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, 20172018
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”, “accelerated filer” and, “smaller reporting company” and “emerging growth company” in Rule12b-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 Rule12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 3, 2017,2, 2018, there were 966,132 shares of the registrant’s common stock outstanding.
CHICAGO RIVET & MACHINE CO.
Page | ||||||
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
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Balance Sheets
September 30, 20172018 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 | ||||||
|
|
|
| |||||
Total current assets | 19,411,434 | 18,753,751 | ||||||
|
|
|
| |||||
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 | ||||||
|
|
|
| |||||
43,955,612 | 43,205,824 | |||||||
Less accumulated depreciation | 31,356,355 | 30,755,266 | ||||||
|
|
|
| |||||
Net property, plant and equipment | 12,599,257 | 12,450,558 | ||||||
|
|
|
| |||||
Total assets | $ | 32,010,691 | $ | 31,204,309 | ||||
|
|
|
|
September 30, 2018 | December 31, 2017 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 1,084,363 | $ | 1,152,569 | ||||
Certificates of deposit | 6,814,000 | 7,810,000 | ||||||
Accounts receivable - Less allowances of $140,000 | 6,502,374 | 5,326,650 | ||||||
Inventories, net | 5,254,333 | 4,528,100 | ||||||
Prepaid income taxes | 148,686 | 84,112 | ||||||
Other current assets | 399,682 | 357,918 | ||||||
|
|
|
| |||||
Total current assets | 20,203,438 | 19,259,349 | ||||||
|
|
|
| |||||
Property, Plant and Equipment: | ||||||||
Land and improvements | 1,616,041 | 1,535,434 | ||||||
Buildings and improvements | 8,039,831 | 8,039,831 | ||||||
Production equipment and other | 35,510,017 | 34,607,507 | ||||||
|
|
|
| |||||
45,165,889 | 44,182,772 | |||||||
Less accumulated depreciation | 31,939,664 | 31,625,819 | ||||||
|
|
|
| |||||
Net property, plant and equipment | 13,226,225 | 12,556,953 | ||||||
|
|
|
| |||||
Total assets | $ | 33,429,663 | $ | 31,816,302 | ||||
|
|
|
|
See Notes to the Condensed Consolidated Financial Statements
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Balance Sheets
September 30, 20172018 and December 31, 2016
September 30, | December 31, | |||||||||||||||
2017 | 2016 | September 30, 2018 | December 31, 2017 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable | $ | 1,165,125 | $ | 703,467 | $ | 1,204,908 | $ | 737,040 | ||||||||
Accrued wages and salaries | 890,507 | 690,526 | 895,390 | 674,316 | ||||||||||||
Other accrued expenses | 472,912 | 604,174 | 440,352 | 495,132 | ||||||||||||
Unearned revenue and customer deposits | 240,851 | 286,133 | 373,848 | 312,775 | ||||||||||||
|
|
|
| |||||||||||||
Total current liabilities | 2,769,395 | 2,284,300 | 2,914,498 | 2,219,263 | ||||||||||||
Deferred income taxes | 958,084 | 1,028,084 | 855,084 | 737,084 | ||||||||||||
|
|
|
| |||||||||||||
Total liabilities | 3,727,479 | 3,312,384 | 3,769,582 | 2,956,347 | ||||||||||||
|
| |||||||||||||||
|
| |||||||||||||||
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 | 1,138,096 | ||||||||||||||
Additionalpaid-in capital | 447,134 | 447,134 | 447,134 | 447,134 | ||||||||||||
Retained earnings | 30,620,080 | 30,228,793 | 31,996,949 | 31,196,823 | ||||||||||||
Treasury stock, 171,964 shares at cost | (3,922,098 | ) | (3,922,098 | ) | (3,922,098 | ) | (3,922,098 | ) | ||||||||
|
|
|
| |||||||||||||
Total shareholders’ equity | 28,283,212 | 27,891,925 | 29,660,081 | 28,859,955 | ||||||||||||
|
|
|
| |||||||||||||
Total liabilities and shareholders’ equity | $ | 32,010,691 | $ | 31,204,309 | $ | 33,429,663 | $ | 31,816,302 | ||||||||
|
|
|
|
See Notes to the Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Income
For the Three and Nine Months Ended September 30, 20172018 and 20162017
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, | September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||
Net sales | $ | 8,386,756 | $ | 8,854,274 | $ | 27,305,591 | $ | 28,271,399 | $ | 8,856,049 | $ | 8,386,756 | $ | 28,660,474 | $ | 27,305,591 | ||||||||||||||||
Cost of goods sold | 7,221,815 | 6,632,070 | 22,394,801 | 21,224,986 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Cost of goods sold | 6,632,070 | 6,869,074 | 21,224,986 | 21,248,672 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Gross profit | 1,754,686 | 1,985,200 | 6,080,605 | 7,022,727 | 1,634,234 | 1,754,686 | 6,265,673 | 6,080,605 | ||||||||||||||||||||||||
Selling and administrative expenses | 1,278,646 | 1,322,064 | 4,205,493 | 4,230,685 | 1,308,884 | 1,278,646 | 4,185,571 | 4,205,493 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Operating profit | 476,040 | 663,136 | 1,875,112 | 2,792,042 | 325,350 | 476,040 | 2,080,102 | 1,875,112 | ||||||||||||||||||||||||
Other income | 24,795 | 16,193 | 68,000 | 45,403 | 38,399 | 24,795 | 109,527 | 68,000 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Income before income taxes | 500,835 | 679,329 | 1,943,112 | 2,837,445 | 363,749 | 500,835 | 2,189,629 | 1,943,112 | ||||||||||||||||||||||||
Provision for income taxes | 165,000 | 217,000 | 634,000 | 933,000 | 76,000 | 165,000 | 491,000 | 634,000 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net income | $ | 335,835 | $ | 462,329 | $ | 1,309,112 | $ | 1,904,445 | $ | 287,749 | $ | 335,835 | $ | 1,698,629 | $ | 1,309,112 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Per share data, basic and diluted: | ||||||||||||||||||||||||||||||||
Net income per share | $ | 0.35 | $ | 0.48 | $ | 1.36 | $ | 1.97 | $ | 0.30 | $ | 0.35 | $ | 1.76 | $ | 1.36 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Average common shares outstanding | 966,132 | 966,132 | 966,132 | 966,132 | 966,132 | 966,132 | 966,132 | 966,132 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Cash dividends declared per share | $ | 0.20 | $ | 0.18 | $ | 0.95 | $ | 0.79 | $ | 0.21 | $ | 0.20 | $ | 0.93 | $ | 0.95 | ||||||||||||||||
|
|
|
|
|
|
|
|
See Notes to the Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Retained Earnings
For the Nine Months Ended September 30, 20172018 and 20162017
(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 | 1,698,629 | 1,309,112 | ||||||||||||
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; | (898,503 | ) | (917,825 | ) | ||||||||||||
|
|
|
| |||||||||||||
Retained earnings at end of period | $ | 30,620,080 | $ | 29,969,484 | $ | 31,996,949 | $ | 30,620,080 | ||||||||
|
|
|
|
See Notes to the Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 20172018 and 20162017
(Unaudited)
2017 | 2016 | 2018 | 2017 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 1,309,112 | $ | 1,904,445 | $ | 1,698,629 | $ | 1,309,112 | ||||||||
Adjustments to reconcile net income to net cash | ||||||||||||||||
provided by operating activities: | ||||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation | 922,347 | 919,392 | 973,182 | 922,347 | ||||||||||||
Gain on disposal of equipment | (1,700 | ) | (1,782 | ) | (26,135 | ) | (1,700 | ) | ||||||||
Deferred income taxes | (70,000 | ) | 100,000 | 118,000 | (70,000 | ) | ||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | (547,573 | ) | (457,954 | ) | (1,175,724 | ) | (547,573 | ) | ||||||||
Inventories | (550,424 | ) | (266,082 | ) | (726,233 | ) | (550,424 | ) | ||||||||
Other current assets and prepaid income taxes | 98,977 | 183,385 | (106,338 | ) | 98,977 | |||||||||||
Accounts payable | 460,171 | 354,223 | 460,603 | 460,171 | ||||||||||||
Accrued wages and salaries | 199,981 | 335,212 | 221,074 | 199,981 | ||||||||||||
Other accrued expenses | (131,262 | ) | 11,179 | (54,780 | ) | (131,262 | ) | |||||||||
Unearned revenue and customer deposits | (45,282 | ) | (194,796 | ) | 61,073 | (45,282 | ) | |||||||||
|
|
|
| |||||||||||||
Net cash provided by operating activities | 1,644,347 | 2,887,222 | 1,443,351 | 1,644,347 | ||||||||||||
|
|
|
| |||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Capital expenditures | (1,069,559 | ) | (1,782,886 | ) | (1,635,189 | ) | (1,069,559 | ) | ||||||||
Proceeds from the sale of equipment | 1,700 | 3,122 | 26,135 | 1,700 | ||||||||||||
Proceeds from certificates of deposit | 5,320,000 | 4,731,000 | 3,735,000 | 5,320,000 | ||||||||||||
Purchases of certificates of deposit | (4,573,000 | ) | (4,980,000 | ) | (2,739,000 | ) | (4,573,000 | ) | ||||||||
|
|
|
| |||||||||||||
Net cash used in investing activities | (320,859 | ) | (2,028,764 | ) | (613,054 | ) | (320,859 | ) | ||||||||
|
|
|
| |||||||||||||
Cash flows from financing activities: | ||||||||||||||||
Cash dividends paid | (917,825 | ) | (763,245 | ) | (898,503 | ) | (917,825 | ) | ||||||||
|
|
|
| |||||||||||||
Net cash used in financing activities | (917,825 | ) | (763,245 | ) | (898,503 | ) | (917,825 | ) | ||||||||
|
|
|
| |||||||||||||
Net increase in cash and cash equivalents | 405,663 | 95,213 | ||||||||||||||
Net increase (decrease) in cash and cash equivalents | (68,206 | ) | 405,663 | |||||||||||||
Cash and cash equivalents at beginning of period | 353,475 | 800,894 | 1,152,569 | 353,475 | ||||||||||||
|
|
|
| |||||||||||||
Cash and cash equivalents at end of period | $ | 759,138 | $ | 896,107 | $ | 1,084,363 | $ | 759,138 | ||||||||
|
|
|
| |||||||||||||
Supplemental schedule ofnon-cash investing activities: Capital expenditures in accounts payable | $ | 1,487 | $ | — | $ | 7,265 | $ | 1,487 |
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, 20172018 (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-month period ending September 30, 20172018 are not necessarily indicative of the results to be expected for the year.
In May 2014,February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)No. 2014-09,2016-02, “Revenue from Contracts with Customers“Leases (Topic 606),842).” (“The ASU2014-09”) which is a comprehensive new revenue recognition model that requires a company will increase 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 will require lessees to recognize revenuein the balance sheet a liability to depictmake lease payments (the lease liability) and aright-of-use asset representing its right to use the transfer of goods or services to a customer at an amount that reflectsunderlying asset for the consideration it expects to receive in exchange for those goods or services. In May 2016, the FASB issuedlease term. The 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 beginning after December 15, 20172018 and interim periods within those reporting periods, and areannual periods. The impact of adopting this ASU is not expected to be applied using either the modified retrospective or full retrospective transition methods, with early adoption permitted. The Company is reviewing its revenue sources and contracts within the scope of the ASU andsignificant based on its preliminary evaluation to date, does not anticipate this standard will have a material impact on its consolidated financial statements except for the expanded disclosure requirements. The Company does not plan to early adopt the ASU and has not yet determined the transition method.current lease agreements.
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 did not result in the recognition of a cumulative adjustment to beginning retained earnings, nor did it have a material impact on the condensed consolidated financial statements. For the Company, the most significant impact of the new standard is the addition of required disclosures within the notes to the financial statements.
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. 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, 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:
Assembly | ||||||||||||
Fastener | Equipment | Consolidated | ||||||||||
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 | 7,936,798 | 919,251 | 8,856,049 | |||||||||
|
|
|
|
|
| |||||||
Three Months Ended September 30, 2017: |
| |||||||||||
Automotive | 5,181,974 | 49,040 | 5,231,014 | |||||||||
Non-automotive | 2,304,219 | 851,523 | 3,155,742 | |||||||||
|
|
|
|
|
| |||||||
Total | 7,486,193 | 900,563 | 8,386,756 | |||||||||
|
|
|
|
|
| |||||||
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 | 25,896,172 | 2,764,302 | 28,660,474 | |||||||||
|
|
|
|
|
| |||||||
Nine Months Ended September 30, 2017: | ||||||||||||
Automotive | 17,116,399 | 130,631 | 17,247,030 | |||||||||
Non-automotive | 7,203,326 | 2,855,235 | 10,058,561 | |||||||||
|
|
|
|
|
| |||||||
Total | 24,319,725 | 2,985,866 | 27,305,591 | |||||||||
|
|
|
|
|
|
5. The Company’s effective tax rates were 32.9%20.9% and 31.9%32.9% for the third quarter of 20172018 and 2016,2017, respectively, and 32.6%22.4% and 32.9%32.6% for the nine months ended September 30, 2018 and 2017, respectively. The lower rate in 2018 is due to the enactment of the Tax Cuts and 2016, respectively. Rates wereJobs Act in December 2017 that reduced the maximum 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, 2016 and 20162017 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, 2016 and 20162017 federal income tax returns will expire on September 15, 2018, 2019, 2020 and 2020,2021, respectively.
The Company’s state income tax returns for the 20142015 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 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 | September 30, 2018 | December 31, 2017 | |||||||||||||
Raw material | $ | 2,024,739 | $ | 1,675,143 | $ | 2,231,154 | $ | 1,812,603 | ||||||||
Work-in-process | 1,621,373 | 1,684,321 | 1,828,478 | 1,604,867 | ||||||||||||
Finished goods | 1,953,005 | 1,740,229 | 1,784,701 | 1,674,630 | ||||||||||||
|
|
|
| |||||||||||||
Inventory, gross | 5,599,117 | 5,099,693 | ||||||||||||||
Inventories, gross | 5,844,333 | 5,092,100 | ||||||||||||||
Valuation reserves | (511,000 | ) | (562,000 | ) | (590,000 | ) | (564,000 | ) | ||||||||
|
|
|
| |||||||||||||
Inventory, net | $ | 5,088,117 | $ | 4,537,693 | ||||||||||||
Inventories, net | $ | 5,254,333 | $ | 4,528,100 | ||||||||||||
|
|
|
|
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 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:
Fastener | Equipment | Other | Consolidated | |||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||
Fastener | Equipment | Other | Consolidated |
| ||||||||||||||||||||||||||||
Three Months Ended September 30, 2017: | ||||||||||||||||||||||||||||||||
Net sales | $ | 7,486,193 | $ | 900,563 | $ | — | $ | 8,386,756 | $ | 7,486,193 | $ | 900,563 | $ | — | $ | 8,386,756 | ||||||||||||||||
Depreciation | 275,820 | 24,390 | 8,970 | 309,180 | 275,820 | 24,390 | 8,970 | 309,180 | ||||||||||||||||||||||||
Segment operating profit | 768,247 | 317,602 | — | 1,085,849 | 768,247 | 317,602 | — | 1,085,849 | ||||||||||||||||||||||||
Selling and administrative expenses | — | — | (603,809 | ) | (603,809 | ) | — | — | (603,809 | ) | (603,809 | ) | ||||||||||||||||||||
Interest income | — | — | 18,795 | 18,795 | — | — | 18,795 | 18,795 | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Income before income taxes | $ | 500,835 | $ | 500,835 | ||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Capital expenditures | 263,563 | 8,325 | — | 271,888 | 263,563 | 8,325 | — | 271,888 | ||||||||||||||||||||||||
Segment assets: | ||||||||||||||||||||||||||||||||
Accounts receivable, net | 5,576,022 | 295,070 | — | 5,871,092 | 5,576,022 | 295,070 | — | 5,871,092 | ||||||||||||||||||||||||
Inventories, net | 4,134,219 | 953,898 | — | 5,088,117 | 4,134,219 | 953,898 | — | 5,088,117 | ||||||||||||||||||||||||
Property, plant and equipment, net | 10,409,913 | 1,613,245 | 576,099 | 12,599,257 | 10,409,913 | 1,613,245 | 576,099 | 12,599,257 | ||||||||||||||||||||||||
Other assets | — | — | 8,452,225 | 8,452,225 | — | — | 8,452,225 | 8,452,225 | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
$ | 32,010,691 | $ | 32,010,691 | |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Income before income taxes | $ | 679,329 | ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||
|
CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Assembly | Assembly | |||||||||||||||||||||||||||||||
Fastener | Equipment | Other | Consolidated | |||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||
Fastener | Equipment | Other | Consolidated | |||||||||||||||||||||||||||||
Nine Months Ended September 30, 2017: | ||||||||||||||||||||||||||||||||
Net sales | $ | 24,319,725 | $ | 2,985,866 | $ | — | $ | 27,305,591 | $ | 24,319,725 | $ | 2,985,866 | $ | — | $ | 27,305,591 | ||||||||||||||||
Depreciation | 822,267 | 73,170 | 26,910 | 922,347 | 822,267 | 73,170 | 26,910 | 922,347 | ||||||||||||||||||||||||
Segment operating profit | 2,716,020 | 1,089,089 | — | 3,805,109 | 2,716,020 | 1,089,089 | — | 3,805,109 | ||||||||||||||||||||||||
Selling and administrative expenses | — | — | (1,911,509 | ) | (1,911,509 | ) | — | — | (1,911,509 | ) | (1,911,509 | ) | ||||||||||||||||||||
Interest income | — | — | 49,512 | 49,512 | — | — | 49,512 | 49,512 | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Income before income taxes | $ | 1,943,112 | $ | 1,943,112 | ||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Capital expenditures | 949,333 | 121,713 | — | 1,071,046 | 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 | ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Income before income taxes | $ | 2,837,445 | ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
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
Net sales in the third quarter were $8,386,756$8,856,049 this year compared to $8,854,274$8,386,756 in the third quarter of 2016, a decline2017, an increase of $467,518,$469,293, or 5.3%5.6%. As of September 30, 2017,2018, year to date sales totaled $27,305,591$28,660,474 compared to $28,271,399,$27,305,591, for the first three quarters of 2016, a decline2017, an increase of $965,808,$1,354,883, or 3.4%5.0%. Net income for the third quarter of 20172018 was $335,835,$287,749, or $0.35$0.30 per share, compared with $462,329,$335,835, or $0.48$0.35 per share, in the third quarter of 2016.2017. Net income for the first three quarters of 20172018 was $1,698,629, or $1.76 per share, compared with $1,309,112, or $1.36 per share, compared with $1,904,445, or $1.97 per share, reported in 2016.2017.
Fastener segment revenues were $7,486,193$7,936,798 in the third quarter of 20172018 compared to $8,089,800$7,486,193 in the year earlier quarter, a declinean increase of $603,607,$450,605, or 7.5%6.0%. For the first three quarters of 2017,2018, fastener segment revenues were $24,319,725$25,896,172 compared to $25,395,165$24,319,725 in 2016, a decline2017, an increase of $1,075,440,$1,576,447, or 4.2%6.5%. The automotive sector is the primary market for our fastener segment products and the sales declines in the third quarter and year to date primarily relate to reduced sales to certain large automotive customers.while North American light-vehicle production has fallen more than 3%declined in 2018 compared to the first nine months of 2017, comparedour sales to automotive customers increased 2.1% during the third quarter and 0.6% on a year earlier period, contributing to the sales decline among our automotive customers.date basis. Additionally, we have experienced higher material prices throughoutadded a number ofnon-automotive customers in the past year which combined with the declinehas contributed to an increase in such sales has resulted in lower segment gross marginsof 14.8% and 20.4% in the current year.third quarter and the first nine months of 2018, respectively, compared to 2017. For the third quarter, the fastener segment gross margin was $1,457,421$1,336,359 compared to $1,768,625$1,457,421 in the year earlier quarter, a decline of $311,204.$121,062. Steel is our primary raw material and while we had incurred higher steel prices early in the current year, such increases were more pronounced during the third quarter compared to a year earlier, and were primarily responsible for the net decline in gross margins during the quarter despite the increase in sales. Further impacting third quarter margins was an increase in tooling expense of $202,000 compared to the third quarter of 2017. For the first nine months of the year, the gross margin was $5,044,905$5,360,071 compared to $6,070,222$5,044,905 in the same period of 2016,2017, an increase of $315,166. In addition to higher raw material prices, we have also incurred higher than expected wages in the current year due to the tight labor market. These factors combined to limit the improvement in gross margins reported on a decline of $1,025,317.year to date basis.
Assembly equipment segment revenues were $900,563$919,251 in the third quarter of 2017,2018, an increase of $136,089,$18,688, or 17.8%2.1%, compared to the third quarter of 20162017 when revenues were $764,474.$900,563. The increase in third quarter sales was primarily due to higher dollar value machines being shipped compared to the sales mixan increase in the third quarternumber of 2016. This contributed to an $80,690machines sold. The increase in assembly equipmentsales for the quarter left segment gross margin in the quarter,relatively unchanged compared to $297,265, from $216,575 in last year’s third quarter.quarter at $297,725. For the first nine months of the year,2018, assembly equipment segment sales were $2,985,866, an increase of $109,632, or 3.8%,$2,764,302 compared to $2,876,234 reported$2,985,866 for the first nine months of 2016. The strong third quarter sales reversed2017, a decline in year to date sales that existed at the conclusion of $221,564, or 7.4%. Although we have shipped a greater number of machines through the first halfthree quarters of 2018 than a year earlier, there have been fewer high-dollar machines shipped in the year and contributedcurrent year. Due to an increasethe decline in segment gross margin. Assemblymachine sales, assembly equipment segment gross margin for the first nine months of 2017 was2018 declined to $905,152 from $1,035,700 compared to $952,505 infor the same period of 2016, an increase of $83,195.2017.
Selling and administrative expenses for the third quarter of 20172018 were $1,278,646$1,308,884 compared to the year earlier quarter total of $1,322,064, a reduction$1,278,646, an increase of $43,418,$30,238, or 3.3%2.4%. The largest components ofincrease during the decline were payroll expense, which declined $27,000quarter was primarily due to headcount reductions, and profit sharing expense which declined $11,000 duehigher commissions related to lower operating profitthe increase in the current year.sales. Selling and administrative expenses for the first three quarters of 20172018 were $4,205,493$4,185,571 compared to $4,230,685$4,205,493 for the same period of 2016,2017, a reduction of $25,192,$19,922, or 0.6%0.5%. Profit sharing expense has declined $98,000 on aExpenditures for the first three quarters of 2018 were lower than the prior year to date basisprimarily due to lower operating profit and payroll expense has declined $87,000 due to reduced headcount. Largely offsetting these reductionsthe ERP system conversion that was approximately $167,000 in expenses related to the implementation of a new ERP systemcompleted at one of our locations.locations last year. This accounted for $167,000 of additional expenses over the first three quarters of 2017, which was only partially offset by increases in sales commissions of $113,000 and profit sharing expense of $28,000 during the current year. Selling and administrative expenses as a percentage of net sales for the first nine months of 20172018 was 15.4%14.6% compared to 15.0%15.4% for the first nine months of 2016.2017.
Other Income
Other income in the third quarter of 20172018 was $24,795$38,399 compared to $16,193$24,795 in the third quarter of 2016.2017. Other income for the first three quarters of 20172018 was $68,000$109,527 compared to $45,403$68,000 in the same period of 2016.2017. 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.
Income Tax Expense
The Company’s effective tax rates were 32.9%20.9% and 31.9%32.9% for the third quarter of 20172018 and 2016,2017, respectively, and 32.6%22.4% and 32.9%32.6% for the nine months ended September 30, 2018 and 2017, respectively. The lower rates in 2018 are due to the enactment of the Tax Cuts and 2016, respectively. RatesJobs Act in December 2017 that reduced the maximum federal corporate tax rate from 35% to 21% beginning in 2018. The new tax law has resulted in an estimated reduction in income tax expense of $168,000 during the first three quarters of 2018. The 2017 rates were 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 as of September 30, 20162018 amounted to $16.6$17.3 million, an increase of approximately $0.2$0.3 million from the beginning of the year. The most significant changeslargest individual component of the net increase in working capital in the individual working capital componentsfirst three quarters of 2018 was accounts receivable which increased $1.2 million since the beginning of the year were accounts receivable, inventory and accounts payable which have increased $0.5 million, $0.6 million and $0.5 million, respectively due to the greater level of activitysales during the third quarter compared to the seasonally lower fourth quarter of 2016.2017. Partially offsetting this net change was the reduction in cash and certificates of deposit. Capital expenditures for the first three quarters of 20172018 were $1.1$1.6 million, which primarily consisted of equipment used in production activities. Dividends paid in the first three quarters of 20172018 were $0.9 million, including three regular quarterly payments of $0.20$0.21 per share and an extra dividend of $0.35$0.30 per share paid in the first quarter. The net result of these changes and other cash flow items onwas to leave cash, cash equivalents and certificates of deposit was a $0.3at $7.9 million decline in such total balances fromas of September 30, 2018 compared to $9.0 million at the beginning of the year, to $8.1 million.year.
Results of Operations Summary
Following several yearsWe are pleased to report increased sales in the third quarter of growth,2018 and for the current year to date compared to the year earlier periods. Demand for our fastener segment products has benefited from a healthy domestic automotive sales, not unexpectedly, declined duringmarket and the first eight monthsaddition 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 automotivenewnon-automotive customers during the fourth quarter, although general economic conditions are expected to be relatively unchanged compared topast year. However, significant increases in steel prices, our primary raw material, in recent months have negatively impacted our gross margins and were the first three quarters of 2017. Equipment segment results improvedprimary factor 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 improvereporting lower net income in the future.third quarter this year. Higher raw material prices remain a concern and further increases are expected in the near-term. Such costs can be difficult to recover in some of the markets we serve as certain customers expect prices to be held constant over the multi-year life of their parts. Current year assembly equipment sales have trailed year earlier amounts primarily due to fewer high-dollar orders in the current year rather than an overall decline in demand. As our results continue to be impacted by increases in raw material prices and other costs, we will continue our efforts to obtain price relief from customers while working to improve internal operational efficiencies as a means of mitigating such costs. We will also make other adjustments to our activities which we feel are necessary based on changing market conditions.
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 September 30, |
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 6, 2018
/s/ John A. Morrissey | ||||||
John A. Morrissey | ||||||
Chairman of the Board of Directors and Chief Executive Officer
|
Date: November 6, 2018
/s/ Michael J. Bourg | ||||||
Michael J. Bourg | ||||||
President, Chief Operating | ||||||
Officer and Treasurer | ||||||
(Principal Financial Officer) |
1516