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CHICAGO RIVET & MACHINE CO - Quarter Report: 2010 March (Form 10-Q)

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Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2010
OR
     
o   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 000-01227
Chicago Rivet & Machine Co.
(Exact Name of Registrant as Specified in Its Charter)
     
Illinois   36-0904920
(State or Other Jurisdiction
of Incorporation or Organization)
  (I.R.S. Employer
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 þ No o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o  Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company þ
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of March 31, 2010, there were 966,132 shares of the registrant’s common stock outstanding.
 
 

 


 

CHICAGO RIVET & MACHINE CO.
INDEX
         
      Page  
PART I. FINANCIAL INFORMATION (Unaudited)
       
    2-3  
    4  
    5  
    6  
    7-8  
    9-10  
    11  
    12-18  
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

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Item 1. Financial Statements.
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Balance Sheets
March 31, 2010 and December 31, 2009
                 
    March 31,     December 31,  
    2010     2009  
    (Unaudited)          
Assets
               
Current Assets:
               
Cash and cash equivalents
  $ 543,350     $ 569,286  
Certificates of deposit
    6,180,000       6,430,000  
Accounts receivable, net of allowance of $155,000 each
    4,234,415       3,813,663  
Inventories
    4,368,819       3,753,936  
Deferred income taxes
    434,191       429,191  
Prepaid income taxes
    519,561       579,105  
Other current assets
    298,761       245,415  
 
           
 
               
Total current assets
    16,579,097       15,820,596  
 
           
 
               
Property, Plant and Equipment:
               
Land and improvements
    1,029,035       1,029,035  
Buildings and improvements
    6,402,784       6,402,784  
Production equipment and other
    28,048,131       28,010,475  
 
           
 
    35,479,950       35,442,294  
Less accumulated depreciation
    27,881,549       27,635,819  
 
           
Net property, plant and equipment
    7,598,401       7,806,475  
 
           
 
               
Total assets
  $ 24,177,498     $ 23,627,071  
 
           
See Notes to the Condensed Consolidated Financial Statements

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CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Balance Sheets
March 31, 2010 and December 31, 2009
                 
    March 31,     December 31,  
    2010     2009  
    (Unaudited)          
Liabilities and Shareholders’ Equity
               
 
               
Current Liabilities:
               
Accounts payable
  $ 1,376,769     $ 1,022,747  
Accrued wages and salaries
    646,864       370,428  
Other accrued expenses
    217,517       235,261  
Unearned revenue and customer deposits
    142,703       102,246  
 
           
Total current liabilities
    2,383,853       1,730,682  
 
               
Deferred income taxes
    694,275       734,275  
 
           
 
               
Total liabilities
    3,078,128       2,464,957  
 
           
 
               
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
    23,436,238       23,498,982  
Treasury stock, 171,964 shares at cost
    (3,922,098 )     (3,922,098 )
 
           
Total shareholders’ equity
    21,099,370       21,162,114  
 
           
 
               
Total liabilities and shareholders’ equity
  $ 24,177,498     $ 23,627,071  
 
           
See Notes to the Condensed Consolidated Financial Statements

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CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2010 and 2009
(Unaudited)
                 
    2010     2009  
Net sales
  $ 6,761,393     $ 4,759,290  
Cost of goods sold
    5,495,530       4,486,679  
 
           
 
               
Gross profit
    1,265,863       272,611  
Selling and administrative expenses
    1,233,835       1,280,076  
 
           
 
               
Operating profit (loss)
    32,028       (1,007,465 )
 
               
Other income and expenses:
               
Interest income
    13,241       50,004  
Other income
    3,600       3,600  
 
           
 
               
Income (loss) before income taxes
    48,869       (953,861 )
Provision for income taxes
    15,000       (330,000 )
 
           
 
               
Net income (loss)
  $ 33,869     $ (623,861 )
 
           
 
               
Average common shares outstanding
    966,132       966,132  
 
           
 
               
Per share data:
               
Net income (loss) per share
  $ 0.04     $ (0.65 )
 
           
 
               
Cash dividends declared per share
  $ 0.10     $ 0.18  
 
           
See Notes to the Condensed Consolidated Financial Statements

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CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Statements of Retained Earnings
For the Three Months Ended March 31, 2010 and 2009
(Unaudited)
                 
    2010     2009  
 
               
Retained earnings at beginning of period
  $ 23,498,982     $ 25,245,476  
 
               
Net income (loss)
    33,869       (623,861 )
 
               
Cash dividends declared in the period; $.10 per share in 2010 and $.18 per share in 2009
    (96,613 )     (173,903 )
 
           
 
               
Retained earnings at end of period
  $ 23,436,238     $ 24,447,712  
 
           
See Notes to the Condensed Consolidated Financial Statements

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CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2010 and 2009
(Unaudited)
                 
    2010     2009  
Cash flows from operating activities:
               
Net income (loss)
  $ 33,869     $ (623,861 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
               
Depreciation
    245,730       250,147  
Deferred income taxes
    (45,000 )     (41,000 )
Changes in operating assets and liabilities:
               
Accounts receivable, net
    (420,752 )     271,075  
Inventories
    (614,883 )     568,712  
Other current assets
    6,198       (190,846 )
Accounts payable
    354,022       323,680  
Accrued wages and salaries
    276,436       215,835  
Other accrued expenses
    (17,744 )     (140,291 )
Unearned revenue and customer deposits
    40,457       (312,138 )
 
           
Net cash (used in) provided by operating activities
    (141,667 )     321,313  
 
           
 
               
Cash flows from investing activities:
               
Capital expenditures
    (37,656 )     (64,777 )
Proceeds from certificates of deposit
    2,450,000       1,599,000  
Purchases of certificates of deposit
    (2,200,000 )     (2,594,000 )
 
           
Net cash provided by (used in) investing activities
    212,344       (1,059,777 )
 
           
 
               
Cash flows from financing activities:
               
Cash dividends paid
    (96,613 )     (173,903 )
 
           
Net cash used in financing activities
    (96,613 )     (173,903 )
 
           
 
               
Net decrease in cash and cash equivalents
    (25,936 )     (912,367 )
Cash and cash equivalents at beginning of period
    569,286       1,553,226  
 
           
Cash and cash equivalents at end of period
  $ 543,350     $ 640,859  
 
           
 
               
Supplemental schedule of non-cash investing activities:
               
Capital expenditures in accounts payable
  $     $ 5,315  
See Notes to the Condensed Consolidated Financial Statements

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CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited interim financial statements contain all adjustments necessary to present fairly the financial position of the Company as of March 31, 2010 (unaudited) and December 31, 2009 (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 month period ended March 31, 2010 are not necessarily indicative of the results to be expected for the year.
3. The Company extends credit on the basis of terms that are customary within our markets to various companies doing business primarily in the automotive industry. The Company has a concentration of credit risk primarily within the automotive industry and in the Midwestern United States.
4. The Company is, from time to time, involved in litigation, including environmental claims and contract disputes, in the normal course of business. While it is not possible at this time to establish the ultimate amount of liability with respect to contingent liabilities, including those related to legal proceedings, management is of the opinion that the aggregate amount of any such liabilities, for which provision has not been made, will not have a material adverse effect on the Company’s financial position.
5. The Company’s federal income tax returns for the 2008 and 2009 tax years are subject to examination by the Internal Revenue Service (“IRS”). While it may be possible that a reduction could occur with respect to the Company’s unrecognized tax benefits as an outcome of an IRS examination, management does not anticipate any adjustments that would result in a material change to the results of operations or financial condition of the Company. The 2006 and 2007 federal income tax returns were examined by the IRS and no adjustments were made as a result of these examinations. No statutes have been extended on any of the Company’s federal income tax filings. The statute of limitations on the Company’s 2008 and 2009 federal income tax returns will expire on September 15, 2012 and 2013, respectively.
The Company’s state income tax returns for the 2007 through 2009 tax years remain subject to examination by various state authorities with the latest closing period on October 31, 2013. The Company is currently not under examination by any state authority for income tax purposes and no statutes for state income tax filings have been extended.
6. Inventories are stated at the lower of cost or net realizable value, cost being determined by the first-in, first-out method. A summary of inventories is as follows:
                 
    March 31, 2010     December 31, 2009  
Raw material
  $ 1,475,514     $ 1,324,614  
Work-in-process
    1,705,915       1,500,723  
Finished goods
    1,756,890       1,493,099  
 
           
 
    4,938,319       4,318,436  
Valuation reserves
    (569,500 )     (564,500 )
 
           
 
  $ 4,368,819     $ 3,753,936  
 
           

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CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Segment Information—The Company operates in two business segments as determined by its products. The fastener segment includes rivets, cold-formed fasteners and screw machine products. The assembly equipment segment includes automatic rivet setting machines and parts and tools for such machines. Information by segment is as follows:
                                 
            Assembly              
    Fastener     Equipment     Other     Consolidated  
Three Months Ended March 31, 2010:
                               
Net sales
  $ 6,039,861     $ 721,532             $ 6,761,393  
 
                               
Depreciation
    215,571       14,199       15,960       245,730  
 
                               
Segment profit
    416,620       121,442               538,062  
 
                               
Selling and administrative expenses
                    (502,434 )     (502,434 )
Interest income
                    13,241       13,241  
 
                             
Income before income taxes
                            48,869  
 
                             
 
                               
Capital expenditures
    37,656                       37,656  
 
                               
Segment assets:
                               
Accounts receivable, net
    3,815,927       418,488               4,234,415  
Inventories
    3,331,706       1,037,113               4,368,819  
Property, plant and equipment, net
    5,946,584       986,770       665,047       7,598,401  
Other assets
                    7,975,863       7,975,863  
 
                             
 
                            24,177,498  
 
                             
 
                               
Three Months Ended March 31, 2009:
                               
Net sales
  $ 3,629,430     $ 1,129,860             $ 4,759,290  
 
                               
Depreciation
    214,303       16,458       19,386       250,147  
 
                               
Segment profit (loss)
    (617,979 )     145,179               (472,800 )
 
                               
Selling and administrative expenses
                    (531,065 )     (531,065 )
Interest income
                    50,004       50,004  
 
                             
Loss before income taxes
                            (953,861 )
 
                             
 
                               
Capital expenditures
    70,092                       70,092  
 
                               
Segment assets:
                               
Accounts receivable, net
    2,810,747       233,926               3,044,673  
Inventories
    3,271,621       1,208,299               4,479,920  
Property, plant and equipment, net
    6,429,946       1,045,964       744,008       8,219,918  
Other assets
                    8,922,096       8,922,096  
 
                             
 
                            24,666,607  
 
                             

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CHICAGO RIVET & MACHINE CO.
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.
     Revenues for the first quarter of 2010 were $6,761,393, an increase of $2,002,103, or 42.1%, compared with the depressed levels of last year’s first quarter, when the impact of the domestic and global recession was most severe. While the increase in sales is significant and reflects the rebound in automotive production from a year ago, as well as improvement in the overall economic environment, current year sales are still approximately 20% below the first quarter of 2008. The increase in revenue combined with previously instituted cost control measures have resulted in a net profit of $33,869, or $.04 per share, compared with a net loss of $623,861, or $0.65 per share, in the first quarter of 2009.
     Fastener segment revenues were $6,039,861 in the first quarter of 2010, an increase of $2,410,431, or 66.4%, from the $3,629,430 reported in the first quarter of 2009. It also marks the fourth consecutive quarter of increased sales for the fastener segment. Sales were aided by an increase in North American car and truck production of more than 60 percent, compared with the year earlier quarter, as well as sales to new customers. In order to meet the improved demand, segment payroll was increased by $498,000 during the quarter. Through better utilization of resources, this increase left overall payroll as a smaller percentage of net sales than a year ago. However, higher state unemployment tax rates resulted in an increase in unemployment taxes of $88,000 during the first quarter. The combination of higher sales, better utilization of resources brought about by improved customer demand, and ongoing efficiency initiatives, contributed to an increase in segment gross margin of approximately $1,059,000.
     Assembly equipment segment revenues declined by $408,328, or 36.1%, from $1,129,860 in the first quarter of 2009 to $721,532 in 2010. The lower net sales was primarily due to a reduction in machines shipped during the current year compared to the year earlier quarter as well as the shipment of certain high value machine orders in the first quarter of 2009. While our quoting activity for machines has been consistent with the first quarter of 2009, more companies seem to be delaying larger expenditures in the wake of the recession. Partially offsetting the decline in machine sales was improved tool sales as domestic manufacturing activity showed improvement in the first quarter of this year compared with last year. As a result of the net decline in sales, segment margins were $66,000 lower in the first quarter of 2010 than in 2009.
     Selling and administrative expenses during the first quarter of 2010 were $46,241 lower than the first quarter of 2009. This reduction is approximately equal to the decline in salaries and benefits that resulted from headcount reductions achieved in the past year. While commissions have increased approximately $23,000 due to the improved sales in the quarter, reductions in various other items offset this increase.
     Working capital amounted to $14.2 million at the end of the first quarter, an increase of $.1 million from the beginning of the year. During the quarter, inventories increased $.6 million as production activity improved and the cost of raw materials has moved higher. Accounts receivable increased by $.4 million during the first quarter primarily due to the greater sales activity during the first quarter of 2010, especially in the final month, compared to the fourth quarter of 2009. Partially offsetting these changes was a combined increase of $.6 million for accounts payable and accrued salaries and wages since the beginning of the year. These balances are consistent with the level of activity during the first quarter. The net result of these changes and other cash flow items on cash and certificates of deposit was a decrease of $.3 million, to $6.7 million, as of March 31, 2010. Management believes that current cash, cash equivalents and operating cash flow will provide adequate working capital for the foreseeable future.
     The lingering effects of the economic crisis continue to impact our operations. While we have seen a strong recovery in overall sales during the first quarter of 2010, compared to the first quarter of 2009, it should be noted that our results in the first half of 2009 were significantly impacted by the economic crisis. Improved customer demand, combined with the adjustments we have made to our operations, have resulted in consecutive profitable quarters for the first time in two years, in a dramatically different environment than existed a few years earlier. The automotive industry, from which we derive the majority of our revenue, has rebounded strongly compared to last year, but still faces challenges related to overcapacity, a weakened supplier base and an economy that suffers from high unemployment. Amid this background, we will continue to look for opportunities to profitably grow our revenues and improve our bottom line. We also intend to continue to make adjustments to our activities where necessary, in response to conditions in our markets, while maintaining the quality our customers demand.

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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 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.

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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 President, Chief Operating Officer and Treasurer (the Company’s principal financial officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and President, Chief Operating Officer and Treasurer 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.

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PART II — OTHER INFORMATION
Item 4.   Exhibits
     
31
  Rule 13a-14(a) or 15d-14(a) Certifications
 
   
31.1
  Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
31.2
  Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32
  Section 1350 Certifications
 
   
32.1
  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
   
32.2
  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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 7, 2010  /s/ John A. Morrissey    
  John A. Morrissey   
  Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer) 
 
 
     
Date: May 7, 2010  /s/ Michael J. Bourg    
  Michael J. Bourg   
  President, Chief Operating
Officer and Treasurer
(Principal Financial Officer) 
 

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CHICAGO RIVET & MACHINE CO.
EXHIBITS
INDEX TO EXHIBITS
             
Exhibit        
Number       Page
 
           
31
  Rule 13a-14(a) or 15d-14(a) Certifications        
 
           
31.1
  Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002     15  
 
           
31.2
  Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002     16  
 
           
32
  Section 1350 Certifications        
 
           
32.1
  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002     17  
 
           
32.2
  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002     18  

14