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, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURI-
TIES 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, 2003, 966,132 shares of the registrant's common stock were
outstanding.
CHICAGO RIVET & MACHINE CO.
INDEX
<Table>
<Caption>
PART I. FINANCIAL INFORMATION Page
Consolidated Balance Sheets at June 30, 2003
and December 31, 2002 2-3
Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 2003 and 2002 4
Consolidated Statements of Retained Earnings for the
Six Months Ended June 30, 2003 and 2002 5
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2003 and 2002 6
Notes to the Consolidated Financial Statements 7-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-11
Quantitative and Qualitative Information About Market Risk 12
Controls and Procedures 12
PART II. OTHER INFORMATION 13-21
</Table>
1
CHICAGO RIVET & MACHINE CO.
Consolidated Balance Sheets
June 30, 2003 and December 31, 2002
<Table>
<Caption>
June 30, December 31,
2003 2002
----------- ------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 4,567,684 $ 2,204,430
Certificates of deposit 455,000 3,157,733
Accounts receivable - net of allowances 5,681,090 4,994,697
Inventories:
Raw materials 1,378,323 1,636,216
Work in process 1,891,758 1,818,106
Finished goods 2,512,913 2,635,619
----------- -----------
Total inventories 5,782,994 6,089,941
----------- -----------
Deferred income taxes 564,191 581,191
Other current assets 184,029 277,983
----------- -----------
Total current assets 17,234,988 17,305,975
----------- -----------
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 27,815,792 27,774,278
----------- -----------
34,574,512 34,528,198
Less accumulated depreciation 22,571,185 21,746,000
----------- -----------
Net property, plant and equipment 12,003,327 12,782,198
----------- -----------
Total assets $29,238,315 $30,088,173
=========== ===========
</Table>
- ----------
See Notes to the Consolidated Financial Statements
2
CHICAGO RIVET & MACHINE CO.
Consolidated Balance Sheets
June 30, 2003 and December 31, 2002
<Table>
<Caption>
June 30, December 31,
2003 2002
------------ ------------
(Unaudited)
Liabilities and Shareholders' Equity
Current Liabilities:
Note payable $ 732,760 $ 1,632,760
Accounts payable 1,453,365 1,121,195
Accrued wages and salaries 832,735 795,920
Contributions due profit sharing plan 155,986 435,542
Other accrued expenses 434,825 397,634
Federal and state income taxes payable (85,258) 48,742
------------ ------------
Total current liabilities 3,524,413 4,431,793
------------ ------------
Deferred income taxes 1,507,275 1,547,275
------------ ------------
Total liabilities 5,031,688 5,979,068
------------ ------------
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 26,543,495 26,445,973
Treasury stock, at cost, 171,964 shares (3,922,098) (3,922,098)
------------ ------------
Total shareholders' equity 24,206,627 24,109,105
------------ ------------
Total liabilities and shareholders' equity $ 29,238,315 $ 30,088,173
============ ============
</Table>
- ----------
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, 2003 and 2002
(Unaudited)
<Table>
<Caption>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net sales $ 9,966,997 $ 12,388,292 $ 20,156,255 $ 22,786,428
Lease revenue 38,947 49,564 86,152 103,754
------------ ------------ ------------ ------------
10,005,944 12,437,856 20,242,407 22,890,182
Cost of goods sold and costs
related to lease revenue 8,076,311 9,321,633 15,927,245 17,198,154
------------ ------------ ------------ ------------
Gross profit 1,929,633 3,116,223 4,315,162 5,692,028
Selling and administrative expenses 1,614,924 1,760,364 3,309,601 3,415,087
------------ ------------ ------------ ------------
314,709 1,355,859 1,005,561 2,276,941
Other income and expenses:
Interest income 19,066 19,808 38,865 41,764
Interest expense (6,652) (21,401) (16,237) (45,775)
Gain from disposal of equipment 1,199 4,606 5,499 29,183
Other income, net of other expense 4,299 11,717 8,174 15,592
------------ ------------ ------------ ------------
Income before income taxes 332,621 1,370,589 1,041,862 2,317,705
Provision for income taxes 111,000 468,000 355,000 790,000
------------ ------------ ------------ ------------
Net income $ 221,621 $ 902,589 $ 686,862 $ 1,527,705
============ ============ ============ ============
Average common shares outstanding 966,132 966,768 966,132 966,949
============ ============ ============ ============
Per share data:
Net income per share $ 0.23 $ 0.93 $ 0.71 $ 1.58
============ ============ ============ ============
Cash dividends declared per share $ 0.18 $ 0.18 $ 0.61 $ 0.51
============ ============ ============ ============
</Table>
- ----------
See Notes to the Consolidated Financial Statements
4
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Retained Earnings
For the Six Months Ended June 30, 2003 and 2002
(Unaudited)
<Table>
<Caption>
2003 2002
------------ ------------
Retained earnings at beginning of period $ 26,445,973 $ 24,682,816
Net income for the six months ended 686,862 1,527,705
Cash dividends declared in the period,
$.61 and $.51 per share in 2003 and 2002, respectively (589,340) (493,111)
------------ ------------
Retained earnings at end of period $ 26,543,495 $ 25,717,410
============ ============
</Table>
- ----------
See Notes to the Consolidated Financial Statements
5
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2003 and 2002
(Unaudited)
<Table>
<Caption>
2003 2002
----------- -----------
Cash flows from operating activities:
Net income $ 686,862 $ 1,527,705
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 926,032 956,990
Net gain on the sale of properties (5,499) (29,183)
Deferred income taxes (23,000) 25,000
Changes in operating assets and liabilities:
Accounts receivable, net (686,393) (2,171,632)
Inventories 306,947 380,962
Other current assets 93,954 (57,202)
Accounts payable 332,170 453,770
Accrued wages and salaries 36,815 227,970
Accrued profit sharing (279,556) (40,000)
Other accrued expenses 37,191 134,297
Income taxes payable (134,000) 55,000
----------- -----------
Net cash provided by operating activities 1,291,523 1,463,677
----------- -----------
Cash flows from investing activities:
Capital expenditures (147,161) (488,728)
Proceeds from the sale of properties 5,499 35,070
Proceeds from held-to-maturity securities 3,057,733 327,882
Purchases of held-to-maturity securities (355,000) (907,733)
----------- -----------
Net cash provided by (used in) investing activities 2,561,071 (1,033,509)
----------- -----------
Cash flows from financing activities:
Payments under term loan agreement (900,000) (900,000)
Purchase of treasury stock -- (26,976)
Cash dividends paid (589,340) (493,111)
----------- -----------
Net cash used in financing activities (1,489,340) (1,420,087)
----------- -----------
Net increase (decrease) in cash and cash equivalents 2,363,254 (989,919)
Cash and cash equivalents at beginning of period 2,204,430 4,692,999
----------- -----------
Cash and cash equivalents at end of period $ 4,567,684 $ 3,703,080
=========== ===========
</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 interim financial
statements contain all adjustments necessary to present fairly the financial
position of the Company as of June 30, 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 and six-month period ending June 30,
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, 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>
Assembly
Fastener Equipment Other Consolidated
------------ ------------ ------------ ------------
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
------------
Three Months Ended June 30, 2002:
Net sales and lease revenue $ 9,739,161 $ 2,698,695 $ -- $ 12,437,856
Depreciation 362,904 53,044 57,030 472,978
Segment profit 1,269,534 851,619 -- 2,121,153
Selling and administrative expenses 748,971 748,971
Interest expense 21,401 21,401
Interest income (19,808) (19,808)
------------
Income before income taxes 1,370,589
------------
Capital expenditures 307,290 1,940 75,171 384,401
Segment assets:
Accounts receivable, net 4,954,866 1,211,914 -- 6,166,780
Inventory 3,517,565 2,152,141 -- 5,669,706
Property, plant and equipment, net 10,417,648 1,625,342 1,301,396 13,344,386
Other assets -- -- 5,460,796 5,460,796
------------
30,641,668
------------
</Table>
8
CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<Table>
<Caption>
Assembly
Fastener Equipment Other Consolidated
------------ ------------ ------------ ------------
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
Six Months Ended June 30, 2002:
Net sales and lease revenue $ 18,378,478 $ 4,511,704 $ -- $ 22,890,182
Depreciation 732,263 111,813 112,914 956,990
Segment profit 2,467,641 1,324,193 -- 3,791,834
Selling and administrative expenses 1,470,118 1,470,118
Interest expense 45,775 45,775
Interest income (41,764) (41,764)
------------
Income before income taxes 2,317,705
------------
Capital expenditures 411,617 1,940 75,171 488,728
</Table>
9
CHICAGO RIVET & MACHINE CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results for the quarter ended June 30, 2003 were disappointing. Weak
demand continued to characterize our markets and the resulting decline in
revenues was the primary factor contributing to the decline in operating income
during the quarter and the first half of the year. As discussed below,
conditions within our operating segments diverged somewhat during the quarter.
The assembly equipment segment remained at relatively steady, albeit weak,
levels while activity within the fastener segment was erratic and difficult to
forecast.
As previously reported, during the second quarter of 2002, the assembly
equipment segment benefited from a large order from a single customer. We did
not enjoy a similar order in 2003, and the absence of such an order is the
primary reason for the year to year decline in revenues in both the second
quarter and the first six months. While we are not satisfied with the current
level of activity in this segment, we do not anticipate a change until activity,
particularly capital spending, within the manufacturing portion of the economy
shows sustained improvement. Since conditions have been fairly consistent within
this segment, we have been successful in implementing cost reduction measures
that have been proportional to changes in volume. As a result, with the
exception of an increase in the cost of employee health insurance, the change in
gross margins within this segment is directly attributable to the change in
volume.
Second quarter 2003 fastener segment revenues of $7,933,029 were 18%
lower than those recorded during the second quarter of 2002. On a year to date
basis, 2003 revenues within the fastener segment amount to $16,293,180, which is
a decline of 11% compared with the first six months of 2002. Within the fastener
segment, the sudden decline in activity that began late in the first quarter
seemed to abate in April, but activity slumped again in May and June. North
American automobile production during the second quarter of 2003 was more than
8% lower than during the same period of 2002. Production levels for domestic
nameplates, which represent our largest market, were over 11% lower in the
second quarter of 2003, compared to the second quarter of 2002. In addition, our
revenues were adversely impacted by the loss of some business due to our
inability to meet price concessions demanded by certain customers and by the
phase-out of certain parts in connection with model year changes. We have been
awarded new parts in connection with the new model year, but production of these
new parts will not reach full volume until later in the year. Nevertheless,
during the second quarter, we incurred higher than normal tooling expense in
connection with the development of these parts.
In response to lower volumes, we have focused on cost reductions and,
with the exception of two areas, we have been successful in reducing
manufacturing costs in a manner proportional with the change in business levels.
One exception is the cost of employee health insurance, which has increased
substantially compared to last year. The other exception is labor costs. While
we have made some reductions in hours and staffing levels, the recent
inconsistency in demand caused us to hesitate to make widespread reductions,
because our workforce has specialized skills and the investment in training is
very high, and, we did not expect the reduction in fastener demand to be as
severe or as prolonged as it has been this year. Clearly, our position with
respect to our workforce will have to be re-evaluated if demand does not
improve.
Selling and administrative expenses declined approximately $145,000
during the second quarter of 2003, compared with the second quarter of 2002. The
reduction is primarily due to lower commission and profit sharing expense.
During the second quarter, the accounts receivable balance increased
slightly, reflecting the fact that more customers are delaying payments beyond
historical terms. Although sales have declined, we were successful in reducing
inventory levels during the second quarter of 2003. At June 30, 2003, the
balance due on the term note was $732,760 and the effective interest rate was
2%. This note is scheduled to be paid in full in December 2003. The Company also
has a $1.0 million line of credit available through Bank of America, NA. There
is no charge for this facility unless it is utilized. We believe that the
Company's current cash, cash equivalents and the available line of credit will
be sufficient to provide adequate working capital for the foreseeable future.
Looking ahead, we remain concerned because conditions within the
manufacturing sector of the economy have not yet responded to the various
stimuli designed to engineer a widespread economic recovery. Our markets
continue to be highly competitive, and our major customers continue to exert
downward pressure on prices and margins. Late in the second quarter, we were
favored with a number of orders for assembly equipment. While we are pleased to
have the orders, they were primarily from a handful of customers within a very
specific industry, and thus, we do not believe they represent the beginning of a
widespread improvement. Similarly, within the fastener segment, we have received
orders
10
for a variety of new parts from our automotive customers and expect to begin
shipping in the third quarter. However, we cannot be certain that this new
business will be sufficient to restore revenue to last year's levels. We
recognize that recent results are not satisfactory. While we continue to solicit
new business, we are closely monitoring our operations and are prepared to make
adjustments as conditions dictate.
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.
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 June 30, 2003, $732,760 of floating-rate debt was exposed to
changes in interest rates compared to $1,632,760 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) 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 to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 13, 2003.
The only proposal voted upon was the election of seven directors for a term
ending at the Annual Meeting in 2004. The seven persons nominated by the
Company's Board of Directors received the following votes and were elected:
<Table>
<Caption>
NAME VOTES FOR VOTES WITHHELD
---- --------- --------------
Edward L. Chott 904,549 34,877
Nirendu Dhar 903,088 36,133
William T. Divane, Jr. 905,066 34,557
John R. Madden 904,717 34,757
John A. Morrissey 902,733 36,557
Walter W. Morrissey 905,040 34,577
John C. Osterman 905,068 34,557
</Table>
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,
2003.
(b) Reports on Form 8-K
Current Report on Form 8-K, Item 12, Results of Operations
and Financial Condition, dated May 2, 2003.
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 5, 2003
/s/ John A. Morrissey
-------------------------------------
John A. Morrissey
Chairman of the Board of Directors
and Chief Executive Officer
Date: August 5, 2003
/s/ John C. Osterman
-------------------------------------
John C. Osterman
President, Chief Operating
Officer and Treasurer
(Principal Financial Officer)
Date: August 5, 2003
/s/ Michael J. Bourg
-------------------------------------
Michael J. Bourg
Controller (Principal Accounting
Officer)
14
CHICAGO RIVET & MACHINE CO.
EXHIBITS
INDEX TO EXHIBITS
<Table>
<Caption>
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, 2003 20 - 21
</Table>
15