UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM10-Q

(Mark One)

For the quarterly period ended September 30, 2017March 31, 2020

OR

For the transition period from ____________ to ___________

Commission file number000-01227

Chicago Rivet & Machine Co.

(Exact Name of Registrant as Specified in Its Charter)

(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):

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  ☒

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

As of November 3, 2017,May 1, 2020, there were 966,132 shares of the registrant’s common stock outstanding.

CHICAGO RIVET & MACHINE CO.

INDEX

Item 1. Financial Statements.

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Balance Sheets

September 30, 2017March 31, 2020 and December 31, 20162019

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Balance Sheets

September 30, 2017March 31, 2020 and December 31, 2016

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Income

For the Three Months Ended March 31, 2020 and 2019

(Unaudited)

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of IncomeShareholders’ Equity

For the Three and Nine Months Ended September 30, 2017March 31, 2020 and 20162019

(Unaudited)

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Retained EarningsCash Flows

For the NineThree Months Ended September 30, 2017March 31, 2020 and 20162019

(Unaudited)

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2017 and 2016

(Unaudited)

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. In the opinion of the Company, the accompanying unaudited interim financial statements contain all adjustments necessary to present fairly the financial position of the Company as of September 30, 2017March 31, 2020 (unaudited) and December 31, 20162019 (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, 2016.2019.

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, 2020 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 UpdateNo. 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. 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 early 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 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.

2. The Company extends credit on the basis of terms that are customary within our markets to various companies doing business primarily in the automotive industry. The Company has a concentration of credit risk primarily within the automotive industry and in the Midwestern United States.

3. The Company is, from time to time, involved in litigation, including environmental claims and contract disputes, in the normal course of business. While it is not possible at this time to establish the ultimate amount of liability with respect to contingent liabilities, including those related to legal proceedings, management is of the opinion that the aggregate amount of any such liabilities, for which provision has not been made, will not have a material adverse effect on the Company’s financial position.

4. Revenue—The Company operates in the fastener industry and is in the business of manufacturing and selling rivets, cold-formed fasteners and parts, screw machine products, automatic rivet setting machines and parts and tools for such machines. Revenue is recognized when control of the promised goods or services is transferred to our customers, generally upon shipment of goods or completion of services, in an amount that reflects the consideration we expect to receive in exchange for those goods or services. For certain assembly equipment segment transactions, revenue is recognized based on progress toward completion of the performance obligation using a labor-based measure. Labor incurred and specific material costs are compared to milestone payments per sales contract. Based on our experience, this method most accurately reflects the transfer of goods under such contracts. During the first quarter of 2020, the Company had no such contracts.

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 March 31, 2020 and December 31, 2019 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:

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

5. The Company’s effective tax rates were 32.9%approximately 21.0% and 31.9%22.0% for the thirdfirst quarter of 20172020 and 2016, respectively, and 32.6% and 32.9% for the nine months ended September 30, 2017 and 2016,2019, respectively. 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.

The Company’s federal income tax returns for the 2014, 2015 and 2016 through 2019 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 2016 through 2019 federal income tax returns will expire on September 15, 2018, 2019 and 2020 through 2023, respectively.

The Company’s state income tax returns for the 20142016 through 20162019 tax years remain subject to examination by various state authorities with the latest closing period on October 31, 2020.2023. 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:

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:

8. Subsequent Events—In March 2020, the World Health Organization characterized the novel coronavirus(“COVID-19”) a pandemic and the President of the United States declared theCOVID-19 outbreak a national emergency. The rapid spread of the virus and the evolving response domestically and internationally to combat it have had an increasingly negative impact on the global economy, including the automotive industry upon which we rely for sales. Beginning in March, most states issued executive orders which temporarily closed businesses deemednon-essential in an effort to prevent the spread of the coronavirus. Similar measures also took place in certain foreign markets we serve. As a result, our operations and the operations of our customers and suppliers have been adversely affected. Since some of our customers are classified as essential businesses and have been able to continue to operate, we have been able to continue our operations, but at a significantly reduced level, in order to service those customers during these shut-down orders. We have taken measures to reduce expenses and conserve capital, given the rapidly changing business environment and heightened degree of uncertainty resulting fromCOVID-19 and its related effects. As we cannot predict the duration or scope of theCOVID-19 pandemic, or its broader impact on the global economy, including the demand for automobiles, it is unknown how long theCOVID-19 restrictions will remain in place or what the impact ofCOVID-19 and its related effects will be on our business, results of operations or financial condition, but the impact could be material and last for an extended period of time.

CHICAGO RIVET & MACHINE CO.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CHICAGO RIVET & MACHINE CO.

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

Results of Operations

Net sales for the first quarter of 2020 were $7,576,455 compared to $8,621,678 in the thirdfirst quarter were $8,386,756of 2019, a decline of $1,045,223, or 12.1%. The decline was primarily due to reduced demand for fastener segment parts, especially from automotive customers as the impact of the coronavirus pandemic(“COVID-19”) took hold. The lower sales resulted in net income of $56,568, or $0.06 per share, in the first quarter of this year compared to $8,854,274 in the third quarter of 2016, a decline of $467,518,$286,842, 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$0.30 per share, in the thirdfirst quarter of 2016. Net income for2019. During the first three quartersquarter, a regular quarterly dividend of 2017 was $1,309,112, or $1.36$0.22 per share compared with $1,904,445, or $1.97 per share, reported in 2016.was paid.

Fastener segment revenues were $7,486,193$6,737,397 in the thirdfirst quarter of 20172020 compared to $8,089,800$7,579,120 in the year earlierfirst quarter of 2019, a decline of $603,607,$841,723, 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%11.1%. 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. North American light-vehicle production has fallen more than 3%customers were $4,413,737 in the first nine months of 2017quarter this year compared to $4,718,215 in the first quarter of 2019, a decline of $304,478, or 6.5%. This compares favorably to the first quarter decline in U.S. light-vehicle sales of 12.5%. Fastener segment sales tonon-automotive customers were $2,323,660 in the first quarter of this year compared to $2,860,905 in the first quarter of 2019, a decline of $537,245 or 18.8%. The rapid spread of the coronavirus pandemic was the primary factor in the lower sales reported in the first quarter as nearly all the markets we serve were negatively impacted. Fastener segment production costs in the first quarter were lower than a year earlier, period, contributing to thewith variable costs remaining consistent as a percentage of net sales decline among our automotive customers. Additionally, we have experienced higher material prices throughout the year, which combined with the decline in sales, hasfirst quarter of 2019, however, our fixed production costs were little changed which resulted in lower segment gross margins due to the lower level of sales. Fastener segment gross margins were $1,091,951 in the current year. For the thirdfirst quarter the fastener segment gross margin was $1,457,421of 2020 compared to $1,768,625$1,325,186 in the year earlierfirst quarter of 2019, a declinereduction 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.$233,235.

Assembly equipment segment revenues were $900,563$839,058 in the thirdfirst quarter of 2017, an increase of $136,089, or 17.8%,2020 compared to $1,042,558 in the thirdfirst quarter of 2016 when revenues were $764,474.2019, a decline of $203,500, or 19.5%. The increaselower sales in third quarter sales wasthe current year is primarily due to higher dollar valuefewer machines being shipped compared to the sales mixcomparable year earlier quarter as the combination of a slowing economy and the coronavirus pandemic resulted in the third quarter of 2016. Thisreduced demand. The decline in net sales contributed to an $80,690 increasea $118,101 decrease in assembly equipment segment gross margin from $336,577 in the quarter,2019 to $297,265, from $216,575$218,476 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 increase in segment gross margin. Assembly equipment segment gross margin for the first nine months of 2017 was $1,035,700 compared to $952,505 in the same period of 2016, an increase of $83,195.2020.

Selling and administrative expenses forduring the thirdfirst quarter of 20172020 were $1,278,646$1,285,334 compared to $1,342,696 recorded in the year earlierfirst quarter total of $1,322,064,2019, a reductiondecrease of $43,418,$57,362, or 3.3%4.3%. The largest components of the decline were payroll expense, which declined $27,000was primarily due to headcount reductions, anda $20,000 reduction in profit sharing expense which declined $11,000 duerelated to lower operating profit in the current year. Sellingyear quarter and a $17,000 reduction in sales commissions due to the drop in net sales. Compared to net sales, selling and administrative expenses forwere 17.0% in the first three quartersquarter of 2017 were $4,205,4932020 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 $167,00015.6% in expenses related to the implementation of a new ERP system at one of our locations. Selling and administrative expenses as a percentage of net sales for the first nine monthsquarter of 2017 was 15.4% compared to 15.0% for the first nine months of 2016.2019.

Other Income

Other income in the thirdfirst quarter of 20172020 was $24,795$46,475 compared to $16,193$48,775 in the thirdfirst quarter of 2016. Other income for the first three quarters of 2017 was $68,000 compared2019. The decrease is primarily related to $45,403a reduction in the same period of 2016. Other income consists primarily of interest income on certificates of deposit.deposit due to lower interest rates in the current year.

Income Tax Expense

The Company’s effective tax rates were 32.9%approximately 21.0% and 31.9%22.0% for the thirdfirst quarter of 20172020 and 2016, respectively, and 32.6% and 32.9% for the nine months ended September 30, 2017 and 2016,2019, respectively. 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 amounted to approximately $16.4 million as of September 30, 2016 amounted to $16.6 million, an increase of approximately $0.2 millionMarch 31, 2020, relatively unchanged from the beginning of the year. The most significant changesDuring the quarter, accounts receivable increased by $0.9 million due to the greater sales activity during the quarter compared to the fourth quarter of 2019. Partially offsetting this change was a $0.4 million increase in the individual working capital componentsaccounts payable 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 duerelated to the greater level of operating activity compared to the seasonally lower fourth quarter of 2016. Partially offsetting this net change was the reduction in cash and certificates of deposit. Capital expenditures forduring the first three quartersquarter. Other items impacting working capital in the first quarter were capital expenditures of 2017 were $1.1$0.2 million, which primarily consisted of equipment used in fastener production activities. Dividendsactivities, and 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.$0.2 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 $7.1 million decline in such total balances fromas of March 31, 2020 compared to $8.0 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 SummaryCOVID-19

Following several yearsWe are closely monitoring the impact of growth, domestic automotive sales, not unexpectedly, declined duringtheCOVID-19 pandemic on all aspects of our operations. Results for the first eight monthsquarter were negatively impacted by the widening spread of 2017 before spikingCOVID-19 and the resultant measures taken by governments domestically and internationally to combat this threat. During the first quarter, various states issued executive orders which temporarily closed businesses deemednon-essential as the coronavirus outbreak spread. Similar measures also took place in Septembercertain foreign markets we serve. As a result, our operations and the operations of our customers and suppliers have been adversely affected. Since some of our customers are classified as essential businesses and have been able to continue to operate, we have been able to continue our operations, but at a significantly reduced level, in the aftermath of hurricanes Harvey and Irma. Fastener segment results in 2017 have fallen short oforder to service 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 these shut-down orders. To ensure 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 onesafety of our locations, which accountedown employees during this unprecedented crisis, we have reduced personnel in our facilities in order to practice social distancing protocols and are following other safety practices recommended by the Centers for significant expenses duringDisease Control. As we cannot predict the first three quartersduration or scope of 2017, was completed duringtheCOVID-19 pandemic, or its broader impact on the third quarter, eliminatingglobal economy, including the most significant increasedemand for automobiles, it is unknown how long theCOVID-19 restrictions will remain in sellingplace or what the impact ofCOVID-19 and administrative expenses incurred this year. Whileits related effects will be on our business, results overall have not matched the excellent performance of 2016, ouroperations or financial condition, remains strongbut the impact could be material and should enable us to pursue opportunities to profitably grow revenues and improve net income in the future.last for an extended period of time.

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: risk related to theCOVID-19 pandemic and its related adverse effects, conditions in the domestic automotive industry, upon which we rely for sales revenue, the intense competition in our markets, the concentration of our sales to twowith major customers, risks related to export sales, the price and availability of raw materials, supply chain disruptions, labor relations issues, losses related to product liability, warranty and recall claims, costs relating to environmental laws and regulations, information systems disruptions, the loss of the services of our key employees and difficulties in achieving 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 1A. Risk Factors

There have been no material changes in risk factors from those previously disclosed in our Annual Report on Form10-K for the fiscal year ended December 31, 2019, other than the addition of the following risk factor regarding the recent coronavirus outbreak:

The recent coronavirus outbreak is having, and is expected to have, an adverse effect on us.

In March 2020, the World Health Organization characterized the novel coronavirus(“COVID-19”) a pandemic and the President of the United States declared theCOVID-19 outbreak a national emergency. The rapid spread of the virus and the evolving response domestically and internationally to combat it have had an increasingly negative impact on the global economy, including the automotive industry upon which we rely for sales. During the first quarter, various states issued executive orders which temporarily closed businesses deemednon-essential as the coronavirus outbreak spread. Similar measures also took place in certain foreign markets we serve. As a result, our operations and the operations of our customers and suppliers have been adversely affected. Since some of our customers are classified as essential businesses and have been able to continue to operate, we have been able to continue our operations, but at a significantly reduced level. As we cannot predict the duration or scope of theCOVID-19 pandemic or its broader impact on the global economy, including the demand for automobiles, it is unknown how longCOVID-19 related restrictions will remain in place or what the impact ofCOVID-19 and its related effects will be on our business, results of operations or financial condition, but the impact could be material and last for an extended period of time.

Additionally, the impacts described above and other impacts of theCOVID-19 pandemic and responses to it may substantially increase the risk to us from other risks described in our Annual Report on Form10-K for the fiscal year ended December 31, 2019.

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.

PART II — OTHER INFORMATION

Item 6. Exhibits

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.

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