UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM10-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, 2017March 31, 2018
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 number000-01227
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 and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of RegulationS-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer” andfiler,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ (Do not check if smaller reporting company) | 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 Rule12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 3, 2017,May 1, 2018, there were 966,132 shares of the registrant’s common stock outstanding.
CHICAGO RIVET & MACHINE CO.
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PART I. | ||||||||||
Condensed Consolidated Balance Sheets at | 2-3 | |||||||||
4 | ||||||||||
5 | ||||||||||
6 | ||||||||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||||||||
PART II. |
PART I — FINANCIAL INFORMATION
Item 1. | Financial Statements. |
Condensed Consolidated Balance Sheets
September 30, 2017March 31, 2018 and December 31, 20162017
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 759,138 | $ | 353,475 | ||||
Certificates of deposit | 7,312,000 | 8,059,000 | ||||||
Accounts receivable - Less allowances of $150,000 | 5,871,092 | 5,323,519 | ||||||
Inventories, net | 5,088,117 | 4,537,693 | ||||||
Prepaid income taxes | — | 56,112 | ||||||
Other current assets | 381,087 | 423,952 | ||||||
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Total current assets | 19,411,434 | 18,753,751 | ||||||
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Property, Plant and Equipment: | ||||||||
Land and improvements | 1,535,434 | 1,424,689 | ||||||
Buildings and improvements | 8,010,023 | 7,333,942 | ||||||
Production equipment and other | 34,410,155 | 34,447,193 | ||||||
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43,955,612 | 43,205,824 | |||||||
Less accumulated depreciation | 31,356,355 | 30,755,266 | ||||||
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Net property, plant and equipment | 12,599,257 | 12,450,558 | ||||||
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Total assets | $ | 32,010,691 | $ | 31,204,309 | ||||
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March 31, 2018 | December 31, 2017 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 898,643 | $ | 1,152,569 | ||||
Certificates of deposit | 7,561,000 | 7,810,000 | ||||||
Accounts receivable - Less allowances of $140,000 | 6,754,505 | 5,326,650 | ||||||
Inventories, net | 4,596,678 | 4,528,100 | ||||||
Prepaid income taxes | — | 84,112 | ||||||
Other current assets | 339,131 | 357,918 | ||||||
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Total current assets | 20,149,957 | 19,259,349 | ||||||
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Property, Plant and Equipment: | ||||||||
Land and improvements | 1,535,434 | 1,535,434 | ||||||
Buildings and improvements | 8,039,831 | 8,039,831 | ||||||
Production equipment and other | 34,824,982 | 34,607,507 | ||||||
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44,400,247 | 44,182,772 | |||||||
Less accumulated depreciation | 31,943,387 | 31,625,819 | ||||||
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Net property, plant and equipment | 12,456,860 | 12,556,953 | ||||||
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Total assets | $ | 32,606,817 | $ | 31,816,302 | ||||
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See Notes to the Condensed Consolidated Financial Statements
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Balance Sheets
September 30, 2017March 31, 2018 and December 31, 20162017
September 30, | December 31, | |||||||||||||||
2017 | 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable | $ | 1,165,125 | $ | 703,467 | $ | 1,647,297 | $ | 737,040 | ||||||||
Accrued wages and salaries | 890,507 | 690,526 | 659,681 | 674,316 | ||||||||||||
Other accrued expenses | 472,912 | 604,174 | 427,686 | 495,132 | ||||||||||||
Unearned revenue and customer deposits | 240,851 | 286,133 | 74,053 | 312,775 | ||||||||||||
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Total current liabilities | 2,769,395 | 2,284,300 | 2,808,717 | 2,219,263 | ||||||||||||
Deferred income taxes | 958,084 | 1,028,084 | 723,084 | 737,084 | ||||||||||||
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Total liabilities | 3,727,479 | 3,312,384 | 3,531,801 | 2,956,347 | ||||||||||||
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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 | ||||||||||||||
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 | ||||||||||||||
Additionalpaid-in capital | 447,134 | 447,134 | 447,134 | 447,134 | ||||||||||||
Retained earnings | 30,620,080 | 30,228,793 | 31,411,884 | 31,196,823 | ||||||||||||
Treasury stock, 171,964 shares at cost | (3,922,098 | ) | (3,922,098 | ) | (3,922,098 | ) | (3,922,098 | ) | ||||||||
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Total shareholders’ equity | 28,283,212 | 27,891,925 | 29,075,016 | 28,859,955 | ||||||||||||
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Total liabilities and shareholders’ equity | $ | 32,010,691 | $ | 31,204,309 | $ | 32,606,817 | $ | 31,816,302 | ||||||||
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See Notes to the Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Income
For the Three and Nine Months Ended September 30,March 31, 2018 and 2017 and 2016
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | |||||||||||||||||||
Net sales | $ | 8,386,756 | $ | 8,854,274 | $ | 27,305,591 | $ | 28,271,399 | $ | 10,011,641 | $ | 9,483,327 | ||||||||||||
Cost of goods sold | 6,632,070 | 6,869,074 | 21,224,986 | 21,248,672 | 7,668,636 | 7,226,816 | ||||||||||||||||||
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Gross profit | 1,754,686 | 1,985,200 | 6,080,605 | 7,022,727 | 2,343,005 | 2,256,511 | ||||||||||||||||||
Selling and administrative expenses | 1,278,646 | 1,322,064 | 4,205,493 | 4,230,685 | 1,464,718 | 1,506,272 | ||||||||||||||||||
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Operating profit | 476,040 | 663,136 | 1,875,112 | 2,792,042 | 878,287 | 750,239 | ||||||||||||||||||
Other income | 24,795 | 16,193 | 68,000 | 45,403 | 33,501 | 20,683 | ||||||||||||||||||
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Income before income taxes | 500,835 | 679,329 | 1,943,112 | 2,837,445 | 911,788 | 770,922 | ||||||||||||||||||
Provision for income taxes | 165,000 | 217,000 | 634,000 | 933,000 | 204,000 | 260,000 | ||||||||||||||||||
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Net income | $ | 335,835 | $ | 462,329 | $ | 1,309,112 | $ | 1,904,445 | $ | 707,788 | $ | 510,922 | ||||||||||||
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Per share data, basic and diluted: | ||||||||||||||||||||||||
Net income per share | $ | 0.35 | $ | 0.48 | $ | 1.36 | $ | 1.97 | $ | 0.73 | $ | 0.53 | ||||||||||||
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Average common shares outstanding | 966,132 | 966,132 | 966,132 | 966,132 | 966,132 | 966,132 | ||||||||||||||||||
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Cash dividends declared per share | $ | 0.20 | $ | 0.18 | $ | 0.95 | $ | 0.79 | $ | 0.51 | $ | 0.55 | ||||||||||||
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See Notes to the Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Retained Earnings
For the NineThree Months Ended September 30,March 31, 2018 and 2017 and 2016
(Unaudited)
2017 | 2016 | 2018 | 2017 | |||||||||||||
Retained earnings at beginning of period | $ | 30,228,793 | $ | 28,828,284 | $ | 31,196,823 | $ | 30,228,793 | ||||||||
Net income | 1,309,112 | 1,904,445 | 707,788 | 510,922 | ||||||||||||
Cash dividends declared in the period; $.95 per share in 2017 and $.79 in 2016 | (917,825 | ) | (763,245 | ) | ||||||||||||
Cash dividends declared in the period; $.51 per share in 2018 and $.55 in 2017 | (492,727 | ) | (531,373 | ) | ||||||||||||
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Retained earnings at end of period | $ | 30,620,080 | $ | 29,969,484 | $ | 31,411,884 | $ | 30,208,342 | ||||||||
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See Notes to the Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Cash Flows
For the NineThree Months Ended September 30,March 31, 2018 and 2017 and 2016
(Unaudited)
2017 | 2016 | 2018 | 2017 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 1,309,112 | $ | 1,904,445 | $ | 707,788 | $ | 510,922 | ||||||||
Adjustments to reconcile net income to net cash | ||||||||||||||||
provided by operating activities: | ||||||||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation | 922,347 | 919,392 | 326,520 | 303,197 | ||||||||||||
Gain on disposal of equipment | (1,700 | ) | (1,782 | ) | (300 | ) | (400 | ) | ||||||||
Deferred income taxes | (70,000 | ) | 100,000 | (14,000 | ) | (17,000 | ) | |||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | (547,573 | ) | (457,954 | ) | (1,427,855 | ) | (850,265 | ) | ||||||||
Inventories | (550,424 | ) | (266,082 | ) | (68,578 | ) | (749,749 | ) | ||||||||
Other current assets and prepaid income taxes | 98,977 | 183,385 | ||||||||||||||
Other current assets | 102,899 | 89,318 | ||||||||||||||
Accounts payable | 460,171 | 354,223 | 908,830 | 646,777 | ||||||||||||
Accrued wages and salaries | 199,981 | 335,212 | (14,635 | ) | (5,357 | ) | ||||||||||
Other accrued expenses | (131,262 | ) | 11,179 | (67,446 | ) | (127,111 | ) | |||||||||
Unearned revenue and customer deposits | (45,282 | ) | (194,796 | ) | (238,722 | ) | 59,162 | |||||||||
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Net cash provided by operating activities | 1,644,347 | 2,887,222 | ||||||||||||||
Net cash provided by (used in) operating activities | 214,501 | (140,506 | ) | |||||||||||||
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Cash flows from investing activities: | ||||||||||||||||
Capital expenditures | (1,069,559 | ) | (1,782,886 | ) | (225,000 | ) | (175,462 | ) | ||||||||
Proceeds from the sale of equipment | 1,700 | 3,122 | 300 | 400 | ||||||||||||
Proceeds from certificates of deposit | 5,320,000 | 4,731,000 | 1,494,000 | 1,992,000 | ||||||||||||
Purchases of certificates of deposit | (4,573,000 | ) | (4,980,000 | ) | (1,245,000 | ) | (747,000 | ) | ||||||||
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Net cash used in investing activities | (320,859 | ) | (2,028,764 | ) | ||||||||||||
Net cash provided by investing activities | 24,300 | 1,069,938 | ||||||||||||||
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Cash flows from financing activities: | ||||||||||||||||
Cash dividends paid | (917,825 | ) | (763,245 | ) | (492,727 | ) | (531,373 | ) | ||||||||
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Net cash used in financing activities | (917,825 | ) | (763,245 | ) | (492,727 | ) | (531,373 | ) | ||||||||
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Net increase in cash and cash equivalents | 405,663 | 95,213 | ||||||||||||||
Net (decrease) increase in cash and cash equivalents | (253,926 | ) | 398,059 | |||||||||||||
Cash and cash equivalents at beginning of period | 353,475 | 800,894 | 1,152,569 | 353,475 | ||||||||||||
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Cash and cash equivalents at end of period | $ | 759,138 | $ | 896,107 | $ | 898,643 | $ | 751,534 | ||||||||
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Supplemental schedule ofnon-cash investing activities: Capital expenditures in accounts payable | $ | 1,487 | $ | — | ||||||||||||
Supplemental schedule ofnon-cash investing activities: | ||||||||||||||||
Capital expenditures in accounts payable | $ | 1,427 | $ | 1,852 |
See Notes to the Condensed Consolidated Financial Statements
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, 2017March 31, 2018 (unaudited) and December 31, 20162017 (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 Form10-K for the year ended December 31, 2016.2017.
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-monthmonth period ending September 30, 2017ended March 31, 2018 are not necessarily indicative of the results to be expected for the year.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASU2014-09”) which is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. In May 2016, the FASB issued ASU2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU2016-12”), which updated ASU2014-09. ASU2016-12 clarifies certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition and disclosures no longer required if the full retrospective transition method is adopted. ASU2014-09 and ASU2016-12 are effective for annual reporting periods after December 15, 2017 and interim periods within those reporting periods, and are to be applied using either the modified retrospective or full retrospective transition methods, with earlymethods. Effective January 1, 2018, the Company adopted the standard using the modified retrospective method. The adoption permitted. The Company is reviewing its revenue sources and contracts within the scope of the ASU and based on its preliminary evaluation to date, does not anticipate this standard willdid not impact the timing of revenue recognition for our customer sales. The adoption did not result in the recognition of a cumulative adjustment to beginning retained earnings, nor did it have a material impact on itsthe condensed consolidated financial statements except forstatements. For the expanded disclosure requirements. The Company, does not planthe most significant impact of the new standard is the addition of required disclosures within the notes to early adopt the ASU and has not yet determined the transition method.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—On January 1, 2018, the Company adopted ASC Topic 606, “Revenue from Contracts with Customers” using the modified retrospective method. The adoption of Topic 606 did not have a material effect on the Company’s financial position or results of operations.
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, in an amount that reflects the consideration we expect to receive in exchange for those goods or services. 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 it is determined that an 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 March 31, 2018 and December 31, 2017 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.
The following table presents revenue by segment, further disaggregated byend-market:
Fastener | Assembly Equipment | Consolidated | ||||||||||
Three Months Ended March 31, 2018: | ||||||||||||
Automotive | 6,049,194 | 49,362 | 6,098,556 | |||||||||
Non-automotive | 2,875,905 | 1,037,180 | 3,913,085 | |||||||||
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Total | 8,925,099 | 1,086,542 | 10,011,641 | |||||||||
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5. The Company’s effective tax rates were 32.9%approximately 22.4% and 31.9%33.7% for the thirdfirst quarter of 2018 and 2017, respectively. The lower rate in 2018 is due to the enactment of the Tax Cuts and 2016, respectively, and 32.6% and 32.9% forJobs Act in December 2017 that reduced the nine months ended September 30, 2017 and 2016, respectively. Rates weremaximum federal corporate tax rate from 35% to 21% beginning in 2018. The effective rate was lower than the U.S. federal statutory rate in 2017 primarily due to the Domestic Production Activities Deduction allowed under Internal Revenue Code Section 199.
The Company’s federal income tax returns for the 2014 2015 and 2016through 2017 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 2014 2015 and 2016through 2017 federal income tax returns will expire on September 15, 2018 2019 and 2020,through 2021, respectively.
The Company’s state income tax returns for the 2014 through 20162017 tax years remain subject to examination by various state authorities with the latest closing period on October 31, 2020.2021. The Company is not currently not under examination by any state authority for income tax purposes and no statutes for state income tax filings have been extended.
5.6. Inventories are stated at the lower of cost or net realizable value, cost being determined by thefirst-in,first-out method. A summary of inventories is as follows:
September 30, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
Raw material | $ | 2,024,739 | $ | 1,675,143 | $ | 1,756,392 | $ | 1,812,603 | ||||||||
Work-in-process | 1,621,373 | 1,684,321 | 1,651,849 | 1,604,867 | ||||||||||||
Finished goods | 1,953,005 | 1,740,229 | 1,749,437 | 1,674,630 | ||||||||||||
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Inventory, gross | 5,599,117 | 5,099,693 | 5,157,678 | 5,092,100 | ||||||||||||
Valuation reserves | (511,000 | ) | (562,000 | ) | (561,000 | ) | (564,000 | ) | ||||||||
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Inventory, net | $ | 5,088,117 | $ | 4,537,693 | ||||||||||||
Inventories, net | $ | 4,596,678 | $ | 4,528,100 | ||||||||||||
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CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6.7. Segment Information—The Company operates in two business segments as determined by its products. The fastener segment includes rivets, cold-formed fasteners and parts 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:
Fastener | Equipment | Other | Consolidated | |||||||||||||
Three Months Ended September 30, 2017: | ||||||||||||||||
Net sales | $ | 7,486,193 | $ | 900,563 | $ | — | $ | 8,386,756 | ||||||||
Depreciation | 275,820 | 24,390 | 8,970 | 309,180 | ||||||||||||
Segment operating profit | 768,247 | 317,602 | — | 1,085,849 | ||||||||||||
Selling and administrative expenses | — | — | (603,809 | ) | (603,809 | ) | ||||||||||
Interest income | — | — | 18,795 | 18,795 | ||||||||||||
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Income before income taxes | $ | 500,835 | ||||||||||||||
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Capital expenditures | 263,563 | 8,325 | — | 271,888 | ||||||||||||
Segment assets: | ||||||||||||||||
Accounts receivable, net | 5,576,022 | 295,070 | — | 5,871,092 | ||||||||||||
Inventories, net | 4,134,219 | 953,898 | — | 5,088,117 | ||||||||||||
Property, plant and equipment, net | 10,409,913 | 1,613,245 | 576,099 | 12,599,257 | ||||||||||||
Other assets | — | — | 8,452,225 | 8,452,225 | ||||||||||||
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$ | 32,010,691 | |||||||||||||||
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Three Months Ended September 30, 2016: | ||||||||||||||||
Net sales | $ | 8,089,800 | $ | 764,474 | $ | — | $ | 8,854,274 | ||||||||
Depreciation | 272,212 | 22,063 | 17,640 | 311,915 | ||||||||||||
Segment operating profit | 1,031,736 | 233,758 | — | 1,265,494 | ||||||||||||
Selling and administrative expenses | — | — | (596,358 | ) | (596,358 | ) | ||||||||||
Interest income | — | — | 10,193 | 10,193 | ||||||||||||
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Income before income taxes | $ | 679,329 | ||||||||||||||
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Capital expenditures | 842,048 | 2,142 | — | 844,190 | ||||||||||||
Segment assets: | ||||||||||||||||
Accounts receivable, net | 5,611,689 | 284,597 | — | 5,896,286 | ||||||||||||
Inventories, net | 3,766,136 | 1,038,158 | — | 4,804,294 | ||||||||||||
Property, plant and equipment, net | 10,457,807 | 1,594,023 | 508,767 | 12,560,597 | ||||||||||||
Other assets | — | — | 8,183,787 | 8,183,787 | ||||||||||||
|
| |||||||||||||||
$ | 31,444,964 | |||||||||||||||
|
|
Three Months Ended March 31, 2018: Net sales Depreciation Segment operating profit Selling and administrative expenses Interest income Income before income taxes Capital expenditures Segment assets: Accounts receivable, net Inventories, net Property, plant and equipment, net Other assets Three Months Ended March 31, 2017: Net sales Depreciation Segment operating profit Selling and administrative expenses Interest income Income before income taxes Capital expenditures Segment assets: Accounts receivable, net Inventories, net Property, plant and equipment, net Other assets CHICAGO RIVET & MACHINE CO. Fastener Assembly
Equipment Other Consolidated $ 8,925,099 $ 1,086,542 $ — $ 10,011,641 291,881 27,298 7,341 326,520 1,177,462 384,185 — 1,561,647 — — (676,939 ) (676,939 ) — — 27,080 27,080 $ 911,788 184,227 31,495 10,705 226,427 6,420,410 334,095 — 6,754,505 3,658,938 937,740 — 4,596,678 10,175,256 1,646,752 634,852 12,456,860 — — 8,798,774 8,798,774 $ 32,606,817 $ 8,736,188 $ 747,139 $ — $ 9,483,327 269,837 24,390 8,970 303,197 1,191,547 245,620 — 1,437,167 — — (680,928 ) (680,928 ) — — 14,683 14,683 $ 770,922 174,789 2,525 — 177,314 5,797,234 376,550 — 6,173,784 4,075,856 1,211,586 — 5,287,442 10,187,799 1,542,837 594,039 12,324,675 — — 7,956,280 7,956,280 $ 31,742,181
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Assembly | ||||||||||||||||
Fastener | Equipment | Other | Consolidated | |||||||||||||
Nine Months Ended September 30, 2017: | ||||||||||||||||
Net sales | $ | 24,319,725 | $ | 2,985,866 | $ | — | $ | 27,305,591 | ||||||||
Depreciation | 822,267 | 73,170 | 26,910 | 922,347 | ||||||||||||
Segment operating profit | 2,716,020 | 1,089,089 | — | 3,805,109 | ||||||||||||
Selling and administrative expenses | — | — | (1,911,509 | ) | (1,911,509 | ) | ||||||||||
Interest income | — | — | 49,512 | 49,512 | ||||||||||||
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Income before income taxes | $ | 1,943,112 | ||||||||||||||
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Capital expenditures | 949,333 | 121,713 | — | 1,071,046 | ||||||||||||
Nine Months Ended September 30, 2016: | ||||||||||||||||
Net sales | $ | 25,395,165 | $ | 2,876,234 | $ | — | $ | 28,271,399 | ||||||||
Depreciation | 801,485 | 65,677 | 52,230 | 919,392 | ||||||||||||
Segment operating profit | 3,745,167 | 1,012,532 | — | 4,757,699 | ||||||||||||
Selling and administrative expenses | — | — | (1,948,769 | ) | (1,948,769 | ) | ||||||||||
Interest income | — | — | 28,515 | 28,515 | ||||||||||||
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Income before income taxes | $ | 2,837,445 | ||||||||||||||
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Capital expenditures | 1,550,070 | 190,690 | 42,126 | 1,782,886 |
CHICAGO RIVET & MACHINE CO.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Results of Operations
NetRevenues for the first quarter of 2018 were $10,011,641 compared to $9,483,327 in the first quarter of 2017, an increase of $528,314, or 5.6%. The increase was the result of improved sales in both of our operating segments. Net income was $707,788, or $0.73 per share, in the thirdfirst quarter were $8,386,756of this year compared to $8,854,274 in the third quarter of 2016, a decline of $467,518,$510,922, or 5.3%. As of September 30, 2017, year to date sales totaled $27,305,591 compared to $28,271,399, for the first three quarters of 2016, a decline of $965,808, or 3.4%. Net income for the third quarter of 2017 was $335,835, or $0.35 per share, compared with $462,329, or $0.48$0.53 per share, in the thirdfirst quarter of 2016. Net income for2017. In addition to a regular quarterly dividend of $0.21 per share, an extra dividend of $0.30 per share was paid in the first three quartersquarter of 2017 was $1,309,112, or $1.36 per share, compared with $1,904,445, or $1.97 per share, reported2018 based on the strong operating results achieved in 2016.2017.
Fastener segment revenues were $7,486,193$8,925,099 in the thirdfirst quarter of 2017 compared to $8,089,8002018, an increase of $188,911, or 2.2%, from $8,736,188 reported in the year earlierfirst quarter a decline of $603,607, or 7.5%. For the first three quarters of 2017, fastener segment revenues were $24,319,725 compared to $25,395,165 in 2016, a decline of $1,075,440, or 4.2%.2017. The automotive sector is the primary market for our fastener segment productsproducts. U.S. light-vehicle sales rose approximately 2% during the first quarter of 2018 after experiencing the first full year decline in seven years in 2017. The improvement in automotive sales and the sales declinesaddition of a number ofnon-automotive customers in the third quarter and yearsecond half of 2017 contributed to date primarily relate to reduced sales to certain large automotive customers. North American light-vehicle production has fallen more than 3%the revenue increase in the first nine months of 2017 compared toquarter. Overall, production costs in the first quarter were higher than a year earlier, period, contributing to the sales decline among our automotive customers. Additionally, we have experiencedas higher material prices throughoutcosts exceeded savings related to tooling expense of $123,000 and certain other items. As a result, despite the year, which combined with the declineincrease in sales, has resulted in lowerrevenue, fastener segment gross margins declined from $2,032,814 in the current year. For the thirdfirst quarter the fastener segment gross margin was $1,457,421 comparedof 2017 to $1,768,625$1,976,640 in the year earlierfirst quarter a decline of $311,204. For the first nine months of the year, the gross margin was $5,044,905 compared to $6,070,222 in the same period of 2016, a decline of $1,025,317.2018.
Assembly equipment segment revenues were $900,563$1,086,542 in the thirdfirst quarter of 2018 compared to $747,139 in the first quarter of 2017, an increase of $136,089,$339,403, or 17.8%, compared to the third quarter of 2016 when revenues were $764,474.45.4%. The increase in third quarter salesrevenue was primarily due to higher dollar value machines being shipped compared to the sales mixshipment of a high-dollar machine order in the third quarter of 2016. Thiscurrent year quarter. The higher revenue contributed to an $80,690 increase in assembly equipment segment gross margin in the quarter, to $297,265, from $216,575 in last year’s third quarter. For the first nine months of the year, assembly equipment segment sales were $2,985,866, an increase of $109,632, or 3.8%, compared to $2,876,234 reported for the first nine months of 2016. The strong third quarter sales reversed a decline in year to date sales that existed at the conclusion of the first half of the year and contributed to an$142,668 increase in segment gross margin. Assembly equipment segment gross margin forfrom $223,697 in 2017 to $366,365 in 2018. Material costs increased during the first nine months of 2017 was $1,035,700 compared to $952,505current year quarter, but were offset by an overall reduction in the same period of 2016, an increase of $83,195.overhead expenses.
Selling and administrative expenses forduring the thirdfirst quarter of 2018 were $1,464,718 compared to $1,506,272 recorded in the first quarter of 2017, were $1,278,646 compared to the year earlier quarter totala decline of $1,322,064, a reduction of $43,418,$41,554, or 3.3%2.8%. The largest components of the decline were payroll expense, which declined $27,000was primarily due to headcount reductions, and profit sharing expense which declined $11,000 due to lower operating profit in the current year. Selling and administrative expenses for the first three quarters of 2017 were $4,205,493 compared to $4,230,685 for the same period of 2016, a reduction of $25,192, or 0.6%. Profit sharing expense has declined $98,000 on a year to date basis due to lower operating profit and payroll expense has declined $87,000 due to reduced headcount. Largely offsetting these reductions was approximately $167,000$77,000 in expenses related to the implementation of a newan ERP system upgrade at one of our locations. Sellinglocations incurred in the prior year quarter. Partially offsetting that reduction were a $35,000 increase in commission expense related to higher sales in the current year and an $18,000 increase in profit sharing expense related to the improvement in operating profit. Compared to net sales, selling and administrative expenses as a percentage of net sales fordeclined to 14.6% in the first nine monthsquarter of 2017 was 15.4% compared to 15.0% for2018 from 15.9% in the first nine monthsquarter of 2016.2017.
Other Income
Other income in the thirdfirst quarter of 20172018 was $24,795$33,501 compared to $16,193$20,683 in the thirdfirst quarter of 2016. Other income for the first three quarters of 2017 was $68,000 compared2017. The increase is primarily related to $45,403an increase in the same period of 2016. Other income consists primarily of interest income on certificates of deposit.deposit due to higher interest rates and greater average invested balances.
Income Tax Expense
The Company’s effective tax rates were 32.9%approximately 22.4% and 31.9%33.7% for the thirdfirst quarter of 2018 and 2017, respectively. The lower rate in 2018 is due to the enactment of the Tax Cuts and 2016, respectively, and 32.6% and 32.9% forJobs Act in December 2017 that reduced the nine months ended September 30,maximum federal corporate tax rate from 35% to 21% beginning in 2018. The new tax law had the estimated impact of reducing income tax expense by $101,000 during the first quarter. The 2017 and 2016, respectively. Rates wererate was lower than the U.S. federal statutory rate primarily due to the Domestic Production Activities Deduction allowed under Internal Revenue Code Section 199.
Liquidity and Capital Resources
Working capital amounted to $17.3 million as of September 30, 2016 amounted to $16.6 million,March 31, 2018, an increase of approximately $0.2$0.3 million from the beginning of the current year. The most significant changeslargest component of the net increase in working capital in the individual working capital components since the beginning of the year werefirst quarter was accounts receivable, inventory and accounts payable which have increased $0.5by $1.4 million $0.6 million and $0.5 million, respectively due to greater sales activity during the greater level of activityquarter compared to the seasonally lower fourth quarter of 2016.2017. Partially offsetting this net change wasincrease were an increase in accounts payable during the first quarter of $0.9 million, related to an increase in operating activity and a reduction in cash and certificates of deposit. Capital expenditures fordeposit of $0.5 million, which was due in part to the payment of dividends during the first three quartersquarter of 2017 were $1.1 million, which primarily consisted of equipment used in production activities. Dividends paid in the first three quarters of 2017 were $0.9 million, including three regular quarterly payments of $0.20 per share and an extra dividend of $0.35 per share paid in the first quarter.$0.5 million. The net result of these changes and other cash flow items onactivity was to leave cash, cash equivalents and certificates of deposit was a $0.3at $8.5 million decline in such total balances fromas of March 31, 2018 compared to $9 million as of the beginning of the year, to $8.1 million.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
Following several years of growth, domestic automotiveWe are pleased to report improvement in both sales not unexpectedly, declined during the first eight months of 2017 before spiking in September in the aftermath of hurricanes Harvey and Irma. Fastener segment results in 2017 have fallen short of those reported in 2016, primarily due to lower sales to automotive sector customers. The need to replace vehicles damaged or destroyed in the storms could boost demand by our automotive customers during the fourth quarter, although general economic conditions are expected to be relatively unchanged compared to the first three quarters of 2017. Equipment segment results improved in the first three quarters of 2017, but may fall short of last year in the fourth quarter due to particularly strong sales last year that included a certain large order. The computer system conversion at one of our locations, which accounted for significant expenses during the first three quarters of 2017, was completed during the third quarter, eliminating the most significant increase in selling and administrative expenses incurred this year. While our results overall have not matched the excellent performance of 2016, our financial condition remains strong and should enable us to pursue opportunities to profitably grow revenues and improve net income in the future.first quarter and that our near-term outlook remains positive. Demand for our fastener segment products remains stable and is supported by a healthy domestic automotive market. We have experienced increases in steel prices, our primary raw material, in recent months that have negatively impacted our gross margins and remain a concern as further increases are expected. Since material price increases can be difficult to mitigate, we will emphasize cost controls in other areas and strive for greater operating efficiencies in an effort to improve operating results as well as pursuing new sales opportunities. Our assembly equipment segment should benefit in the near-term from a machine order backlog that has grown in recent weeks. We will continue to make adjustments to our activities which we feel are necessary based on changing conditions in our markets, while maintaining an emphasis on quality and reliability of service our customers demand.
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 Form10-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 a major customer, risks related to two major customers,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, 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.
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 Rules13a-15(e) and15d-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 Rules13a-15(f) and15d-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.
Item 6. | Exhibits |
31 | Rule13a-14(a) or15d-14(a) Certifications | |
31.1 | Certification Pursuant to Rule13a-14(a) or15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification Pursuant to Rule13a-14(a) or15d-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 Form10-Q for the quarter ended |
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 4, 2018 | /s/ John A. Morrissey | |||||
John A. Morrissey | ||||||
Chairman of the Board of Directors | ||||||
and Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
Date: May 4, 2018 | /s/ Michael J. Bourg | |||||
Michael J. Bourg | ||||||
President, Chief Operating | ||||||
Officer and Treasurer | ||||||
(Principal Financial Officer) |
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