<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 1998 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 of (I.R.S. Employer Identification No.)
incorporation or organization)
P. O. Box 3061
90l Frontenac Road
Naperville, Illinois 60566
- -------------------- -----
(Address of principal executive office) (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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 31, 1998
- ----- -----------------------------
COMMON STOCK, $1.00 PAR VALUE 1,169,096 SHARES
- ----------------------------- ----------------
DOCUMENTS INCORPORATED BY REFERENCE
- -----------------------------------
(1) Portions of the Company's Interim Report to Shareholders for the Quarter
ended March 31, 1998 are incorporated by reference in Part I of this Report.
<PAGE> 2
CHICAGO RIVET & MACHINE CO.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
<S> <C>
Consolidated Balance Sheets at March 31, 1998
and December 31, 1997. 2-3
Consolidated Statements of Operations for the Three
Months Ended March 31, 1998 and 1997. 4
Consolidated Statements of Retained Earnings for the
Three Months Ended March 31, 1998 and 1997. 5
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997. 6
Notes to the Consolidated Financial Statements 7-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
PART II. OTHER INFORMATION 11-15
</TABLE>
1
<PAGE> 3
CHICAGO RIVET & MACHINE CO.
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
Assets
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,253,374 $ 3,983,471
Certificate of deposit 1,759,038 2,867,715
Accounts receivable - net of allowances 6,065,401 5,662,538
Inventories:
Raw materials 2,036,996 1,901,419
Work in process 1,514,742 1,427,764
Finished goods 3,149,314 3,025,424
---------- ----------
Total inventories 6,701,052 6,354,607
---------- ----------
Deferred income taxes (Note 4) 821,335 764,588
Other current assets 474,696 360,448
---------- ----------
Total Current Assets 20,074,896 19,993,367
---------- ----------
Property, Plant and Equipment
Land and improvements 1,008,901 1,008,901
Buildings and improvements 5,504,795 5,501,189
Production equipment, leased
machines and other 22,135,757 21,404,751
---------- ----------
28,649,453 27,914,841
Less - Accumulated Depreciation 15,312,594 14,960,748
---------- ----------
Net Property, Plant and Equipment 13,336,859 12,954,093
---------- ----------
Total Assets $33,411,755 $32,947,460
========== ==========
</TABLE>
See Notes to the Consolidated Financial Statements
2
<PAGE> 4
CHICAGO RIVET & MACHINE CO.
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
Liabilities and Shareholders' Equity
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 2,141,659 $ 1,700,296
Contributions due profit sharing
and pension plans 160,161 707,747
Wages and salaries 1,066,376 772,247
Other accrued expenses (Note 5) 454,167 329,708
Unearned lease revenue 43,964 68,711
Current portion of note payable 1,800,000 1,800,000
Accrued interest expense 139,721 108,634
Federal and state income taxes 1,038,658 739,343
---------- ----------
Total Current Liabilities 6,844,706 6,226,686
Note payable 4,500,000 4,950,000
Deferred income taxes (Note 4) 1,325,811 1,259,672
---------- ----------
Total Liabilities 12,670,517 12,436,358
---------- ----------
Shareholders' Equity:
Preferred stock, no par value:
authorized 500,000 shares -
none outstanding ---- ----
Common stock, $1.00 par value:
authorized 4,000,000 shares -
issued and outstanding 1,169,096
and 1,169,296, respectively 1,169,096 1,169,296
Additional paid - in capital 459,309 459,388
Retained earnings 19,112,833 18,882,418
---------- ----------
Total Shareholders' Equity 20,741,238 20,511,102
---------- ----------
Commitments and Contingencies (Note 3) ---- ----
---------- ----------
Total Liabilities and Shareholders' Equity $33,411,755 $32,947,460
========== ==========
</TABLE>
See Notes to the Consolidated Financial Statements
3
<PAGE> 5
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Operations
For the Three Months Ended March 31, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Net sales $11,580,739 $11,803,592
Lease revenue 92,210 95,053
---------- ----------
11,672,949 11,898,645
Cost of goods sold and costs
related to lease revenue 8,271,340 8,790,141
---------- ----------
Gross profit 3,401,609 3,108,504
Shipping, selling and
administrative expenses 1,822,305 1,702,113
Profit sharing and pension
expenses 120,299 140,000
---------- ----------
1,459,005 1,266,391
Other income and expenses:
Interest income from
U.S. government securities
and certificates of deposit 83,982 34,769
Interest expense (105,525) (135,138)
Gain from sale of leased
machines and other equipment 14,311 1,500
Amortization expense --- (6,249)
Other income, net of other expense (26,953) 4,710
---------- ----------
Income before income taxes 1,424,820 1,165,983
Provision for income taxes 510,000 434,000
---------- ----------
Net income $ 914,820 $ 731,983
========== ==========
Average common shares outstanding 1,169,100 1,171,496
========== ==========
Per share data:
Net income per share $ .78 $ .62
========== ==========
Cash dividends declared per share $ .58 $ .40
========== ==========
</TABLE>
See Notes to the Consolidated Financial Statements
4
<PAGE> 6
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Retained Earnings
For the Three Months Ended March 31, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
March 31,
1998 1997
---- ----
<S> <C> <C>
Retained earnings at beginning
of period $18,882,418 $16,145,012
Net income for the three months ended 914,820 731,983
Treasury stock retired at cost (5,371) ---
Cash dividends declared in the period -
$.58 per share in 1998 and $.40 per
share in 1997. (679,034) (468,594)
---------- ----------
Retained earnings at end of period $19,112,833 $16,408,401
========== ==========
</TABLE>
See Notes to the Consolidated Financial Statements
5
<PAGE> 7
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 914,820 $ 731,983
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 374,071 340,968
Net gain on the sale of properties (14,311) (1,500)
Deferred income taxes 9,392 33,625
Changes in current assets and current liabilities:
Accounts receivable, net (402,863) (654,776)
Inventories (346,445) 703,055
Accounts payable (26,910) (164,401)
Accrued interest 31,087 (2,362)
Other accrued expenses 124,459 62,976
Accrued wages and salaries 294,129 245,663
Accrued profit sharing (547,586) (197,301)
Taxes payable 299,315 303,875
Other, net (138,998) (41,269)
--------- ---------
Net cash provided by operating activities 570,160 1,360,536
--------- ---------
Cash flows from investing activities:
Capital expenditures (761,329) (132,861)
Net proceeds from the sale of properties 18,806 12,546
Proceeds from held-to-maturity securities 2,467,715 937,220
Purchases of held-to-maturity securities (1,359,038) (880,361)
--------- ---------
Net cash provided (used) by investing activities 366,154 (63,456)
--------- ---------
Cash flows from financing activities:
Payments under term loan agreement (450,000) (450,000)
Purchase of treasury stock (5,650) ---
Cash dividends (210,761) (175,724)
--------- ---------
Net cash used by financing activities (666,411) (625,724)
--------- ---------
Net increase in cash and cash equivalents 269,903 671,356
Cash and cash equivalents at beginning
of period 3,983,471 3,215,688
--------- ---------
Cash and cash equivalents at end of period $4,253,374 $3,887,044
========= =========
Cash paid during the period for:
Income taxes $ 201,293 $ 96,500
Interest $ 105,060 $ 135,138
</TABLE>
See Notes to the Consolidated Financial Statements
6
<PAGE> 8
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, 1998 and December 31, 1997 and the
results of operations and changes in cash flow for the indicated periods.
The Company uses estimated gross profit rates to determine the cost of goods
sold during interim periods. 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 ending March 31, 1998
are not necessarily indicative of the results to be expected for the year.
3. The Company is, from time to time, involved in litigation, including
environmental claims, in the normal course of business. With regard to
environmental claims, the Company has been named by state and/or federal
government agencies as a "potentially responsible party" with respect to
certain waste disposal sites. As a potentially responsible party, the Company
may be considered jointly and severally liable, along with other potentially
responsible parties, for the cost of remediation of these waste sites. Certain
estimates related to remediation costs were favorably adjusted during 1997 as
remediation work nears completion at certain sites, while claims at other sites
are nearing resolution, and, accordingly, the Company has revised the amount of
reserves recorded in connection with these claims. The actual cost of
remediation is presently unknown; however, estimates currently available suggest
that the remaining cost of remediation at these sites will be between $33
million and $49 million. Despite the joint and several nature of liability,
these proceedings are frequently resolved on the basis of the quantity and type
of waste disposed by the parties. The actual amount of liability for the
Company is unknown due to disagreement concerning the allocation of
responsibility, uncertainties regarding the amount of contribution that will be
available from other parties and uncertainties related to insurance coverage.
After investigation of the quantities and type of waste disposed at these sites,
it is management's opinion that any liability will not be material to the
Company's financial condition. Nevertheless, it is likely that the Company will
incur additional costs associated with these proceedings, and, accordingly, the
Company has recorded a total liability of $84,000 related to these matters. The
adequacy of this reserve will be reviewed periodically as more definitive cost
information becomes available.
In the normal course of business the Company extends credit primarily on the
basis of 30 day terms to various customers, principally, in the automotive
industry in the Midwestern United States. Currently, the Company is
re-negotiating payment terms with a certain customer representing approximately
10% of the March 31, 1998 consolidated accounts receivable balance. Management
believes that the situation will be successfully resolved and substantially all
of the account balance will be collected during the remainder of 1998.
Management is of the opinion that existing reserves are adequate, accordingly
no additional loss provisions have been made at this time. The situation will
be monitored and reviewed as more information becomes available.
7
<PAGE> 9
CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CON'T.)
(Unaudited)
4. At March 31, 1998 significant deferred tax liabilities and assets were
comprised of the following:
<TABLE>
<S> <C>
Depreciation $ (1,325,811)
-----------
(1,325,811)
Environmental accruals 47,015
Inventory valuations 427,166
Accrued vacation 225,935
Doubtful accounts 53,986
Unearned rental revenue 17,586
Other, net 49,647
-----------
821,335
-----------
$ (504,476)
===========
</TABLE>
5. Other Accrued Expenses - accrued expenses consist of the following:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Environmental costs $ 83,538 $ 85,000
Property taxes 128,927 95,620
Payroll taxes 85,472 68,951
All other items 156,230 80,137
------- -------
$ 454,167 $ 329,708
======= =======
</TABLE>
6. The Company extends credit primarily on the basis of 30 day terms to various
companies doing business primarily in the automotive and appliance industries.
The Company has a concentration of credit risk primarily within the automotive
industry and in the Midwestern United States.
8
<PAGE> 10
CHICAGO RIVET & MACHINE CO.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The Company enjoyed a successful first quarter in 1998, posting an
increase in net income despite a modest decline in revenues. Net sales and
lease revenues amounted to $11,672,949 compared to $11,898,645 recorded during
the first quarter of 1997. Revenues related to the sale of fasteners and
cold-formed products increased compared to the first quarter of 1997 as demand
for these products remained relatively high. Those gains were offset by lower
revenues from the sale of automatic assembly equipment. Demand in this segment
has not been as strong as in the prior period, and, based upon recent activity,
we do not anticipate that demand will increase in the near future.
We are pleased to report that net income improved to $914,820, or $.78 per
share on 1,169,100 average shares outstanding. It should be noted that net
income during the first quarter of 1997 was reduced by approximately $.18 per
share due to certain accounting conventions, and conservative estimates,
associated with purchase accounting in connection with the acquisition of H & L
Tool Company that occurred in the fourth quarter of 1996. Therefore, on an
adjusted basis, earnings for both periods are approximately equal, despite
marginally lower sales levels and a less favorable product mix in the first
quarter of 1998.
Selling, general and administrative expenses increased by approximately
$120,000 compared to the first quarter of 1997. Most of this change is due to
expenses associated with the implementation of the new management information
system, including third party consulting and the utilization of temporary,
contract technical support personnel.
The Company's financial condition continues to be sound. During the
quarter, working capital declined approximately $.6 million, but still totaled
approximately $13.2 million, which represents an increase of nearly $1.0
million compared with the first quarter of 1997. The Company took delivery of
new cold-heading equipment, valued at $719,000 during the first quarter of 1998
and this was the single largest factor contributing to the change in working
capital compared to year end 1997. Accounts receivable increased compared to
the year end balances, largely due to an increase in sales during the first
quarter compared with the fourth quarter of 1997. The level of inventories
also increased somewhat compared to year end 1997, but the investment in
inventories is expected to decline to more normal levels in the months ahead.
Late in 1996, in connection with the purchase of H & L Tool, the Company
borrowed $9.0 million, on an unsecured basis, subject to certain customary
covenants. Under the terms of the note evidencing such debt, the Company will
repay the principal in 20 quarterly installments of $450,000, plus interest
computed on the unpaid balance at a variable rate that is calculated under one
of two methods: the LIBOR rate plus 80 basis points; or the lender's reference
rate, less 75 basis points. The rate is adjusted quarterly and at the end of
the first quarter of 1998 was approximately 6.6%. The Company is in full
compliance with all terms of the note and, during 1997, made an extra payment
of $450,000 against the principal balance of the note. At the end of the first
quarter of 1998, the balance due was $6.3 million. Also in connection with the
acquisition of H & L Tool, the Company obtained a $1.0 million line of credit
from the Bank of America. This line remains unused and is scheduled to expire
on May 30, 1998. Although the Company believes that its existing cash, cash
equivalents and existing borrowings will be sufficient to provide adequate
working capital through at least the next twelve months, consideration will be
given to extending the line of credit for an additional twelve months.
9
<PAGE> 11
Overall, we continue to be pleased with results. We remain focused on our
core operations, with an emphasis on cost control and operating improvements.
Our quality and service initiatives are on schedule: a second facility
recently received accreditation to the coveted QS9000 standard and a third
facility has been recommended for registration. Our backlog of open orders is
not as large as one year ago, and incoming orders are not quite as strong as
those enjoyed a year ago, but we believe that business will remain strong
enough to maintain operations for the foreseeable future. We continue to
solicit new business from customers, and potential customers, in a variety of
industries, but our primary market continues to be centered around the
automobile industry, and our level of operations remain very closely tied to
the level of activity in that sector of the economy.
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, fluctuations in general
economic conditions, consumer demand, the gain or loss of a key customer, and
the price and availability of the Company's primary raw materials. Therefore,
readers are cautioned not to place undue reliance upon such forward-looking
statements.
10
<PAGE> 12
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
19.1 Interim Report to Shareholders for the quarter ended
March 31, 1998.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the current period.
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 14, 1998
/s/ John A. Morrissey
John A. Morrissey
Chairman of the Board of Directors
and Chief Executive Officer
Date: May 14, 1998
/s/ John C. Osterman
John C. Osterman
President, Chief Operating
Officer and Treasurer (Principal
Financial Officer)
Date: May 14, 1998
/s/ Stephen D. Voss
Stephen D. Voss
Assistant Treasurer and Controller
11
<PAGE> 13
CHICAGO RIVET & MACHINE CO.
EXHIBITS
INDEX TO EXHIBITS
Exhibit
Number Page
19.1 Interim Report to Shareholders for the
quarter ended March 31, 1998. 13 - 14
27.1 Financial Data Schedule 15
12
<PAGE> 1
E X H I B I T 1 9 . 1
To Our Shareholders:
The comparative results of operations of Chicago Rivet & Machine Co. for
the first quarter of 1998 and 1997 are summarized below.
The Company enjoyed a successful first quarter in 1998, posting an
increase in net income despite a modest decline in revenues. Net sales and
lease revenues amounted to $11,672,949 compared to $11,898,645 recorded during
the first quarter of 1997. Revenues related to the sale of fasteners and
cold-formed products increased compared to the first quarter of 1997 as demand
for these products remained relatively high. Those gains were offset by lower
revenues from the sale of automatic assembly equipment. Demand in this segment
has not been as strong as in the prior period, and, based upon recent activity,
we do not anticipate that demand will increase in the near future.
We are pleased to report that net income improved to $914,820, or $.78 per
share on 1,169,100 average shares outstanding. It should be noted that net
income during the first quarter of 1997 was reduced by approximately $.18 per
share due to certain accounting conventions, and conservative estimates,
associated with purchase accounting in connection with the acquisition of H & L
Tool Company that occurred in the fourth quarter of 1996. Therefore, on an
adjusted basis, earnings for both periods are approximately equal, despite
marginally lower sales levels and a less favorable product mix in the first
quarter of 1998.
Overall, we continue to be pleased with results. We remain focused on our
core operations, with an emphasis on cost control and operating improvements.
Our quality and service initiatives are on schedule: a second facility
recently received accreditation to the coveted QS9000 standard and a third
facility has been recommended for registration. Our backlog of open orders is
not as large as one year ago, and incoming orders are not quite as strong as
those enjoyed a year ago, but we believe that business will remain strong
enough to maintain operations for the foreseeable future. We continue to
solicit new business from customers, and potential customers, in a variety of
industries, but our primary market continues to be centered around the
automobile industry, and our level of operations remain very closely tied to
the level of activity in that sector of the economy.
The 1998 annual meeting of shareholders will be held at the Company's
headquarters in Naperville, Illinois at 10:00 AM on Tuesday, May 12, 1998. All
shareholders are cordially invited to attend. Formal notice of the meeting and
proxy materials, including the Company's 1997 Annual Report to Shareholders
were distributed early in April. If you have not already completed and
returned your proxy, we ask that you do so at your earliest convenience, even
if you plan to attend the meeting. Thank you.
Respectfully yours,
John A. Morrissey John C. Osterman
Chairman President
April 17, 1998
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, fluctuations in general
economic conditions, consumer demand, the gain or loss of a key customer, and
the price and availability of the Company's primary raw materials. Therefore,
readers are cautioned not to place undue reliance upon such forward-looking
statements.
13
<PAGE> 2
CHICAGO RIVET & MACHINE CO.
Summary of Consolidated Results of Operations
For the Three Months Ended March 31
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net sales and lease revenue.............. $ 11,672,949 $ 11,898,645
Income before taxes .................... 1,424,820 1,165,983
Income after taxes ...................... 914,820 731,983
Net income per share..................... .78 .62
Average shares outstanding............... 1,169,100 1,171,496
</TABLE>
(All figures subject to year end audit)
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,253,374
<SECURITIES> 1,759,038
<RECEIVABLES> 6,214,303
<ALLOWANCES> 148,902
<INVENTORY> 6,701,052
<CURRENT-ASSETS> 20,074,896
<PP&E> 28,649,453
<DEPRECIATION> 15,312,594
<TOTAL-ASSETS> 33,411,755
<CURRENT-LIABILITIES> 6,844,706
<BONDS> 4,500,000
0
0
<COMMON> 1,169,096
<OTHER-SE> 19,572,142
<TOTAL-LIABILITY-AND-EQUITY> 33,411,755
<SALES> 11,580,739
<TOTAL-REVENUES> 11,672,949
<CGS> 8,271,340
<TOTAL-COSTS> 8,271,340
<OTHER-EXPENSES> 1,942,604
<LOSS-PROVISION> 7,500
<INTEREST-EXPENSE> 105,525
<INCOME-PRETAX> 1,424,820
<INCOME-TAX> 510,000
<INCOME-CONTINUING> 914,820
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 914,820
<EPS-PRIMARY> .78
<EPS-DILUTED> .78
</TABLE>
