UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended SeptemberJune 30, 20172020

OR

For the transition period from                    to                    

Commission file number 000-01227

Chicago Rivet & Machine Co.

(Exact Name of Registrant as Specified in Its Charter)

(630) 357-8500

Registrant’s Telephone Number, Including Area Code

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

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 Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-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 Rule 12b-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 Rule 12b-2 of the Exchange Act).    Yes  ☐    No   ☒

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

CHICAGO RIVET & MACHINE CO.

INDEX

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Balance Sheets

SeptemberJune 30, 20172020 and December 31, 20162019

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Balance Sheets

SeptemberJune 30, 20172020 and December 31, 2016

See Notes to the Condensed Consolidated Financial Statements

		June 30, 2020				December 31, 2019
Liabilities and Shareholders’ Equity			(Unaudited)
Current Liabilities:
Accounts payable		$	345,179			$	490,580
Accrued wages and salaries			749,513				629,972
Other accrued expenses			222,205				349,069
Unearned revenue and customer deposits			79,621				152,644
Total current liabilities			1,396,518				1,622,265
Deferred income taxes			894,084				943,084
Total liabilities			2,290,602				2,565,349
Commitments and contingencies (Note 3)
Shareholders’ Equity:
Preferred stock, no par value, 500,000 shares authorized: none outstanding			—				—
Common stock, $1.00 par value, 4,000,000 shares authorized: 1,138,096 shares issued; 966,132 shares outstanding			1,138,096				1,138,096
Additional paid-in capital			447,134				447,134
Retained earnings			30,462,786				31,494,895
Treasury stock, 171,964 shares at cost			(3,922,098	)			(3,922,098	)
Total shareholders’ equity			28,125,918				29,158,027
Total liabilities and shareholders’ equity		$	30,416,520			$	31,723,376
See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Income

For the Three and NineSix Months Ended SeptemberJune 30, 20172020 and 20162019

(Unaudited)

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Shareholders’ Equity

For the Three and Six Months Ended June 30, 2020 and 2019

(Unaudited)

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Retained EarningsCash Flows

For the NineSix Months Ended SeptemberJune 30, 20172020 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 SeptemberJune 30, 20172020 (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-monthsix-month period ending SeptemberJune 30, 20172020 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 concentrationconcentrations of credit risk primarily within the automotive industry and in the Midwestern United States.

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

4. Revenue—The Company operates in the fastener industry and is in the business of manufacturing and selling rivets, cold-formed fasteners and parts, screw machine products, automatic rivet setting machines and parts and tools for such machines. Revenue is recognized when control of the promised goods or services is transferred to our customers, generally upon shipment of goods or completion of services, in an amount that reflects the consideration we expect to receive in exchange for those goods or services. For certain assembly equipment segment transactions, revenue is recognized based on progress toward completion of the performance obligation using a labor-based measure. Labor incurred and specific material costs are compared to milestone payments per sales contract. Based on our experience, this method most accurately reflects the transfer of goods under such contracts. During the second quarter of 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 June 30, 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 by end-market:

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

5. The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act allows for the carryback of any net operating loss arising in a tax year beginning after December 31, 2017 and before January 1, 2021, to each of the five tax years preceding the tax year in which the loss arises. As a result, the Company’s effective tax rate was approximately (29.2)% for the second quarter of 2020 compared to 21% for the second quarter of 2019. The Company’s effective tax rates were 32.9%rate was (29.7)% and 31.9%21.6% for the third quarter of 2017 and 2016, respectively, and 32.6% and 32.9% for the ninesix months ended SeptemberJune 30, 20172020 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 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:

8. COVID-19—In March 2020, the World Health Organization characterized the novel coronavirus (“COVID-19”) a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. The rapid spread of the virus and the evolving response domestically and internationally to combat it have had a significant 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 deemed non-essential in an effort to prevent the spread of the coronavirus. Similar measures also took place in foreign markets we serve. As a result, our operations and the operations of our customers and suppliers have been adversely affected. Since some of our customers are classified as essential businesses and were allowed to continue to operate during this period, we were able to continue our operations, but at a significantly reduced level, in order to service those customers. Our automotive customers were particularly affected, as much of the sector was idled for an extended period of time during the second quarter due to employee safety concerns. While most shut-down orders were lifted late in the second quarter, various work-related restrictions remain in place. Due to the rapidly changing business environment and heightened degree of uncertainty resulting from COVID-19, we have taken measures to reduce expenses and conserve capital during this period, including reduced work schedules, delayed capital expenditures and a reduction in dividend payments. We have seen improved demand since government-imposed restrictions were relaxed, however the timing of any broad economic recovery is uncertain and will likely be tied to the course of the pandemic. As we cannot predict the duration or scope of the COVID-19 pandemic, or its broader impact on the global economy, including the demand for automobiles, it is unknown how long the COVID-19 restrictions will remain in place or what the impact of COVID-19 and its related effects will be on our business, results of operations or financial condition, but the impact could be material and last for an extended period of time.

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 second quarter of 2020 were $4,103,520 compared to $8,875,451 in the third quarter were $8,386,756 this year compared to $8,854,274 in the thirdsecond quarter of 2016,2019, a decline of $467,518,$4,771,931, or 5.3%. As53.8%, as the impact of September 30, 2017, yeargovernment-mandated business closures due to datethe novel coronavirus (“COVID-19”) pandemic severely limited demand for our products. For the first half of 2020, net sales totaled $27,305,591$11,679,975 compared to $28,271,399, for$17,497,129 in the first three quartershalf of 2016,2019, a decline of $965,808,$5,817,154, or 3.4%33.2%. Net incomeAlthough we acted swiftly to reduce expenses in response to the sudden drop in demand, cost reductions were not sufficient to offset the effects of the decline in sales. The result was a net loss for the thirdsecond quarter of 2017 was $335,835,2020 of $779,516, or $0.35$0.81 per share, compared with $462,329,to net income of $229,559, or $0.48$0.24 per share, in the thirdsecond quarter of 2016. Net income2019. The net loss for the first three quartershalf of 20172020 was $1,309,112,$722,948, or $1.36$0.75 per share, compared with $1,904,445,to net income of $516,401, or $1.97$0.54 per share, reported in 2016.the first half of 2019.

Fastener segment revenues were $7,486,193$3,513,742 in the thirdsecond quarter of 20172020 compared to $8,089,800$7,816,704 reported in the year earliersecond quarter of 2019, a decline of $603,607,$4,302,962, or 7.5%55.0%. For the first three quarterssix months of 2017,2020, fastener segment revenues were $24,319,725$10,251,139 compared to $25,395,165$15,395,824 in 2016,the first half of 2019, a decline of $1,075,440,$5,144,685, or 4.2%33.4%. The automotive sector is the primary market for our fastener segment products and much of that sector was idled for an extended period of time during the second quarter due to the COVID-19 pandemic. As a result, fastener segment sales declinesto automotive customers declined $3,302,550, or 67.7%, in the thirdsecond quarter and $3,607,029, or 37.6%, in the first half of 2020 compared to the prior year periods. Although some of our non-automotive customers were allowed to remain open during the second quarter as essential businesses, sales to non-automotive customers also experienced significant reductions and declined $1,000,412, or 34.1%, in the second quarter and $1,537,656, or 26.5%, in the first half of the current year compared to the prior year periods. In response to the reduced demand for our products, we have taken steps to reduce expenses where practicable, including reductions in staffing and work schedules. Even though we reduced all major categories of manufacturing costs, these savings did not fully offset the decline in sales volume, resulting in a $1,259,211 reduction in fastener segment gross margin in the second quarter and a $1,492,445 reduction in the year to date primarily relate to reduced sales to certain large automotive customers. North American light-vehicle production has fallen more than 3% in the first nine months of 2017amount, compared to the year earlier period, contributing to the sales decline among our automotive customers. Additionally, we have experienced higher material prices throughout the year, which combined with the decline in sales, has resulted in lower segment gross margins in the current year. For the third quarter, the fastener segment gross margin was $1,457,421 compared to $1,768,625 in the year earlier 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.periods

Assembly equipment segment revenues were $900,563$589,778 in the thirdsecond quarter of 2017, an increase of $136,089, or 17.8%,2020 compared to $1,058,747 in the thirdsecond quarter of 2016 when2019, a decline of $468,969, or 44.3%. For the first half of 2020, assembly equipment revenues were $764,474.$1,428,836 compared to $2,101,305 for the first half of 2019, a decline of $672,469, or 32.0%. The increasedecline in thirdsales during the second quarter salesand the year to date was primarily due to higher dollar value machines being shipped comparedthe broad effects of the COVID-19 pandemic, but also due to the sales mixinclusion of certain high-dollar value machine orders in the thirdsecond quarter of 2016. This contributed to an $80,690 increase2019. The reduction in revenue was the primary cause of the decline in assembly equipment segment gross marginmargins to $110,314 in the second quarter to $297,265,of 2020 from $216,575$328,923 in last year’s third quarter.the second quarter of 2019. 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 $1,035,700margins were $328,789 compared to $952,505$665,500 in the same period2019, a decline of 2016, an increase of $83,195.$336,711.

Selling and administrative expenses for the thirdsecond quarter of 20172020 were $1,278,646$1,214,423, a decline of $92,242, or 7.1%, compared towith the year earlier quarter total of $1,322,064, a reduction of $43,418, or 3.3%.$1,306,665. The largest components of the decline were payroll expense, which declined $27,000was primarily due to headcount reductions, and profit sharing expense which declined $11,000a $100,000 reduction in sales commissions due to lower operating profitsales and reductions of $30,000 and $25,000 related to salaries and outside services, respectively, during the quarter. These reductions were partially offset by a $53,000 increase in consulting fees related to an ERP system update. The net difference was related to various smaller items. For the current year. Sellingfirst six months of 2020, selling and administrative expenses were $2,499,757 compared to $2,649,361 in 2019, a decline of $149,604, or 5.6%. As in the second quarter, expenditures for the first three quartershalf of 20172020 were $4,205,493 comparedlower primarily due to $4,230,685 for the same period of 2016, a reduction in commissions of $25,192, or 0.6%. Profit sharing expense has declined $98,000 on a year to date basis due to lower operating profitapproximately $117,000 and payroll expense has declined $87,000 due to reduced headcount. Largely offsetting these reductions was approximately $167,000 in expensesof $40,000 and $30,000 related to salaries and outside services, respectively. These reductions were partially offset by a $44,000 increase in consulting expense. Various smaller items made up the implementation of a new ERP system at one of our locations.remaining difference. Selling and administrative expenses as a percentage of net sales for the first nine monthshalf of 2017 was 15.4%2020 were 21.4% compared to 15.0% for15.1% in the first nine monthshalf of 2016.2019.

Other Income

Other income in the thirdsecond quarter of 20172020 was $24,795$43,757, compared to $16,193$49,254 in the thirdsecond quarter of 2016.2019. Other income for the first three quarterssix months of 20172020 was $68,000$90,232, compared to $45,403$98,029 in the same periodfirst six months of 2016. Other income consists2019. The declines were primarily ofdue to a reduction in interest income on certificates of deposit.deposit due to lower interest rates in the current year.

Income Tax Expense

The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act allows for the carryback of any net operating loss arising in a tax year beginning after December 31, 2017 and before January 1, 2021, to each of the five tax years preceding the tax year in which the loss arises. As a result, the Company’s effective tax rates were 32.9% and 31.9%rate was approximately (29.2)% for the thirdsecond quarter of 2017 and 2016, respectively, and 32.6% and 32.9%2020 compared to 21% for the ninesecond quarter of 2019. The Company’s effective tax rate was (29.7)% and 21.6% for the six months ended SeptemberJune 30, 20172020 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