813,009 $ -- $ 10,452,326
Depreciation 369,359 58,769 55,884 484,012
Segment profit 1,198,107 472,574 -- 1,670,681
Selling and administrative expenses 721,147 721,147
Interest expense 24,374 24,374
Interest income (21,956) (21,956)
------------
Income before income taxes 947,116
------------
Capital expenditures 104,327 -- -- 104,327
Segment assets:
Accounts receivable, net 4,386,103 916,045 -- 5,302,148
Inventory 4,020,607 2,462,483 -- 6,483,090
Property, plant and equipment, net 10,476,762 1,677,240 1,283,255 13,437,257
Other assets -- -- 5,500,664 5,500,664
------------
30,723,159
------------
</Table>
8
CHICAGO RIVET & MACHINE CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The recent quarter was more difficult than anticipated. The quarter
began with an increase in revenues compared with the prior year, building
expectations for a good start to 2003. Unfortunately, conditions changed
abruptly as our major customers reduced, or delayed, orders as the quarter
progressed. Revenues for the quarter amounted to $10,236,463, which is a
decrease of approximately 2% compared to the first quarter of 2002. Revenues
within the assembly equipment segment increased slightly, but that gain was more
than offset by the decline in revenues within the fastener segment.
The increase in volumes within the assembly equipment segment helped to
offset higher costs incurred for labor, raw material, health insurance and
utilities. As a result, gross margins within this segment were essentially
unchanged from one year ago. However, within the fastener segment, gross margins
declined, compared to the first quarter of last year, not only due to the
decrease in volume, but also due to significant increases in labor expense and
increases in the cost of employee health insurance, the cost of utilities, and
higher repair expense. The higher labor costs were due to the combination of
higher wage rates compared to the prior year and reduced labor efficiencies as a
result of our inability to reduce labor hours as quickly as demand declined,
particularly in the latter part of the quarter. First quarter selling and
administrative expenses increased modestly during 2003 compared to the first
quarter of 2002, due to increased payroll and fringe benefit costs. As a result,
net income for the first quarter of 2003 fell to $465,241, or $.48 per share on
966,132 shares outstanding, compared to $625,116, or $.65 per share on 967,132
shares outstanding during the first quarter of 2002.
During the quarter, the accounts receivable balance increased due to
comparatively higher volume of sales recorded during the first quarter, compared
with the fourth quarter. The accounts receivable balance as of March 31 was
comparable to the balance at the end of the first quarter of 2002. Inventory
levels, as of March 31, 2003, are somewhat higher than anticipated, due in part
to the reduction in customer shipping schedules that occurred in the latter
portion of the first quarter. Our production schedules have been adjusted to
compensate and we expect that inventory levels will decline during the second
quarter. At March 31, the balance due on the term note was $1.18 million, and
the average interest rate was 2.1%. The Company also has a $1.0 million line of
credit available through Bank of America. There is no charge for this facility
until it is utilized. We believe that current cash, cash equivalents and the
available credit facility will be sufficient to provide adequate working capital
to meet the Company's needs for the foreseeable future.
Our markets continue to be extremely competitive and demand continues
to be constrained by the lingering weakness that has characterized the
manufacturing sector of the domestic economy for quite some time. We have taken
action to reduce labor costs, and we continue to pursue every opportunity to
secure new business. However, until there is sustained improvement within the
overall manufacturing sector, our margins will continue to be constrained by
lower than ideal levels of operation and by continued downward pressure on the
price of our products. In the interim, we will continue to focus our efforts on
controlling costs, improving profitability and obtaining new business.
The foregoing discussion is only intended to provide highlights of operations
for the periods covered. Additional information is contained in our Form 10-Q,
which has been filed with the SEC and is available to shareholders upon request
from the Company, or via the internet through the SEC's EDGAR database. 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.
9
CHICAGO RIVET & MACHINE CO.
QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
Over time, the Company is exposed to market risks arising from changes
in interest rates. The Company has not historically used derivative financial
instruments. As of March 31, 2003, $1.18 million of floating-rate debt was
exposed to changes in interest rates compared to $1.63 million as of December
31, 2002. This exposure was primarily linked to the London Inter-Bank Offering
Rate and the lender's prime rate under the Company's term loan. A hypothetical
10% change in these rates would not have had a material effect on the Company's
quarterly earnings.
CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. The Company's
Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the Company's disclosure controls and procedures (as such term
is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"). Based on such
evaluation, such officers have concluded that, as of the Evaluation Date, the
Company's disclosure controls and procedures are effective in alerting them on a
timely basis to material information relating to the Company (including its
consolidated subsidiary) required to be included in the Company's periodic
filings under the Exchange Act.
(b) Changes in Internal Controls. Since the Evaluation Date, there have
not been any significant changes in the Company's internal controls or in other
factors that could significantly affect such controls.
10
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Interim Report to Shareholders for the quarter ended
March 31, 2003.
99.2 Certification of CEO Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
99.3 Certification of CFO Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the current period.
11
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 5, 2003
/s/ John A. Morrissey
---------------------------------------
John A. Morrissey
Chairman of the Board of Directors
and Chief Executive Officer
Date: May 5, 2003
/s/ John C. Osterman
---------------------------------------
John C. Osterman
President, Chief Operating
Officer and Treasurer
(Principal Financial Officer)
Date: May 5, 2003
/s/ Michael J. Bourg
---------------------------------------
Michael J. Bourg
Controller (Principal Accounting
Officer)
12
CERTIFICATIONS
I, John A. Morrissey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Chicago Rivet &
Machine Co.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the
period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 5, 2003 /s/ John A. Morrissey
----------- ----------------------
John A. Morrissey
Chairman
13
I, John C. Osterman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Chicago Rivet &
Machine Co.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the
period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: May 5, 2003 /s/ John C. Osterman
----------- --------------------
John C. Osterman
President/Treasurer
14
CHICAGO RIVET & MACHINE CO.
EXHIBITS
INDEX TO EXHIBITS
Exhibit
Number Page
----
99.1 Interim Report to Shareholders for the quarter ended March 31, 2003 16-17
99.2 Certification of CEO Pursuant to 18 U.S.C. Section 1350,as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 18
99.3 Certification of CFO Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 19
15