UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017March 31, 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-01227
Chicago Rivet & Machine Co.
(Exact Name of Registrant as Specified in Its Charter)
Illinois | 36-0904920 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) |
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $1.00 per share | CVR | NYSE American (Trading privileges only, not registered) |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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):
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 Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of NovemberMay 3, 2017,2021, there were 966,132 shares of the registrant’s common stock outstanding.
CHICAGO RIVET & MACHINE CO.
PART I — FINANCIAL INFORMATION
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Balance Sheets
September 30, 2017March 31, 2021 and December 31, 20162020
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 759,138 | $ | 353,475 | ||||
Certificates of deposit | 7,312,000 | 8,059,000 | ||||||
Accounts receivable - Less allowances of $150,000 | 5,871,092 | 5,323,519 | ||||||
Inventories, net | 5,088,117 | 4,537,693 | ||||||
Prepaid income taxes | — | 56,112 | ||||||
Other current assets | 381,087 | 423,952 | ||||||
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Total current assets | 19,411,434 | 18,753,751 | ||||||
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Property, Plant and Equipment: | ||||||||
Land and improvements | 1,535,434 | 1,424,689 | ||||||
Buildings and improvements | 8,010,023 | 7,333,942 | ||||||
Production equipment and other | 34,410,155 | 34,447,193 | ||||||
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43,955,612 | 43,205,824 | |||||||
Less accumulated depreciation | 31,356,355 | 30,755,266 | ||||||
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Net property, plant and equipment | 12,599,257 | 12,450,558 | ||||||
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Total assets | $ | 32,010,691 | $ | 31,204,309 | ||||
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March 31, 2021 | December 31, 2020 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 3,075,766 | $ | 2,567,731 | ||||
Certificates of deposit | 2,990,000 | 4,733,000 | ||||||
Accounts receivable—Less allowances of $170,000 | 6,869,891 | 5,163,450 | ||||||
Inventories, net | 6,311,960 | 5,153,294 | ||||||
Prepaid income taxes | — | 85,940 | ||||||
Other current assets | 384,811 | 383,772 | ||||||
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Total current assets | 19,632,428 | 18,087,187 | ||||||
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Property, Plant and Equipment: | ||||||||
Land and improvements | 1,636,749 | 1,636,749 | ||||||
Buildings and improvements | 8,449,768 | 8,440,738 | ||||||
Production equipment and other | 36,344,494 | 36,333,550 | ||||||
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46,431,011 | 46,411,037 | |||||||
Less accumulated depreciation | 33,509,910 | 33,260,153 | ||||||
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Net property, plant and equipment | 12,921,101 | 13,150,884 | ||||||
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Total assets | $ | 32,553,529 | $ | 31,238,071 | ||||
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See Notes to the Condensed Consolidated Financial Statements
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Balance Sheets
September 30, 2017March 31, 2021 and December 31, 2016
September 30, | December 31, | |||||||||||||||
2017 | 2016 | March 31, 2021 | December 31, 2020 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable | $ | 1,165,125 | $ | 703,467 | $ | 1,135,304 | $ | 466,424 | ||||||||
Accrued wages and salaries | 890,507 | 690,526 | 686,571 | 482,008 | ||||||||||||
Other accrued expenses | 472,912 | 604,174 | 317,568 | 322,968 | ||||||||||||
Unearned revenue and customer deposits | 240,851 | 286,133 | 205,774 | 249,498 | ||||||||||||
Federal and state income taxes | 194,560 | — | ||||||||||||||
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Total current liabilities | 2,769,395 | 2,284,300 | 2,539,777 | 1,520,898 | ||||||||||||
Deferred income taxes | 958,084 | 1,028,084 | 980,084 | 1,011,084 | ||||||||||||
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Total liabilities | 3,727,479 | 3,312,384 | 3,519,861 | 2,531,982 | ||||||||||||
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Commitments and contingencies (Note 3) | ||||||||||||||||
Shareholders’ Equity: | ||||||||||||||||
Preferred stock, no par value, 500,000 shares authorized: none outstanding | — | — | — | — | ||||||||||||
Common stock, $1.00 par value, 4,000,000 shares authorized: 1,138,096 shares issued; 966,132 shares outstanding 1,138,096 |
| 1,138,096 | ||||||||||||||
Common stock, $1.00 par value, 4,000,000 shares authorized: 1,138,096 shares issued; 966,132 shares outstanding | 1,138,096 | 1,138,096 | ||||||||||||||
Additionalpaid-in capital | 447,134 | 447,134 | 447,134 | 447,134 | ||||||||||||
Retained earnings | 30,620,080 | 30,228,793 | 31,370,536 | 31,042,957 | ||||||||||||
Treasury stock, 171,964 shares at cost | (3,922,098 | ) | (3,922,098 | ) | (3,922,098 | ) | (3,922,098 | ) | ||||||||
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Total shareholders’ equity | 28,283,212 | 27,891,925 | 29,033,668 | 28,706,089 | ||||||||||||
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Total liabilities and shareholders’ equity | $ | 32,010,691 | $ | 31,204,309 | $ | 32,553,529 | $ | 31,238,071 | ||||||||
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See Notes to the Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Income
For the Three and Nine Months Ended September 30, 2017March 31, 2021 and 20162020
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2021 | 2020 | |||||||||||||||||||
Net sales | $ | 8,386,756 | $ | 8,854,274 | $ | 27,305,591 | $ | 28,271,399 | $ | 9,304,949 | $ | 7,576,455 | ||||||||||||
Cost of goods sold | 6,632,070 | 6,869,074 | 21,224,986 | 21,248,672 | 7,270,512 | 6,266,028 | ||||||||||||||||||
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Gross profit | 1,754,686 | 1,985,200 | 6,080,605 | 7,022,727 | 2,034,437 | 1,310,427 | ||||||||||||||||||
Selling and administrative expenses | 1,278,646 | 1,322,064 | 4,205,493 | 4,230,685 | 1,362,201 | 1,285,334 | ||||||||||||||||||
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Operating profit | 476,040 | 663,136 | 1,875,112 | 2,792,042 | 672,236 | 25,093 | ||||||||||||||||||
Other income | 24,795 | 16,193 | 68,000 | 45,403 | 17,892 | 46,475 | ||||||||||||||||||
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Income before income taxes | 500,835 | 679,329 | 1,943,112 | 2,837,445 | 690,128 | 71,568 | ||||||||||||||||||
Provision for income taxes | 165,000 | 217,000 | 634,000 | 933,000 | 150,000 | 15,000 | ||||||||||||||||||
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Net income | $ | 335,835 | $ | 462,329 | $ | 1,309,112 | $ | 1,904,445 | $ | 540,128 | $ | 56,568 | ||||||||||||
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Per share data, basic and diluted: | ||||||||||||||||||||||||
Net income per share | $ | 0.35 | $ | 0.48 | $ | 1.36 | $ | 1.97 | $ | 0.56 | $ | 0.06 | ||||||||||||
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Average common shares outstanding | 966,132 | 966,132 | 966,132 | 966,132 | 966,132 | 966,132 | ||||||||||||||||||
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Cash dividends declared per share | $ | 0.20 | $ | 0.18 | $ | 0.95 | $ | 0.79 | $ | 0.22 | $ | 0.22 | ||||||||||||
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See Notes to the Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Retained EarningsShareholders’ Equity
For the NineThree Months Ended September 30, 2017March 31, 2021 and 20162020
(Unaudited)
2017 | 2016 | |||||||
Retained earnings at beginning of period | $ | 30,228,793 | $ | 28,828,284 | ||||
Net income | 1,309,112 | 1,904,445 | ||||||
Cash dividends declared in the period; $.95 per share in 2017 and $.79 in 2016 | (917,825 | ) | (763,245 | ) | ||||
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Retained earnings at end of period | $ | 30,620,080 | $ | 29,969,484 | ||||
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Preferred Stock | Common Stock | Additional Paid- | Retained | Less Treasury Stock, at Cost | ||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | in Capital | Earnings | Shares | Amount | Total | ||||||||||||||||||||||||||||
Balance, December 31, 2020 | — | $ | — | 966,132 | $ | 1,138,096 | $ | 447,134 | $ | 31,042,957 | 171,964 | $ | (3,922,098 | ) | $ | 28,706,089 | ||||||||||||||||||||
Net Income | $ | 540,128 | $ | 540,128 | ||||||||||||||||||||||||||||||||
Dividends Declared ($0.22 per share) | $ | (212,549 | ) | $ | (212,549 | ) | ||||||||||||||||||||||||||||||
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Balance, March 31, 2021 | — | $ | — | 966,132 | $ | 1,138,096 | $ | 447,134 | $ | 31,370,536 | 171,964 | $ | (3,922,098 | ) | $ | 29,033,668 | ||||||||||||||||||||
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Balance, December 31, 2019 | — | $ | — | 966,132 | $ | 1,138,096 | $ | 447,134 | $ | 31,494,895 | 171,964 | $ | (3,922,098 | ) | $ | 29,158,027 | ||||||||||||||||||||
Net Income | $ | 56,568 | $ | 56,568 | ||||||||||||||||||||||||||||||||
Dividends Declared ($0.22 per share) | $ | (212,549 | ) | $ | (212,549 | ) | ||||||||||||||||||||||||||||||
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Balance, March 31, 2020 | — | $ | — | 966,132 | $ | 1,138,096 | $ | 447,134 | $ | 31,338,914 | 171,964 | $ | (3,922,098 | ) | $ | 29,002,046 | ||||||||||||||||||||
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See Notes to the Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Cash Flows
For the NineThree Months Ended September 30, 2017March 31, 2021 and 20162020
(Unaudited)
2017 | 2016 | 2021 | 2020 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 1,309,112 | $ | 1,904,445 | $ | 540,128 | $ | 56,568 | ||||||||
Adjustments to reconcile net income to net cash | ||||||||||||||||
provided by operating activities: | ||||||||||||||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||||||||
Depreciation | 922,347 | 919,392 | 330,165 | 337,356 | ||||||||||||
Gain on disposal of equipment | (1,700 | ) | (1,782 | ) | ||||||||||||
Loss on disposal of equipment | 16,081 | — | ||||||||||||||
Deferred income taxes | (70,000 | ) | 100,000 | (31,000 | ) | (24,000 | ) | |||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | (547,573 | ) | (457,954 | ) | (1,706,441 | ) | (894,369 | ) | ||||||||
Inventories | (550,424 | ) | (266,082 | ) | (1,158,666 | ) | (227,204 | ) | ||||||||
Other current assets and prepaid income taxes | 98,977 | 183,385 | ||||||||||||||
Other current assets | 84,901 | (225 | ) | |||||||||||||
Accounts payable | 460,171 | 354,223 | 668,880 | 437,728 | ||||||||||||
Accrued wages and salaries | 199,981 | 335,212 | 204,563 | (15,892 | ) | |||||||||||
Other accrued expenses | (131,262 | ) | 11,179 | 189,160 | (115,663 | ) | ||||||||||
Unearned revenue and customer deposits | (45,282 | ) | (194,796 | ) | (43,724 | ) | (44,338 | ) | ||||||||
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Net cash provided by operating activities | 1,644,347 | 2,887,222 | ||||||||||||||
Net cash used in operating activities | (905,953 | ) | (490,039 | ) | ||||||||||||
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Cash flows from investing activities: | ||||||||||||||||
Capital expenditures | (1,069,559 | ) | (1,782,886 | ) | (116,463 | ) | (166,667 | ) | ||||||||
Proceeds from the sale of equipment | 1,700 | 3,122 | ||||||||||||||
Proceeds from certificates of deposit | 5,320,000 | 4,731,000 | 1,743,000 | 2,241,000 | ||||||||||||
Purchases of certificates of deposit | (4,573,000 | ) | (4,980,000 | ) | — | (1,743,000 | ) | |||||||||
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Net cash used in investing activities | (320,859 | ) | (2,028,764 | ) | ||||||||||||
Net cash provided by investing activities | 1,626,537 | 331,333 | ||||||||||||||
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Cash flows from financing activities: | ||||||||||||||||
Cash dividends paid | (917,825 | ) | (763,245 | ) | (212,549 | ) | (212,549 | ) | ||||||||
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Net cash used in financing activities | (917,825 | ) | (763,245 | ) | (212,549 | ) | (212,549 | ) | ||||||||
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Net increase in cash and cash equivalents | 405,663 | 95,213 | ||||||||||||||
Net increase (decrease) in cash and cash equivalents | 508,035 | (371,255 | ) | |||||||||||||
Cash and cash equivalents at beginning of period | 353,475 | 800,894 | 2,567,731 | 1,429,454 | ||||||||||||
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Cash and cash equivalents at end of period | $ | 759,138 | $ | 896,107 | $ | 3,075,766 | $ | 1,058,199 | ||||||||
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Supplemental schedule ofnon-cash investing activities: Capital expenditures in accounts payable | $ | 1,487 | $ | — | ||||||||||||
Supplemental schedule of non-cash investing activities: | ||||||||||||||||
Capital expenditures in accounts payable | $ | — | $ | 1,330 |
See Notes to the Condensed Consolidated Financial Statements
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited interim financial statements contain all adjustments necessary to present fairly the financial position of the Company as of September 30, 2017March 31, 2021 (unaudited) and December 31, 20162020 (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, 2016.2020.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three and nine-monthmonth period ending September 30, 2017ended March 31, 2021 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 2021, the Company realized $235,210 related to such contracts and $120,879 is the remaining performance obligation under such contracts which the Company expects to recognize as revenue in the second quarter.
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, 2021 and December 31, 2020 reserves for warranty claims were not material. Cash received by the Company prior to shipment is recorded as unearned revenue.
Shipping and handling fees billed to customers are recognized in net sales, and related costs as cost of sales, when incurred.
Sales commissions are expensed when incurred because the amortization period is less than one year. These costs are recorded within selling and administrative expenses in the statement of income.
The following table presents revenue by segment, further disaggregated by end-market:
Fastener | Assembly Equipment | Consolidated | ||||||||||
Three Months Ended March 31, 2021: | ||||||||||||
Automotive | 5,059,469 | 32,973 | 5,092,442 | |||||||||
Non-automotive | 3,089,209 | 1,123,298 | 4,212,507 | |||||||||
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Total net sales | 8,148,678 | 1,156,271 | 9,304,949 | |||||||||
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Three Months Ended March 31, 2020: | ||||||||||||
Automotive | 4,413,737 | 33,459 | 4,447,196 | |||||||||
Non-automotive | 2,323,660 | 805,599 | 3,129,259 | |||||||||
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Total net sales | 6,737,397 | 839,058 | 7,576,455 | |||||||||
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The following table presents revenue by segment, further disaggregated by location:
Fastener | Assembly Equipment | Consolidated | ||||||||||
Three Months Ended March 31, 2021: | ||||||||||||
United States | 6,437,852 | 1,130,360 | 7,568,212 | |||||||||
Foreign | 1,710,826 | 25,911 | 1,736,737 | |||||||||
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Total net sales | 8,148,678 | 1,156,271 | 9,304,949 | |||||||||
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Three Months Ended March 31, 2020: | ||||||||||||
United States | 5,740,925 | 748,486 | 6,489,411 | |||||||||
Foreign | 996,472 | 90,572 | 1,087,044 | |||||||||
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Total net sales | 6,737,397 | 839,058 | 7,576,455 | |||||||||
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5. The Company’s effective tax rates were 32.9%approximately 21.7% and 31.9%21.0% for the thirdfirst quarter of 20172021 and 2016, respectively, and 32.6% and 32.9% for the nine months ended September 30, 2017 and 2016,2020, 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 20162017 through 2020 tax years are subject to examination by the Internal Revenue Service (“IRS”). While it may be possible that a reduction could occur with respect to the Company’s unrecognized tax benefits as an outcome of an IRS examination, management does not anticipate any adjustments that would result in a material change to the results of operations or financial condition of the Company. No statutes have been extended on any of the Company’s federal income tax filings. The statute of limitations on the Company’s 2014, 2015 and 20162017 through 2020 federal income tax returns will expire on September 15, 2018, 2019 and 2020,2021 through 2024, respectively.
The Company’s state income tax returns for the 20142017 through 20162020 tax years remain subject to examination by various state authorities with the latest closing period on October 31, 2020.2024. The Company is not currently not under examination by any state authority for income tax purposes and no statutes for state income tax filings have been extended.
5.6. Inventories are stated at the lower of cost or net realizable value, cost being determined by thefirst-in,first-out method. A summary of inventories is as follows:
September 30, 2017 | December 31, 2016 | March 31, 2021 | December 31, 2020 | |||||||||||||
Raw material | $ | 2,024,739 | $ | 1,675,143 | $ | 2,734,512 | $ | 2,245,709 | ||||||||
Work-in-process | 1,621,373 | 1,684,321 | 2,081,169 | 1,410,868 | ||||||||||||
Finished goods | 1,953,005 | 1,740,229 | 2,095,279 | 2,096,717 | ||||||||||||
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Inventory, gross | 5,599,117 | 5,099,693 | ||||||||||||||
Inventories, gross | 6,910,960 | 5,753,294 | ||||||||||||||
Valuation reserves | (511,000 | ) | (562,000 | ) | (599,000 | ) | (600,000 | ) | ||||||||
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Inventory, net | $ | 5,088,117 | $ | 4,537,693 | ||||||||||||
Inventories, net | $ | 6,311,960 | $ | 5,153,294 | ||||||||||||
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|
CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6.7. Segment Information—The Company operates in two business segments as determined by its products. The fastener segment includes 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 | Fastener | Assembly Equipment | Other | Consolidated | |||||||||||||||||||||||||
Three Months Ended September 30, 2017: | ||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2021: | ||||||||||||||||||||||||||||||||
Net sales | $ | 7,486,193 | $ | 900,563 | $ | — | $ | 8,386,756 | $ | 8,148,678 | $ | 1,156,271 | $ | — | $ | 9,304,949 | ||||||||||||||||
Depreciation | 275,820 | 24,390 | 8,970 | 309,180 | 291,183 | 33,533 | 5,449 | 330,165 | ||||||||||||||||||||||||
Segment operating profit | 768,247 | 317,602 | — | 1,085,849 | 927,158 | 296,700 | — | 1,223,858 | ||||||||||||||||||||||||
Selling and administrative expenses | — | — | (603,809 | ) | (603,809 | ) | — | — | (543,772 | ) | (543,772 | ) | ||||||||||||||||||||
Interest income | — | — | 18,795 | 18,795 | — | — | 10,042 | 10,042 | ||||||||||||||||||||||||
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Income before income taxes | $ | 500,835 | $ | 690,128 | ||||||||||||||||||||||||||||
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Capital expenditures | 263,563 | 8,325 | — | 271,888 | 104,524 | — | 11,939 | 116,463 | ||||||||||||||||||||||||
Segment assets: | ||||||||||||||||||||||||||||||||
Accounts receivable, net | 5,576,022 | 295,070 | — | 5,871,092 | 6,222,588 | 647,303 | — | 6,869,891 | ||||||||||||||||||||||||
Inventories, net | 4,134,219 | 953,898 | — | 5,088,117 | 5,055,332 | 1,256,628 | — | 6,311,960 | ||||||||||||||||||||||||
Property, plant and equipment, net | 10,409,913 | 1,613,245 | 576,099 | 12,599,257 | 10,276,980 | 1,535,329 | 1,108,792 | 12,921,101 | ||||||||||||||||||||||||
Other assets | — | — | 8,452,225 | 8,452,225 | — | — | 6,450,577 | 6,450,577 | ||||||||||||||||||||||||
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$ | 32,010,691 | $ | 32,553,529 | |||||||||||||||||||||||||||||
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Three Months Ended September 30, 2016: | ||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2020: | ||||||||||||||||||||||||||||||||
Net sales | $ | 8,089,800 | $ | 764,474 | $ | — | $ | 8,854,274 | $ | 6,737,397 | $ | 839,058 | $ | — | $ | 7,576,455 | ||||||||||||||||
Depreciation | 272,212 | 22,063 | 17,640 | 311,915 | 296,110 | 32,869 | 8,377 | 337,356 | ||||||||||||||||||||||||
Segment operating profit | 1,031,736 | 233,758 | — | 1,265,494 | 404,018 | 184,571 | — | 588,589 | ||||||||||||||||||||||||
Selling and administrative expenses | — | — | (596,358 | ) | (596,358 | ) | — | — | (550,896 | ) | (550,896 | ) | ||||||||||||||||||||
Interest income | — | — | 10,193 | 10,193 | — | — | 33,875 | 33,875 | ||||||||||||||||||||||||
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Income before income taxes | $ | 679,329 | $ | 71,568 | ||||||||||||||||||||||||||||
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Capital expenditures | 842,048 | 2,142 | — | 844,190 | 167,997 | — | — | 167,997 | ||||||||||||||||||||||||
Segment assets: | ||||||||||||||||||||||||||||||||
Accounts receivable, net | 5,611,689 | 284,597 | — | 5,896,286 | 5,106,941 | 396,742 | — | 5,503,683 | ||||||||||||||||||||||||
Inventories, net | 3,766,136 | 1,038,158 | — | 4,804,294 | 4,195,183 | 983,198 | — | 5,178,381 | ||||||||||||||||||||||||
Property, plant and equipment, net | 10,457,807 | 1,594,023 | 508,767 | 12,560,597 | 10,919,327 | 1,653,895 | 931,472 | 13,504,694 | ||||||||||||||||||||||||
Other assets | — | — | 8,183,787 | 8,183,787 | — | — | 7,619,802 | 7,619,802 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
$ | 31,444,964 | $ | 31,806,560 | |||||||||||||||||||||||||||||
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8. COVID-19—In March 2020, the World Health Organization characterized the novel coronavirus (“COVID-19”) a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. The rapid spread of the virus and the response domestically and internationally to combat it has had a significant negative impact on the global economy, including the automotive industry upon which we rely for sales. Beginning in March 2020, most states issued executive orders which temporarily closed businesses deemed non-essential in an effort to limit the spread of the coronavirus. Similar measures also took place in foreign markets we serve. As a result, our operations and the operations of our customers and suppliers were adversely affected. Since some of our customers are classified as essential businesses and were allowed to continue to operate during this period, we were able to continue our operations, but at a significantly reduced level, in order to service those customers. Our automotive customers were particularly affected, as much of the industry was idled for an extended period of time during the second quarter of 2020 due to employee safety concerns. While most shut-down orders were lifted late in that quarter, various work-related restrictions remained in place and the economic fallout lingers. Due to the rapidly changing business environment and heightened degree of uncertainty resulting from COVID-19, we took measures to reduce expenses and conserve capital during this period, including reduced work schedules, delayed capital expenditures and a reduction in dividend payments. In the second half of 2020, we experienced improved demand as government-imposed restrictions were relaxed. However, the timing and sustainability 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 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)
Assembly | ||||||||||||||||
Fastener | Equipment | Other | Consolidated | |||||||||||||
Nine Months Ended September 30, 2017: | ||||||||||||||||
Net sales | $ | 24,319,725 | $ | 2,985,866 | $ | — | $ | 27,305,591 | ||||||||
Depreciation | 822,267 | 73,170 | 26,910 | 922,347 | ||||||||||||
Segment operating profit | 2,716,020 | 1,089,089 | — | 3,805,109 | ||||||||||||
Selling and administrative expenses | — | — | (1,911,509 | ) | (1,911,509 | ) | ||||||||||
Interest income | — | — | 49,512 | 49,512 | ||||||||||||
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Income before income taxes | $ | 1,943,112 | ||||||||||||||
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Capital expenditures | 949,333 | 121,713 | — | 1,071,046 | ||||||||||||
Nine Months Ended September 30, 2016: | ||||||||||||||||
Net sales | $ | 25,395,165 | $ | 2,876,234 | $ | — | $ | 28,271,399 | ||||||||
Depreciation | 801,485 | 65,677 | 52,230 | 919,392 | ||||||||||||
Segment operating profit | 3,745,167 | 1,012,532 | — | 4,757,699 | ||||||||||||
Selling and administrative expenses | — | — | (1,948,769 | ) | (1,948,769 | ) | ||||||||||
Interest income | — | — | 28,515 | 28,515 | ||||||||||||
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Income before income taxes | $ | 2,837,445 | ||||||||||||||
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Capital expenditures | 1,550,070 | 190,690 | 42,126 | 1,782,886 |
CHICAGO RIVET & MACHINE CO.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
Net sales for the first quarter of 2021 were $9,304,949 compared to $7,576,455 in the thirdfirst quarter were $8,386,756of 2020, an increase of $1,728,494, or 22.8%. The increase was the result of greater demand in both our fastener segment and our assembly equipment segment as the outlook for the global economy improved and the post-pandemic recovery appears to be underway. The increase in sales resulted in net income of $540,128, or $0.56 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,$56,568, 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$0.06 per share, in the thirdfirst quarter of 2016. Net income2020. Improved operating conditions in the current year allowed for the first three quartersrestoration of 2017 was $1,309,112, or $1.36the regular quarterly dividend to $0.22 per share compared with $1,904,445, or $1.97 per share, reportedafter being reduced at the onset of the pandemic in 2016.2020.
Fastener segment revenues were $7,486,193$8,148,678 in the thirdfirst quarter of 20172021 compared to $8,089,800$6,737,397 in the year earlierfirst quarter a decline of $603,607,2020, an increase of $1,411,281, 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%20.9%. 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 $5,059,469 in the first nine monthsquarter this year compared to $4,413,737 in the first quarter of 20172020, an increase of $645,732, or 14.6%. This compares favorably to the first quarter increase in U.S. light-vehicle sales of 11.8%. Fastener segment sales to non-automotive customers were $3,089,209 in the first quarter of this year compared to $2,323,660 in the first quarter of 2020, an increase of $765,549 or 32.9%. The spread of the coronavirus pandemic late in the first quarter of 2020 was the primary factor in the lower sales reported that quarter as nearly all the markets we serve were negatively impacted. The increase in sales in the first quarter of 2021 was the primary factor contributing to the $564,678 increase in fastener segment gross margins to $1,656,629 from $1,091,951 in the first quarter of 2020. While the improvement in gross margins was significant, we have experienced price increases in various manufacturing costs, including steel, our primary raw material, which has increased approximately 11% compared to the year earlier period, contributingfirst quarter of 2020. Labor costs, which have been held down due 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 marginspandemic, are also expected to increase 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.near-term.
Assembly equipment segment revenues were $900,563$1,156,271 in the thirdfirst quarter of 2017,2021 compared to $839,058 in the first quarter of 2020, an increase of $136,089,$317,213, or 17.8%, compared to the third quarter of 2016 when revenues were $764,474.37.8%. The increase in third quarter sales wasin the current year is primarily due to higher dollar value machines being shipped compared to the sales mix in the third quarter of 2016. This contributed to an $80,690 increase in assembly equipment segment gross margin in the quarter, to $297,265, from $216,575 in last year’s third quarter. For the first nine months of the year, assembly equipment segment sales were $2,985,866, an increase of $109,632, or 3.8%, compared to $2,876,234 reported for the first nine months of 2016. The strong third quarter sales reversed a decline in year to date sales that existed at the conclusion of the first half of the year and contributed to an increase in segment gross margin. Assembly equipmentthe number and average selling price of machines sold in the current year as well as improved tool sales. The increase in net sales contributed to a $159,332 increase in segment gross margin for the first nine months of 2017 was $1,035,700 comparedfrom $218,476 in 2020 to $952,505$377,808 in the same period of 2016, an increase of $83,195.2021.
Selling and administrative expenses forduring the thirdfirst quarter of 20172021 were $1,278,646$1,362,201 compared to $1,285,334 recorded in the year earlierfirst quarter total of $1,322,064, a reduction2020, an increase of $43,418,$76,867, or 3.3%6.0%. The largest components of the decline were payroll expense, which declined $27,000increase was primarily due to headcount reductions, anda $57,000 increase in profit sharing expense which declined $11,000related to improved operating profit in the current year quarter and a $15,000 increase in sales commissions due to lower operating profitgreater sales in the current year. Selling and administrative expenses for the first three quarters of 2017 were $4,205,493 compared to $4,230,685 for the same period of 2016, a reduction of $25,192, or 0.6%. Profit sharing expense has declined $98,000 on a year to date basis due to lower operating profit14.6% and payroll expense has declined $87,000 due to reduced headcount. Largely offsetting these reductions was approximately $167,000 in expenses related to the implementation of a new ERP system at one of our locations. Selling and administrative expenses as a percentage17.0% of net sales forin the first nine monthsquarter of 2017 was 15.4% compared to 15.0% for the first nine months of 2016.2021 and 2020, respectively.
Other Income
Other income in the thirdfirst quarter of 20172021 was $24,795$17,892 compared to $16,193$46,475 in the thirdfirst quarter of 2016. Other income for the first three quarters of 2017 was $68,000 compared2020. 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 21.7% and 31.9%21.0% for the thirdfirst quarter of 20172021 and 2016, respectively, and 32.6% and 32.9% for the nine months ended September 30, 2017 and 2016,2020, 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 improved to $17,092,651 as of September 30, 2016 amountedMarch 31, 2021 compared to $16.6 million, an increase of approximately $0.2 million from$16,566,289 at the beginning of the year. The most significant changes inDuring the individual working capital components since the beginning of the year werequarter, accounts receivable increased by $1,706,441, due to the greater sales activity during the quarter compared to the fourth quarter of 2020, and inventory andincreased by $1,158,666 as material purchases were accelerated in advance of higher prices. Partially offsetting these changes were increases in accounts payable which have increased $0.5 million, $0.6 million and $0.5 million, respectively dueaccrued expenses related 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 million,$116,463, which consisted 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.$212,549. The net result of these changes and other cash flow items onactivity was to
leave cash, cash equivalents and certificates of deposit was a $0.3 million decline in such total balances fromat $6,065,766 as of March 31, 2021 compared to $7,300,731 as of the beginning of the year, to $8.1 million.year. Management believes that current cash, cash equivalents and operating cash flow will provide adequate working capital for the next twelve months.
Results of Operations Summary
Following several years of growth, domestic automotive sales, not unexpectedly, declined duringResults in the first eight months of 2017 before spiking in September in the aftermath of hurricanes Harvey and Irma. Fastener segment results in 2017 have fallen short of those reported in 2016, primarily due to lower sales to automotive sector customers. The need to replace vehicles damaged or destroyed in the storms could boost demand by our automotive customers during the fourth quarter although general economic conditions are expected to be relatively unchangedimproved dramatically compared to the first three quartersquarter of 2017. Equipment segment results2020, when the COVID-19 pandemic and the resultant widespread shut-downs started to push the global economy into recession. While the pandemic is not entirely under control, the wider availability of vaccines has allowed for fewer COVID-related restrictions and an improved economic outlook. We will continue to monitor the impact of the pandemic on all aspects of our operations and act as necessary in the best interests of our employees and the Company. While demand improved in the first three quartersquarter, some automobile manufacturers have recently reduced operations due to shortages of 2017, but may fall short ofcritical components. These disruptions could result in reduced demand for our products. We have also experienced higher prices for various commodities compared to last year and longer lead times for certain items. Cost increases can be difficult to recover and further increases are expected. These factors, as well as the uncertainties related to COVID-19, are expected to continue to present challenges in the fourth quarter duenear-term. As we face these challenges, we will make adjustments to particularly strong sales last year that included a certain large order. The computer system conversion at one of our locations,activities 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 uswe believe are necessary based on market conditions, while continuing to pursue opportunities to profitably grow revenuesdevelop new customer relationships and improve net incomebuild on existing ones in all the future.markets we serve.
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 the COVID-19 pandemic and its related adverse effects, conditions in the domestic automotive industry, upon which we rely for sales revenue, the intense competition in our markets, the concentration of our sales 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 4. Controls and Procedures.
(a) Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and President, Chief Operating Officer and Treasurer (the Company’s principal financial officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and President, Chief Operating Officer and Treasurer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.
(b) Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules13a-15(f) and15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 6. Exhibits
31 | Rule13a-14(a) or15d-14(a) Certifications | |
31.1 | Certification Pursuant to Rule13a-14(a) or15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification Pursuant to Rule13a-14(a) or15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32 | Section 1350 Certifications | |
32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | Interactive Data File. Includes the following financial and related information from Chicago Rivet & Machine Co.’s Quarterly Report on Form10-Q for the quarter ended |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CHICAGO RIVET & MACHINE CO. | ||||||
(Registrant) | ||||||
Date: | ||||||
/s/ Walter W. Morrissey | ||||||
Walter W. Morrissey | ||||||
Chairman of the Board of Directors | ||||||
and Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
Date: May 7, 2021 | ||||||
| ||||||
| ||||||
/s/ Michael J. Bourg | ||||||
Michael J. Bourg | ||||||
President, Chief Operating | ||||||
Officer and Treasurer | ||||||
(Principal Financial Officer) |
15