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CHICAGO RIVET & MACHINE CO - Quarter Report: 2019 September (Form 10-Q)

Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

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 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)

(630) 357-8500

Registrant’s Telephone Number, Including Area Code

 

 

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  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically, every interactive data file required to be submitted 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 such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading
Symbol(s)

 

Name of each exchange
on which registered

Common Stock, par value $1.00 per share   CVR   NYSE American (Trading privileges only, not registered)

As of November 4, 2019, there were 966,132 shares of the registrant’s common stock outstanding.

 

 

 


Table of Contents

CHICAGO RIVET & MACHINE CO.

INDEX

 

     Page  

PART I. FINANCIAL INFORMATION (Unaudited)

     2  

Condensed Consolidated Balance Sheets at September  30, 2019 and December 31, 2018

     2-3  

Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2019 and 2018

     4  

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018

     5  

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018

     6  

Notes to the Condensed Consolidated Financial Statements

     7-11  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     12-13  

Controls and Procedures

     14  

PART II. OTHER INFORMATION

     15  

 

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Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Balance Sheets

September 30, 2019 and December 31, 2018

 

     September 30,
2019
     December 31,
2018
 
    

(Unaudited)

        
Assets      

Current Assets:

     

Cash and cash equivalents

   $ 1,209,524      $ 706,873  

Certificates of deposit

     6,076,000        7,063,000  

Accounts receivable - Less allowances of $140,000

     5,614,022        5,529,307  

Inventories, net

     5,476,333        6,100,391  

Prepaid income taxes

     74,186        150,686  

Other current assets

     835,333        438,222  
  

 

 

    

 

 

 

Total current assets

     19,285,398        19,988,479  
  

 

 

    

 

 

 

Property, Plant and Equipment:

     

Land and improvements

     1,636,749        1,632,299  

Buildings and improvements

     8,327,006        8,234,182  

Production equipment and other

     36,363,188        35,627,443  
  

 

 

    

 

 

 
     46,326,943        45,493,924  

Less accumulated depreciation

     32,536,011        32,235,778  
  

 

 

    

 

 

 

Net property, plant and equipment

     13,790,932        13,258,146  
  

 

 

    

 

 

 

Total assets

   $ 33,076,330      $ 33,246,625  
  

 

 

    

 

 

 

See Notes to the Condensed Consolidated Financial Statements

 

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Table of Contents

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Balance Sheets

September 30, 2019 and December 31, 2018

 

     September 30,
2019
    December 31,
2018
 
     (Unaudited)        
Liabilities and Shareholders’ Equity     

Current Liabilities:

    

Accounts payable

   $ 987,976     $ 1,060,231  

Accrued wages and salaries

     861,953       701,434  

Other accrued expenses

     304,232       475,973  

Unearned revenue and customer deposits

     202,625       328,154  
  

 

 

   

 

 

 

Total current liabilities

     2,356,786       2,565,792  

Deferred income taxes

     1,055,084       921,084  
  

 

 

   

 

 

 

Total liabilities

     3,411,870       3,486,876  
  

 

 

   

 

 

 

Commitments and contingencies (Note 3)

    

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; 966,132 shares outstanding

     1,138,096       1,138,096  

Additional paid-in capital

     447,134       447,134  

Retained earnings

     32,001,328       32,096,617  

Treasury stock, 171,964 shares at cost

     (3,922,098     (3,922,098
  

 

 

   

 

 

 

Total shareholders’ equity

     29,664,460       29,759,749  
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 33,076,330     $ 33,246,625  
  

 

 

   

 

 

 

See Notes to the Condensed Consolidated Financial Statements

 

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CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Income

For the Three and Nine Months Ended September 30, 2019 and 2018

(Unaudited)

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2019      2018      2019      2018  

Net sales

   $ 8,188,905      $ 8,856,049      $ 25,686,034      $ 28,660,474  

Cost of goods sold

     6,539,138        7,221,815        20,826,534        22,394,801  
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     1,649,767        1,634,234        4,859,500        6,265,673  

Selling and administrative expenses

     1,282,149        1,308,884        3,931,510        4,185,571  
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating profit

     367,618        325,350        927,990        2,080,102  

Other income

     47,179        38,399        145,208        109,527  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     414,797        363,749        1,073,198        2,189,629  

Provision for income taxes

     99,000        76,000        241,000        491,000  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 315,797      $ 287,749      $ 832,198      $ 1,698,629  
  

 

 

    

 

 

    

 

 

    

 

 

 

Per share data, basic and diluted:

           

Net income per share

   $ 0.32      $ 0.30      $ 0.86      $ 1.76  
  

 

 

    

 

 

    

 

 

    

 

 

 

Average common shares outstanding

     966,132        966,132        966,132        966,132  
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash dividends declared per share

   $ 0.22      $ 0.21      $ 0.96      $ 0.93  
  

 

 

    

 

 

    

 

 

    

 

 

 

See Notes to the Condensed Consolidated Financial Statements

 

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CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Shareholders’ Equity

For the Three and Nine Months Ended September 30, 2019 and 2018

(Unaudited)

 

     Preferred      Common Stock      Additional Paid-in            Treasury Stock, at Cost        
     Stock      Shares      Amount      Capital      Retained Earnings     Shares      Amount     Total  

Balance, December 31, 2018

   $ —          966,132      $ 1,138,096      $ 447,134      $ 32,096,617       171,964      $ (3,922,098   $ 29,759,749  

Net Income

               $ 286,842          $ 286,842  

Dividends Declared ($0.52 per share)

               $ (502,389        $ (502,389
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Balance, March 31, 2019

   $ —          966,132      $ 1,138,096      $ 447,134      $ 31,881,070       171,964      $ (3,922,098   $ 29,544,202  

Net Income

               $ 229,559          $ 229,559  

Dividends Declared ($0.22 per share)

               $ (212,549        $ (212,549
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Balance, June 30, 2019

   $ —          966,132      $ 1,138,096      $ 447,134      $ 31,898,080       171,964      $ (3,922,098   $ 29,561,212  

Net Income

               $ 315,797          $ 315,797  

Dividends Declared ($0.22 per share)

               $ (212,549        $ (212,549
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Balance, September 30, 2019

   $ —          966,132      $ 1,138,096      $ 447,134      $ 32,001,328       171,964      $ (3,922,098   $ 29,664,460  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Balance, December 31, 2017

   $ —          966,132      $ 1,138,096      $ 447,134      $ 31,196,823       171,964      $ (3,922,098   $ 28,859,955  

Net Income

               $ 707,788          $ 707,788  

Dividends Declared ($0.51 per share)

               $ (492,727        $ (492,727
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Balance, March 31, 2018

   $ —          966,132      $ 1,138,096      $ 447,134      $ 31,411,884       171,964      $ (3,922,098   $ 29,075,016  

Net Income

               $ 703,092          $ 703,092  

Dividends Declared ($0.21 per share)

               $ (202,888        $ (202,888
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Balance, June 30, 2018

   $ —          966,132      $ 1,138,096      $ 447,134      $ 31,912,088       171,964      $ (3,922,098   $ 29,575,220  

Net Income

               $ 287,749          $ 287,749  

Dividends Declared ($0.21 per share)

               $ (202,888        $ (202,888
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Balance, September 30, 2018

   $ —          966,132      $ 1,138,096      $ 447,134      $ 31,996,949       171,964      $ (3,922,098   $ 29,660,081  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

See Notes to the Condensed Consolidated Financial Statements

 

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CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2019 and 2018

(Unaudited)

 

     2019     2018  

Cash flows from operating activities:

    

Net income

   $ 832,198     $ 1,698,629  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation

     1,029,998       973,182  

Gain on disposal of equipment

     (5,000     (26,135

Deferred income taxes

     134,000       118,000  

Changes in operating assets and liabilities:

    

Accounts receivable

     (84,715     (1,175,724

Inventories

     624,058       (726,233

Other current assets and prepaid income taxes

     (320,611     (106,338

Accounts payable

     (72,255     460,603  

Accrued wages and salaries

     160,519       221,074  

Other accrued expenses

     (171,741     (54,780

Unearned revenue and customer deposits

     (125,529     61,073  
  

 

 

   

 

 

 

Net cash provided by operating activities

     2,000,922       1,443,351  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Capital expenditures

     (1,562,784     (1,635,189

Proceeds from the sale of equipment

     5,000       26,135  

Proceeds from certificates of deposit

     5,569,000       3,735,000  

Purchases of certificates of deposit

     (4,582,000     (2,739,000
  

 

 

   

 

 

 

Net cash used in investing activities

     (570,784     (613,054
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Cash dividends paid

     (927,487     (898,503
  

 

 

   

 

 

 

Net cash used in financing activities

     (927,487     (898,503
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     502,651       (68,206

Cash and cash equivalents at beginning of period

     706,873       1,152,569  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1,209,524     $ 1,084,363  
  

 

 

   

 

 

 

Supplemental schedule of non-cash investing activities:

    

Capital expenditures in accounts payable

   $ —       $ 7,265  

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 September 30, 2019 (unaudited) and December 31, 2018 (audited) and the results of operations and changes in cash flows for the indicated periods. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted from these unaudited financial statements in accordance with applicable rules. Please refer to the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

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. The results of operations for the three and nine-month period ending September 30, 2019 are not necessarily indicative of the results to be expected for the year.

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842).” The ASU increases transparency and comparability among entities by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU requires lessees to recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The ASU is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those annual periods. The Company adopted Topic 842 on January 1, 2019 using the modified retrospective method. Based on the Company’s current lease agreements, adopting this ASU did not have a material impact on the Company’s financial statements.

2. 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.

3. 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.

4. Revenue—The Company operates in the fastener industry and is in the business of manufacturing and selling rivets, cold-formed fasteners and parts, screw machine products, automatic rivet setting machines and parts and tools for such machines. Revenue is recognized when control of the promised goods or services is transferred to our customers, generally upon shipment of goods or completion of services, in an amount that reflects the consideration we expect to receive in exchange for those goods or services. For certain assembly equipment segment transactions, revenue is recognized based on progress toward completion of the performance obligation using a labor-based measure. Labor incurred and specific material costs are compared to milestone payments per sales contract. Based on our experience, this method most accurately reflects the transfer of goods under such contracts. During the second quarter of 2019, the Company realized $219,700 related to such a contract and the remaining performance obligation under that contract of $118,300 was recognized as revenue in the third quarter.

Sales taxes we may collect concurrent with revenue producing activities are excluded from revenue. Revenue is recognized net of certain sales adjustments to arrive at net sales as reported on the statement of income. These adjustments primarily relate to customer returns and allowances. The Company records a liability and reduction in sales for estimated product returns based upon historical experience. If we determine that our obligation under warranty claims is probable and subject to reasonable determination, an estimate of that liability is recorded as an offset against revenue at that time. As of September 30, 2019 and December 31, 2018 reserves for warranty claims were not material. Cash received by the Company prior to shipment is recorded as unearned revenue.

Shipping and handling fees billed to customers are recognized in net sales, and related costs as cost of sales, when incurred.

 

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Sales commissions are expensed when incurred because the amortization period is less than one year. These costs are recorded within selling and administrative expenses in the statement of income.

The following table presents revenue by segment, further disaggregated by end-market:

 

            Assembly         
     Fastener      Equipment      Consolidated  

Three Months Ended September 30, 2019:

        

Automotive

     4,698,298        61,298        4,759,596  

Non-automotive

     2,608,597        820,712        3,429,309  
  

 

 

    

 

 

    

 

 

 

Total net sales

     7,306,895        882,010        8,188,905  
  

 

 

    

 

 

    

 

 

 

Three Months Ended September 30, 2018:

        

Automotive

     5,291,033        100,751        5,391,784  

Non-automotive

     2,645,765        818,500        3,464,265  
  

 

 

    

 

 

    

 

 

 

Total net sales

     7,936,798        919,251        8,856,049  
  

 

 

    

 

 

    

 

 

 

Nine Months Ended September 30, 2019:

        

Automotive

     14,296,552        166,713        14,463,265  

Non-automotive

     8,406,167        2,816,602        11,222,769  
  

 

 

    

 

 

    

 

 

 

Total net sales

     22,702,719        2,983,315        25,686,034  
  

 

 

    

 

 

    

 

 

 

Nine Months Ended September 30, 2018:

        

Automotive

     17,225,475        189,656        17,415,131  

Non-automotive

     8,670,697        2,574,646        11,245,343  
  

 

 

    

 

 

    

 

 

 

Total net sales

     25,896,172        2,764,302        28,660,474  
  

 

 

    

 

 

    

 

 

 

The following table presents revenue by segment, further disaggregated by location:

 

            Assembly         
     Fastener      Equipment      Consolidated  

Three Months Ended September 30, 2019:

        

United States

     6,252,110        823,137        7,075,247  

Foreign

     1,054,785        58,873        1,113,658  
  

 

 

    

 

 

    

 

 

 

Total net sales

     7,306,895        882,010        8,188,905  
  

 

 

    

 

 

    

 

 

 

Three Months Ended September 30, 2018:

        

United States

     6,926,372        856,248        7,782,620  

Foreign

     1,010,426        63,003        1,073,429  
  

 

 

    

 

 

    

 

 

 

Total net sales

     7,936,798        919,251        8,856,049  
  

 

 

    

 

 

    

 

 

 

Nine Months Ended September 30, 2019:

        

United States

     19,443,934        2,731,126        22,175,060  

Foreign

     3,258,785        252,189        3,510,974  
  

 

 

    

 

 

    

 

 

 

Total net sales

     22,702,719        2,983,315        25,686,034  
  

 

 

    

 

 

    

 

 

 

Nine Months Ended September 30, 2018:

        

United States

     22,659,279        2,608,197        25,267,476  

Foreign

     3,236,893        156,105        3,392,998  
  

 

 

    

 

 

    

 

 

 

Total net sales

     25,896,172        2,764,302        28,660,474  
  

 

 

    

 

 

    

 

 

 

 

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5. The Company’s effective tax rates were approximately 23.9% and 20.9% for the third quarter of 2019 and 2018, respectively, and 22.5% and 22.4% for the nine months ended September 30, 2019 and 2018, respectively.

The Company’s federal income tax returns for the 2016, 2017 and 2018 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. No statutes have been extended on any of the Company’s federal income tax filings. The statute of limitations on the Company’s 2016, 2017 and 2018 federal income tax returns will expire on September 15, 2020, 2021 and 2022, respectively.

The Company’s state income tax returns for the 2016 through 2018 tax years remain subject to examination by various state authorities with the latest closing period on October 31, 2022. 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:

 

     September 30, 2019      December 31, 2018  

Raw material

   $ 2,342,744      $ 2,798,918  

Work-in-process

     1,508,728        1,878,977  

Finished goods

     2,181,861        2,001,496  
  

 

 

    

 

 

 

Inventories, gross

     6,033,333        6,679,391  

Valuation reserves

     (557,000      (579,000
  

 

 

    

 

 

 

Inventories, net

   $ 5,476,333      $ 6,100,391  
  

 

 

    

 

 

 

 

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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 cold-formed parts, rivets 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 September 30, 2019:

           

Net sales

   $ 7,306,895      $ 882,010      $ —        $ 8,188,905  

Depreciation

     305,082        32,507        9,742        347,331  

Segment operating profit

     605,503        336,320        —          941,823  

Selling and administrative expenses

     —          —          (563,705      (563,705

Interest income

     —          —          36,679        36,679  
           

 

 

 

Income before income taxes

            $ 414,797  
           

 

 

 

Capital expenditures

     267,179        2,576        —          269,755  

Segment assets:

           

Accounts receivable, net

     5,174,674        439,348        —          5,614,022  

Inventories, net

     4,294,760        1,181,573        —          5,476,333  

Property, plant and equipment, net

     11,126,165        1,715,513        949,254        13,790,932  

Other assets

     —          —          8,195,043        8,195,043  
           

 

 

 
            $ 33,076,330  
           

 

 

 

Three Months Ended September 30, 2018:

           

Net sales

   $ 7,936,798      $ 919,251      $ —        $ 8,856,049  

Depreciation

     281,418        28,358        9,869        319,645  

Segment operating profit

     599,188        297,009        —          896,197  

Selling and administrative expenses

     —          —          (563,347      (563,347

Interest income

     —          —          30,899        30,899  
           

 

 

 

Income before income taxes

            $ 363,749  
           

 

 

 

Capital expenditures

     813,649        5,489        187,598        1,006,736  

Segment assets:

           

Accounts receivable, net

     5,961,946        540,428        —          6,502,374  

Inventories, net

     4,226,263        1,028,070        —          5,254,333  

Property, plant and equipment, net

     10,696,801        1,596,585        932,839        13,226,225  

Other assets

     —          —          8,446,731        8,446,731  
           

 

 

 
            $ 33,429,663  
           

 

 

 

 

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CHICAGO RIVET & MACHINE CO.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

     Fastener      Assembly
Equipment
     Other      Consolidated  

Nine Months Ended September 30, 2019:

           

Net sales

   $ 22,702,719      $ 2,983,315      $ —        $ 25,686,034  

Depreciation

     907,887        92,884        29,227        1,029,998  

Segment operating profit

     1,681,703        988,196        —          2,669,899  

Selling and administrative expenses

     —          —          (1,705,159      (1,705,159

Interest income

     —          —          108,458        108,458  
           

 

 

 

Income before income taxes

            $ 1,073,198  
           

 

 

 

Capital expenditures

     1,307,859        228,900        26,025        1,562,784  

Nine Months Ended September 30, 2018:

           

Net sales

   $ 25,896,172      $ 2,764,302      $ —        $ 28,660,474  

Depreciation

     865,677        82,954        24,551        973,182  

Segment operating profit

     3,006,367        930,570        —          3,936,937  

Selling and administrative expenses

     —          —          (1,831,926      (1,831,926

Interest income

     —          —          84,618        84,618  
           

 

 

 

Income before income taxes

            $ 2,189,629  
           

 

 

 

Capital expenditures

     1,279,568        36,984        325,902        1,642,454  

 

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CHICAGO RIVET & MACHINE CO.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations

Net sales for the third quarter of 2019 were $8,188,905 compared to $8,856,049 in the third quarter of 2018, a decline of $667,144, or 7.5%. As of September 30, 2019, year to date sales totaled $25,686,034 compared to $28,660,474, for the first three quarters of 2018, a decline of $2,974,440, or 10.4%. The decline in net sales in the current year is primarily due to reduced demand for fastener segment parts, especially from automotive customers. Net income for the third quarter of 2019 was $315,797, or $0.32 per share, compared to $287,749, or $0.30 per share, in the third quarter of 2018. Net income for the first three quarters of 2019 was $832,198, or $0.86 per share, compared with $1,698,629, or $1.76 per share, reported in 2018. Net income in the current year has been negatively impacted by the decline in sales as well as the increase in certain production costs.

Fastener segment revenues were $7,306,895 in the third quarter of 2019 compared to $7,936,798 in the year earlier quarter, a decline of $629,903, or 7.9%. For the first three quarters of 2019, fastener segment revenues were $22,702,719 compared to $25,896,172 in 2018, a decline of $3,193,453, or 12.3%. The automotive sector is the primary market for our fastener segment products and while North American light-vehicle production has declined in 2019 compared to the first nine months of 2018, our sales to automotive customers in certain other locations has been particularly weak in the current year due to the global economic slowdown impacting many foreign countries. Fastener segment sales to automotive customers declined $592,735, or 11.2%, in the third quarter and $2,928,923, or 17.0%, in the first three quarters of 2019 compared to the prior year periods. Sales to non-automotive customers have declined a more modest 3.1% in the first three quarters of the current year. Fastener segment gross margins were $1,314,044 in the third quarter of 2019 compared to $1,336,509 in the third quarter of 2018, a decline of $22,465. The decline in gross margin during the quarter was less than the decline in net sales due to the combined effects of improved operating efficiencies and significant reductions in tooling and supplies expenditures as well as lower repair expenses. For the first nine months of 2019, gross margins for the fastener segment were $3,858,277 compared to $5,360,521 in the first nine months of 2018, a decline of $1,502,244. In addition to the negative impact lower sales have had on gross margins, certain production costs in 2019 have been higher than a year earlier. Steel is our primary raw material and on average, steel prices were 7% higher in the first three quarters of 2019 than a year earlier. The impact of higher steel prices was more pronounced in the first half of the year as we were able to obtain more favorable pricing in the third quarter. Labor costs have also risen more than expected in the current year due to the tight labor market.

Assembly equipment segment revenues were $882,010 in the third quarter of 2019 compared to $919,251 in the third quarter of 2018, a decline of $37,241, or 4.1%. Despite the decline in sales during the quarter, gross margins improved from $297,725 to $335,723 due to a more profitable product mix. For the first nine months of 2019, assembly equipment segment sales were $2,983,315 compared to $2,764,302 for the same period in 2018, an increase of $219,013, or 7.9%. For the first three quarters of the year, assembly equipment segment gross margins were $1,001,223 compared to $905,152 in 2018, an increase of $96,071.

Selling and administrative expenses for the third quarter of 2019 were $1,282,149, a decline of $26,735, or 2%, compared to the year earlier quarter total of $1,308,884. The decline was primarily due to a $20,000 reduction in commission expense related to lower sales in the current year quarter. Selling and administrative expenses for the first three quarters of 2019 were $3,931,510 compared to $4,185,571 for the same period of 2018, a reduction of $254,061, or 6.1%. The decline was primarily due to a $121,000 reduction in profit sharing expense related to lower operating profit in the current year and a $103,000 reduction in sales commissions due to lower sales. Selling and administrative expenses as a percentage of net sales for the first nine months of 2019 was 15.3% compared to 14.6% for the first nine months of 2018.

Other Income

Other income in the third quarter of 2019 was $47,179 compared to $38,399 in the third quarter of 2018. Other income for the first three quarters of 2019 was $145,208 compared to $109,527 in the same period of 2018. Other income consists primarily of interest income on certificates of deposit. The increases were primarily due to higher interest rates in the current year compared to the year earlier periods.

 

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Income Tax Expense

The Company’s effective tax rates were 23.9% and 20.9% for the third quarter of 2019 and 2018, respectively, and 22.5% and 22.4% for the nine months ended September 30, 2019 and 2018, respectively.

Liquidity and Capital Resources

Working capital as of September 30, 2019 amounted to $16.9 million, a decrease of $0.5 million from the beginning of the year. Contributing to that decline were capital expenditures during the current year of $1.6 million, which consisted primarily of equipment used in production activities, and dividends paid of $0.9 million, including three regular quarterly payments of $0.22 per share and an extra dividend of $0.30 per share paid in the first quarter. The net result of these changes and other cash flow items was to leave cash, cash equivalents and certificates of deposit at $7.3 million as of September 30, 2019 compared to $7.8 million at the beginning of the year. Management believes that current cash, cash equivalents and operating cash flow will provide adequate working capital for the next twelve months.

Results of Operations Summary

As in the first half of the year, overall results in the third quarter continued to be pressured by reduced demand in the fastener segment, especially from automotive customers. Demand was further negatively impacted by a strike by the United Auto Workers against General Motors which began during September. The impact of the strike will extend into fourth quarter results. Although we have seen some more favorable prices for steel recently, raw material prices are still above year earlier levels and remain a concern as trade disputes persist. In contrast to the fastener segment, our current year assembly equipment segment results have exceeded those of a year earlier and demand for such products remains relatively stable. Given the challenges of the current environment, we will continue to make adjustments to our activities in an effort to improve operational efficiencies as a means of improving operating margins, while seeking to increase sales by developing new customer relationships and building on existing ones in all the markets we serve.

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 with major customers, risks related to export sales, 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, information systems disruptions, 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 6. 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.
101    Interactive Data File. Includes the following financial and related information from Chicago Rivet & Machine Co.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 formatted in Extensible Business Reporting Language (XBRL): (1) Condensed Consolidated Balance Sheets, (2) Condensed Consolidated Statements of Income, (3) Condensed Consolidated Statements of Stockholders’ Equity, (4) Condensed Consolidated Statements of Cash Flows, and (5) Notes to Condensed Consolidated Financial Statements.

 

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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: November 8, 2019      
     

/s/ John A. Morrissey

      John A. Morrissey
      Chairman of the Board of Directors
            and Chief Executive Officer
            (Principal Executive Officer)
Date: November 8, 2019      
     

/s/ Michael J. Bourg

      Michael J. Bourg
      President, Chief Operating
            Officer and Treasurer
            (Principal Financial Officer)

 

16