Summary of CHICAGO RIVET & MACHINE CO

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results for the third quarter of 2009 continued to be negatively impacted by reduced domestic manufacturing activity as a result of the ongoing economic recession. Net revenues in the third quarter of 2009 were $5,490,147, a decline of 17.6% compared to 2008, when revenues were $6,662,021. Year to date revenues total $14,929,260, a decline of 35.4% compared to the $23,123,359 recorded for the first three quarters of 2008. Although we have reduced expenses, cost reductions were not sufficient to offset the effects of the decline in sales. The net result was a net loss of $246,814, or $0.26 per share, in the third quarter of 2009 compared to a net loss of $195,409, or $0.20 per share, in 2008 when economic activity began its dramatic decline. The year to date net loss is $1,310,132, or $1.36 per share, compared to a net loss of $187,158, or $.19 per share, in 2008.
Fastener segment revenues improved in the third quarter of 2009 to $4,742,053, from $4,105,171 in the second quarter, marking the second consecutive quarterly improvement, but trailed revenues in the third quarter of 2008 by $987,580, or 17.2%. On a year to date basis, 2009 fastener segment revenues have declined by $7,618,662, or 37.9%, from $20,095,316 to $12,476,654. With the majority of our revenue in this segment coming from the automotive industry, the problems in that sector in recent years have had a negative impact on our sales. While domestic automotive production improved in the third quarter, there has been an overall 40% decline in the first nine months of the year. Current economic conditions have resulted in reduced demand among our non-automotive customers as well. In response to the drop in demand, we have adjusted our operations. Even though we reduced all major categories of manufacturing costs, these savings did not fully offset the decline in sales volume, resulting in a $113,000 reduction in fastener segment gross margin in the third quarter and a $1,609,000 reduction in the year to date amount, compared to the year earlier periods.
Assembly equipment segment revenues totaled $748,094 in the third quarter of 2009, and although this is a decline of $184,294, or 19.8%, compared to the third quarter of 2008, when revenues were $932,388, it marks a $173,433 improvement over last quarter. Demand for our products in this segment continues to be weak and the lower level of production activity, brought on by reduced demand, resulted in a $46,000 decline in gross margin compared to the third quarter of 2008. For the first nine months of 2009, revenues in this segment amounted to $2,452,606, a $575,437 decline, or 19%, compared to the first nine months of 2008 when net revenues totaled $3,028,043. Machine sales, which are included in this segment, are particularly sensitive to economic conditions, and we have seen our unit shipments and revenues decline as a result of the current environment. In response to the lower level of sales activity in 2009, we have reduced manufacturing expenses to better match demand. These actions, however, have not fully offset the effects of reduced volume and, as a result, gross margins declined to $630,000 from $917,000 last year.
Selling and administrative expenses for the third quarter of 2009 were $115,533 lower than during the third quarter of 2008. While lower sales in the quarter compared to last year resulted in a $20,000 reduction in commission expense, cost controls accounted for most of the net savings. Salaries and related benefits were reduced by $54,000 due to a reduction in headcount since the third quarter of last year while outside services, travel, office supplies and maintenance accounted for an additional $29,000 in savings. On a year to date basis, selling and administrative expenses have declined $273,265 compared to the first three quarters of 2008. Lower sales in the current year have resulted in a $130,000 reduction in commissions through three quarters. Cost control efforts have resulted in salaries and related benefits being reduced by $78,000 while various other items make up the net difference including reductions in outside services, travel, office supplies and maintenance.
Working capital at September 30, 2009 was approximately $14 million, a reduction of $1.3 million from the beginning of the year. Most of the net decline relates to the reduction in inventories, which are $1.1 million lower as a result of lower quantities on hand as well as lower prices for certain raw materials, which had increased dramatically in the second half of 2008. Improved sales late in the third quarter resulted in a $.4 million increase in accounts receivable since the beginning of the year; however, that increase was more than offset by the increase in accounts payable. The net result of these changes and other cash flow items on cash, cash equivalents and certificates of deposit was a decrease of $.6 million, to $7 million, as of September 30, 2009. Management believes that current cash, cash equivalents and operating cash flow will provide adequate working capital for the foreseeable future.
While conditions remain uncertain, we are encouraged by the improvement in sales and bottom line results compared to the first two quarters of this year. The year to date decline in revenues reflects the depressed level of production activity in our primary markets, caused by extraordinary economic conditions. We remain cautious regarding the strength of a general economic recovery given that many of the factors that contributed to the economic crisis are still present. We believe our sound financial condition

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leaves us well positioned to take advantage of opportunities that this environment creates, and we will continue working to make adjustments necessary to improve our operations.
This discussion contains certain "forward-looking statements" which are inherently subject to risks and uncertainties that may cause actual events to differ materially from those discussed herein. Factors which may cause such differences in events include, those disclosed under "Risk Factors" in our Annual Report on Form 10-K and in the other filings we make with the United States Securities and Exchange Commission. These factors, include among other things: conditions in the domestic automotive industry, upon which we rely for sales revenue, the intense competition in our markets, the concentration of our sales to two major customers, the price and availability of raw materials, labor relations issues, losses related to product liability, warranty and recall claims, costs relating to environmental laws and regulations, the loss of the services of our key employees and difficulties in achieving expected cost savings. Many of these factors are beyond our ability to control or predict. Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to publish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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CHICAGO RIVET & MACHINE CO.