CHICAGO RIVET & MACHINE CO - Quarter Report: 2021 September (Form 10-Q)
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, 2021
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
_________________________________
(Exact Name of Registrant as Specified in Its Charter)
Illinois |
36-0904920 |
901 Frontenac Road, Naperville, Illinois60563
(Address of Principal Executive Offices) (Zip Code)
(630) 357-8500
Registrant’s Telephone Number, Including Area Code
_________________________________
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 |
(Trading privileges only, not registered) |
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 ý No o
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 ý No o
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.:
Large accelerated fileroAccelerated filero
Non-accelerated filerýSmaller 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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
As of November 1, 2021, there were 966,132 shares of the registrant’s common stock outstanding.
CHICAGO RIVET & MACHINE CO.
INDEX
PART I.FINANCIAL INFORMATION (Unaudited)Page
Condensed Consolidated Balance Sheets at
Condensed Consolidated Statements of Income for the
Three and Nine Months Ended September 30, 2021 and 2020 3
Condensed Consolidated Statements of Shareholders’ Equity for the
Three and Nine Months Ended September 30, 2021 and 2020 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2021 and 2020 5
Notes to the Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition and Results of Operations11
PART II.OTHER INFORMATION14
1
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
CHICAGO RIVET & MACHINE CO. | |||
|
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|
|
|
September 30, 2021 |
|
December 31, 2020 |
Assets |
|
|
|
|
|
|
|
Current Assets: |
|
|
|
Cash and cash equivalents |
$ 2,875,282 |
|
$ 2,567,731 |
Certificates of deposit |
2,741,000 |
|
4,733,000 |
Accounts receivable - Less allowances of $170,000 |
6,074,743 |
|
5,163,450 |
Inventories, net |
7,745,270 |
|
5,153,294 |
Prepaid income taxes |
20,440 |
|
85,940 |
Other current assets |
457,162 |
|
383,772 |
|
|
|
|
Total current assets |
19,913,897 |
|
18,087,187 |
|
|
|
|
Property, Plant and Equipment: |
|
|
|
Land and improvements |
1,778,819 |
|
1,636,749 |
Buildings and improvements |
8,456,983 |
|
8,440,738 |
Production equipment and other |
36,624,248 |
|
36,333,550 |
|
46,860,050 |
|
46,411,037 |
Less accumulated depreciation |
34,141,898 |
|
33,260,153 |
Net property, plant and equipment |
12,718,152 |
|
13,150,884 |
|
|
|
|
Total assets |
$ 32,632,049 |
|
$ 31,238,071 |
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
Accounts payable |
$ 1,176,565 |
|
$ 466,424 |
Accrued wages and salaries |
871,804 |
|
482,008 |
Other accrued expenses |
357,321 |
|
322,968 |
Unearned revenue and customer deposits |
208,539 |
|
249,498 |
Total current liabilities |
2,614,229 |
|
1,520,898 |
|
|
|
|
Deferred income taxes |
917,084 |
|
1,011,084 |
|
|
|
|
Total liabilities |
3,531,313 |
|
2,531,982 |
|
|
|
|
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 |
31,437,604 |
|
31,042,957 |
Treasury stock, 171,964 shares at cost |
(3,922,098) |
|
(3,922,098) |
Total shareholders' equity |
29,100,736 |
|
28,706,089 |
|
|
|
|
Total liabilities and shareholders' equity |
$ 32,632,049 |
|
$ 31,238,071 |
|
|
|
|
|
|
|
|
See Notes to the Condensed Consolidated Financial Statements |
|
| |
2
CHICAGO RIVET & MACHINE CO. | ||||||||||||||
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| |||||||
Three Months Ended September 30, 2021 |
|
Three Months Ended September 30, 2020 |
|
Nine Months Ended September 30, 2021 |
|
Nine Months Ended September 30, 2020 | ||||||||
Net sales |
$ 8,555,731 |
|
$ 7,645,259 |
|
$ 26,225,070 |
|
$ 19,325,234 | |||||||
Cost of goods sold |
7,069,700 |
|
6,004,766 |
|
21,027,525 |
|
16,304,164 | |||||||
|
|
|
|
|
|
|
| |||||||
Gross profit |
1,486,031 |
|
1,640,493 |
|
5,197,545 |
|
3,021,070 | |||||||
Selling and administrative expenses |
1,290,046 |
|
1,258,995 |
|
3,936,995 |
|
3,758,752 | |||||||
|
|
|
|
|
|
|
| |||||||
Operating profit (loss) |
195,985 |
|
381,498 |
|
1,260,550 |
|
(737,682) | |||||||
|
|
|
|
|
|
|
| |||||||
Other income |
11,674 |
|
32,637 |
|
43,744 |
|
122,869 | |||||||
|
|
|
|
|
|
|
| |||||||
Income (loss) before income taxes |
207,659 |
|
414,135 |
|
1,304,294 |
|
(614,813) | |||||||
Provision (benefit) for income taxes |
35,000 |
|
105,000 |
|
272,000 |
|
(201,000) | |||||||
|
|
|
|
|
|
|
| |||||||
Net income (loss) |
$ 172,659 |
|
$ 309,135 |
|
$ 1,032,294 |
|
$ (413,813) | |||||||
|
|
|
|
|
|
|
| |||||||
Per share data, basic and diluted: |
|
|
|
|
|
|
| |||||||
Net income (loss) per share |
$ 0.18 |
|
$ 0.32 |
|
$ 1.07 |
|
$ (0.43) | |||||||
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|
|
|
|
|
|
| |||||||
Average common shares outstanding |
966,132 |
|
966,132 |
|
966,132 |
|
966,132 | |||||||
|
|
|
|
|
|
|
| |||||||
Cash dividends declared per share |
$ 0.22 |
|
$ 0.10 |
|
$ 0.66 |
|
$ 0.42 | |||||||
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See Notes to the Condensed Consolidated Financial Statements |
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|
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3
4
CHICAGO RIVET & MACHINE CO. | ||||
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| |
|
Nine Months Ended September 30, 2021 |
|
Nine Months Ended September 30, 2020 | |
Cash flows from operating activities: |
|
|
| |
Net income (loss) |
$1,032,294 |
|
$(413,813) | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
| |
Depreciation |
990,983 |
|
1,014,916 | |
Loss on disposal of equipment |
21,564 |
|
0 | |
Deferred income taxes |
(94,000) |
|
(72,000) | |
Changes in operating assets and liabilities: |
|
|
| |
Accounts receivable |
(911,293) |
|
(737,602) | |
Inventories |
(2,591,976) |
|
6,371 | |
Other current assets and prepaid income taxes |
(7,890) |
|
(149,362) | |
Accounts payable |
710,141 |
|
408,134 | |
Accrued wages and salaries |
389,796 |
|
315,161 | |
Other accrued expenses |
34,353 |
|
(84,645) | |
Unearned revenue and customer deposits |
(40,959) |
|
(35,351) | |
Net cash provided by (used in) operating activities |
(466,987) |
|
251,809 | |
|
|
|
| |
Cash flows from investing activities: |
|
|
| |
Capital expenditures |
(587,615) |
|
(375,657) | |
Proceeds from the sale of equipment |
7,800 |
|
0 | |
Proceeds from certificates of deposit |
4,084,000 |
|
4,831,000 | |
Purchases of certificates of deposit |
(2,092,000) |
|
(4,733,000) | |
Net cash provided by (used in) investing activities |
1,412,185 |
|
(277,657) | |
|
|
|
| |
Cash flows from financing activities: |
|
|
| |
Cash dividends paid |
(637,647) |
|
(405,775) | |
Net cash used in financing activities |
(637,647) |
|
(405,775) | |
|
|
|
| |
Net increase (decrease) in cash and cash equivalents |
307,551 |
|
(431,623) | |
Cash and cash equivalents at beginning of period |
2,567,731 |
|
1,429,454 | |
Cash and cash equivalents at end of period |
$2,875,282 |
|
$997,831 | |
|
|
|
| |
See Notes to the Condensed Consolidated Financial Statements |
|
| ||
5
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, 2021 (unaudited) and December 31, 2020 (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, 2020.
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 nine month period ended September 30, 2021 are not necessarily indicative of the results to be expected for the year.
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 third quarter of 2021, the Company realized $36,301 related to such contracts. As of September 30, 2021 there are no such contracts remaining.
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, 2021 and December 31, 2020 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.
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.
6
The following table presents revenue by segment, further disaggregated by end-market:
|
Fastener |
Assembly Equipment |
Consolidated |
Three Months Ended September 30, 2021: |
|
|
|
Automotive |
$ 4,259,544 |
$ 27,998 |
$ 4,287,542 |
Non-automotive |
3,293,075 |
975,114 |
4,268,189 |
Total net sales |
$ 7,552,619 |
$ 1,003,112 |
$ 8,555,731 |
|
|
|
|
Three Months Ended September 30, 2020: |
|
|
|
Automotive |
$ 4,660,451 |
$ 34,687 |
$ 4,695,138 |
Non-automotive |
2,363,965 |
586,156 |
2,950,121 |
Total net sales |
$ 7,024,416 |
$ 620,843 |
$ 7,645,259 |
|
|
|
|
Nine Months Ended September 30, 2021: |
|
|
|
Automotive |
$ 13,410,100 |
$ 100,953 |
$ 13,511,053 |
Non-automotive |
9,433,241 |
3,280,776 |
12,714,017 |
Total net sales |
$ 22,843,341 |
$ 3,381,729 |
$ 26,225,070 |
|
|
|
|
Nine Months Ended September 30, 2020: |
|
|
|
Automotive |
$ 10,653,621 |
$ 107,476 |
$ 10,761,097 |
Non-automotive |
6,621,934 |
1,942,203 |
8,564,137 |
Total net sales |
$ 17,275,555 |
$ 2,049,679 |
$ 19,325,234 |
The following table presents revenue by segment, further disaggregated by location:
|
Fastener |
Assembly Equipment |
Consolidated |
Three Months Ended September 30, 2021: |
|
|
|
United States |
$ 6,300,067 |
$ 981,905 |
$ 7,281,972 |
Foreign |
1,252,552 |
21,207 |
1,273,759 |
Total net sales |
$ 7,552,619 |
$ 1,003,112 |
$ 8,555,731 |
|
|
|
|
Three Months Ended September 30, 2020: |
|
|
|
United States |
$ 5,909,756 |
$ 603,858 |
$ 6,513,614 |
Foreign |
1,114,660 |
16,985 |
1,131,645 |
Total net sales |
$ 7,024,416 |
$ 620,843 |
$ 7,645,259 |
|
|
|
|
Nine Months Ended September 30, 2021: |
|
|
|
United States |
$ 18,589,576 |
$ 3,320,415 |
$ 21,909,991 |
Foreign |
4,253,765 |
61,314 |
4,315,079 |
Total net sales |
$ 22,843,341 |
$ 3,381,729 |
$ 26,225,070 |
|
|
|
|
Nine Months Ended September 30, 2020: |
|
|
|
United States |
$ 14,721,327 |
$ 1,891,485 |
$ 16,612,812 |
Foreign |
2,554,228 |
158,194 |
2,712,422 |
Total net sales |
$ 17,275,555 |
$ 2,049,679 |
$ 19,325,234 |
7
5. The Company’s effective tax rates were approximately 16.9% and 25.4% for the third quarter of 2021 and 2020, respectively, and 20.9% and (32.7)% for the nine months ended September 30, 2021 and 2020, respectively. The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act allows for the carryback of any net operating loss arising in a tax year beginning after December 31, 2017 and before January 1, 2021, to each of the five tax years preceding the tax year in which the loss arises. As a result, the Company’s effective tax rates in the 2020 periods were higher than the statutory rates.
The Company’s federal income tax returns for the 2018, 2019 and 2020 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 2018, 2019 and 2020 federal income tax returns will expire on September 15, 2022, 2023 and 2024, respectively.
The Company’s state income tax returns for the 2018 through 2020 tax years remain subject to examination by various state authorities with the latest closing period on October 31, 2024. 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, 2021 |
|
December 31, 2020 |
Raw material |
$ 3,922,808 |
|
$ 2,245,709 |
Work-in-process |
2,190,572 |
|
1,410,868 |
Finished goods |
2,239,890 |
|
2,096,717 |
Inventories, gross |
8,353,270 |
|
5,753,294 |
Valuation reserves |
(608,000) |
|
(600,000) |
Inventories, net |
$ 7,745,270 |
|
$ 5,153,294 |
8
7. Segment Information—The Company operates in two business segments as determined by its products. The fastener segment includes rivets, cold-formed fasteners and parts 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:
Fastener |
Assembly Equipment |
Other |
Consolidated | |
Three Months Ended September 30, 2021: |
|
|
|
|
Net sales |
$ 7,552,619 |
$ 1,003,112 |
0 |
$ 8,555,731 |
|
|
|
|
|
Depreciation |
291,512 |
33,534 |
5,448 |
330,494 |
|
|
|
|
|
Segment operating profit |
480,288 |
215,869 |
0 |
696,157 |
Selling and administrative expenses |
0 |
0 |
(491,547) |
(491,547) |
Interest income |
0 |
0 |
3,049 |
3,049 |
Income before income taxes |
|
|
|
$ 207,659 |
|
|
|
|
|
Capital expenditures |
77,007 |
0 |
165,395 |
242,402 |
|
|
|
|
|
Segment assets: |
|
|
|
|
Accounts receivable, net |
5,623,045 |
451,698 |
0 |
6,074,743 |
Inventories, net |
6,553,617 |
1,191,653 |
0 |
7,745,270 |
Property, plant and equipment, net |
9,986,600 |
1,468,262 |
1,263,290 |
12,718,152 |
Other assets |
0 |
0 |
6,093,884 |
6,093,884 |
|
|
|
|
$ 32,632,049 |
|
|
|
|
|
Three Months Ended September 30, 2020: |
|
|
|
|
Net sales |
$ 7,024,416 |
$ 620,843 |
0 |
$ 7,645,259 |
|
|
|
|
|
Depreciation |
297,533 |
32,869 |
8,377 |
338,779 |
|
|
|
|
|
Segment operating loss |
783,234 |
103,759 |
0 |
886,993 |
Selling and administrative expenses |
0 |
0 |
(493,370) |
(493,370) |
Interest income |
0 |
0 |
20,512 |
20,512 |
Income before income taxes |
|
|
|
$ 414,135 |
|
|
|
|
|
Capital expenditures |
28,165 |
0 |
92,140 |
120,305 |
|
|
|
|
|
Segment assets: |
|
|
|
|
Accounts receivable, net |
5,059,552 |
287,364 |
0 |
5,346,916 |
Inventories, net |
3,880,189 |
1,064,617 |
0 |
4,944,806 |
Property, plant and equipment, net |
10,381,970 |
1,588,157 |
1,064,667 |
13,034,794 |
Other assets |
0 |
0 |
8,108,571 |
8,108,571 |
|
|
|
|
$ 31,435,087 |
Nine Months Ended September 30, 2021: |
|
|
|
|
Net sales |
$ 22,843,341 |
$ 3,381,729 |
0 |
$ 26,225,070 |
|
|
|
|
|
Depreciation |
874,037 |
100,600 |
16,346 |
990,983 |
|
|
|
|
|
Segment operating profit |
1,982,084 |
852,571 |
0 |
2,834,655 |
Selling and administrative expenses |
0 |
0 |
(1,547,845) |
(1,547,845) |
Interest income |
0 |
0 |
17,484 |
17,484 |
Income before income taxes |
|
|
|
$ 1,304,294 |
|
|
|
|
|
Capital expenditures |
410,281 |
0 |
177,334 |
587,615 |
|
|
|
|
|
Nine Months Ended September 30, 2020: |
|
|
|
|
Net sales |
$ 17,275,555 |
$ 2,049,679 |
0 |
$ 19,325,234 |
|
|
|
|
|
Depreciation |
891,177 |
98,607 |
25,132 |
1,014,916 |
|
|
|
|
|
Segment operating profit |
533,742 |
319,340 |
0 |
853,082 |
Selling and administrative expenses |
0 |
0 |
(1,547,606) |
(1,547,606) |
Interest income |
0 |
0 |
79,711 |
79,711 |
Loss before income taxes |
|
|
|
$ (614,813) |
|
|
|
|
|
Capital expenditures |
225,707 |
0 |
149,950 |
375,657 |
|
|
|
|
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9
8. COVID-19 -In March 2020, the World Health Organization characterized the novel coronavirus (“COVID-19”) a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. The rapid spread of the virus and the response domestically and internationally to combat it caused a significant negative impact on the global economy, including the automotive industry upon which we rely for sales. Beginning in March 2020, most states issued executive orders which temporarily closed businesses deemed non-essential in an effort to limit the spread of the coronavirus. Similar measures also took place in foreign markets we serve. As a result, our operations and the operations of our customers and suppliers were adversely affected. Since some of our customers are classified as essential businesses and were allowed to continue to operate during this period, we were able to continue our operations, but at a significantly reduced level, in order to service those customers. Our automotive customers were particularly affected, as much of the sector was idled for an extended period of time during the second quarter of 2020 due to employee safety concerns. While most shut-down orders were lifted late in that quarter, various work-related restrictions continued and the economic fallout spread. During this period of rapidly changing business conditions and heightened uncertainty resulting from COVID-19, we took measures to reduce expenses and conserve capital, including reduced work schedules, delayed capital expenditures and a reduction in dividend payments. In the second half of 2020, we experienced improved demand as certain government-imposed restrictions were relaxed. While the economy has improved dramatically since this time last year, labor shortages and supply chain disruptions persist. The timing and sustainability of a broader economic recovery is uncertain and may continue to be tied to the course of the pandemic. As we cannot predict the duration or scope of the COVID-19 pandemic, or its broader impact on the global economy, including the demand for automobiles, it is unknown what the impact of COVID-19 and its related effects will be on our business, results of operations or financial condition, but the impact could be material and last for an extended period of time.
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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 2021 were $8,555,731 compared to $7,645,259 in the third quarter of 2020, an increase of $910,472, or 11.9%. As of September 30, 2021, year to date sales totaled $26,225,070 compared to $19,325,234, for the first three quarters of 2020, an increase of $6,899,836, or 35.7%. Current year-to-date sales reflect an improvement of 2.1% compared to the $25,686,034 reported for the first three quarters of 2019. Net income for the third quarter of 2021 was $172,659, or $0.18 per share compared to $309,135, or $0.32 per share in the third quarter of 2020. The decline in net income in the quarter was primarily due to higher operating costs in the current year, especially related to raw materials, transportation and labor. Net income for the first three quarters of 2021 was $1,032,294, or $1.07 per share, compared to a net loss of $413,813, or $0.43 per share, for the same period in 2020 and net income of $832,198, or $0.86 per share, reported in 2019.
Fastener segment revenues were $7,552,619 in the third quarter of 2021 compared to $7,024,416 in the year earlier quarter, an increase of $528,203, or 7.5%. While sales to non-automotive customers improved by $929,110, or 39.3% compared to the year earlier quarter, sales to automotive customers declined by $400,907, or 8.6%, as supply chain disruptions reduced demand from such customers. For the first three quarters of 2021, fastener segment revenues were $22,843,341 compared to $17,275,555 in 2020, an increase of $5,567,786, or 32.2%. The year-to-date increase is primarily due to the negative impact of the COVID-19 pandemic on 2020 demand. The automotive sector is the primary market for our fastener segment products and much of that sector was idled for an extended period of time during the second quarter of 2020 due to the pandemic. As a result, current year sales to automotive customers have increased $2,756,479, or 25.9%. Sales to our non-automotive customers have increased $2,811,307, or 42.5%, in the current year. The increase in fastener segment sales did not result in an increase in gross margins in the third quarter due to higher operating costs. Fastener segment gross margins were $1,195,425 in the third quarter of 2021 compared to $1,479,652 in the third quarter of 2020. We have seen an increase of approximately 34% in the price of steel, our primary raw material. Labor costs have increased due to the tight labor market and transportation costs have also increased significantly. Year-to-date, gross margins have improved to $4,113,646 from $2,531,440 in the first three quarters of 2020. The improvement in gross margins on a year-to-date basis is primarily due to the increase in sales which more than offsets the higher costs incurred to date.
Assembly equipment segment revenues were $1,003,112 in the third quarter of 2021 compared to $620,843 in the third quarter of 2020, an increase of $382,269, or 61.6%. For the first nine months of 2021, assembly equipment segment sales were $3,381,729 compared to $2,049,679 for the same period in 2020, an increase of $1,332,050, or 65.0%. In addition to the general rebound in demand for assembly equipment we have experienced since the pandemic-related shut downs of early 2020, revenue growth has also come from the sale of more specialty machines in 2021. The increase in revenue was the primary cause of the increase in assembly equipment segment gross margins to $290,606 in the third quarter of 2021 from $160,841 in the third quarter of 2020. For the first three quarters of 2021, gross margins were $1,083,899 compared to $489,630 in 2020, an increase of $594,269.
Selling and administrative expenses for the third quarter of 2021 were $1,290,046 compared to $1,258,995 in the year earlier quarter, an increase of $31,051, or 2.5%. The increase was primarily due to IT consulting expenses incurred during the quarter. Selling and administrative expenses for the first three quarters of 2021 were $3,936,995 compared to $3,758,752 for the same period of 2020, an increase of $178,243, or 4.7%. Commission expense increased $99,459 in the current year due to the improvement in sales in 2021, accounting for the majority of the increase. Profit sharing expense has increased $40,000 due to the improvement in operating profit in the current year. The remaining net increase relates to various smaller changes in expense items. Selling and administrative expenses as a percentage of net sales for the first nine months of 2021 was 15.0% compared to 19.4% for the first nine months of 2020.
Other Income
Other income in the third quarter of 2021 was $11,674 compared to $32,637 in the third quarter of 2020. Other income for the first three quarters of 2021 was $43,744 compared to $122,869 in the same period of 2020. The declines were primarily due to a reduction in interest income on certificates of deposit, due to lower interest rates, in the current year.
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Income Tax Expense
The Company’s effective tax rates were approximately 16.9% and 25.4% for the third quarter of 2021 and 2020, respectively. The Company’s effective tax rates were approximately 20.9% and (32.7)% for the nine months ended September 30, 2021 and 2020, respectively. The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act allows for the carryback of any net operating loss arising in a tax year beginning after December 31, 2017 and before January 1, 2021, to each of the five tax years preceding the tax year in which the loss arises. As a result, the Company’s effective tax rates in the 2020 periods were higher than the statutory rates.
Liquidity and Capital Resources
Working capital as of September 30, 2021 was $17,299,668, an increase of $733,379 from the beginning of the year. During the first three quarters of 2021, inventory increased by $2,591,976 due to raw material price increases and accelerated purchases in anticipation of further price increases and ongoing supply chain disruptions. Other items impacting working capital in 2021 were capital expenditures of $587,615, which consisted primarily of equipment used in fastener production activities, and dividends paid of $637,647. The net result of these changes and other cash flow items was to leave cash, cash equivalents and certificates of deposit at $5,616,282 as of September 30, 2021 compared to $7,300,731 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
We experienced an increase in overall demand during the third quarter as the economy continued to improve from the worst period of the pandemic. However, our sales to automotive customers, our primary customer market, declined due to various customer plant shut-downs related to their shortage of critical components. These shortages are expected to continue in the near-term and may continue to negatively impact demand. Although overall sales increased during the third quarter compared to a year earlier, higher operating expenses resulted in a decline in net income for the quarter. We have experienced significantly higher prices for various commodities compared to last year in addition to longer lead times for certain items. Cost increases can be difficult to recover and are expected to persist while supply constraints exist. Additionally, a general labor shortage has kept staffing below ideal levels and resulted in higher than anticipated labor costs. These factors, as well as the ongoing uncertainties related to COVID-19, are expected to continue to present challenges in the near-term.
Forward-Looking Statements
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: risk related to the COVID-19 pandemic and its related adverse effects, 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, supply chain disruptions, 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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Item 6. Exhibits
31Rule 13a-14(a) or 15d-14(a) Certifications
31.1Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2Certification Pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32Section 1350 Certifications
32.1Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).
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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 9, 2021
/s/ Walter W. Morrissey
Walter W. Morrissey
Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
Date: November 9, 2021
/s/ Michael J. Bourg
Michael J. Bourg
President, Chief Operating
Officer and Treasurer
(Principal Financial Officer
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