UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2018March 31, 2019
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number000-01227
Chicago Rivet & Machine Co.
(Exact Name of Registrant as Specified in Its Charter)
Illinois | 36-0904920 | |
(State or Other Jurisdiction of | (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
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, every interactive data file required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | Smaller reporting company | ☒ | ||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
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) |
As of November 2, 2018,May 6, 2019, there were 966,132 shares of the registrant’s common stock outstanding.
CHICAGO RIVET & MACHINE CO.
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PART I. | FINANCIAL INFORMATION (Unaudited) | |||||||
Condensed Consolidated Balance Sheets at | 2-3 | |||||||
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5 | ||||||||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||||||
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Balance Sheets
September 30, 2018March 31, 2019 and December 31, 20172018
March 31, | December 31, | |||||||||||||||
September 30, 2018 | December 31, 2017 | 2019 | 2018 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Assets | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 1,084,363 | $ | 1,152,569 | $ | 606,213 | $ | 706,873 | ||||||||
Certificates of deposit | 6,814,000 | 7,810,000 | 5,080,000 | 7,063,000 | ||||||||||||
Accounts receivable - Less allowances of $140,000 | 6,502,374 | 5,326,650 | ||||||||||||||
Accounts receivable - Less allowances of $ 140,000 | 5,954,474 | 5,529,307 | ||||||||||||||
Inventories, net | 5,254,333 | 4,528,100 | 6,832,459 | 6,100,391 | ||||||||||||
Prepaid income taxes | 148,686 | 84,112 | 114,186 | 150,686 | ||||||||||||
Other current assets | 399,682 | 357,918 | 392,568 | 438,222 | ||||||||||||
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Total current assets | 20,203,438 | 19,259,349 | 18,979,900 | 19,988,479 | ||||||||||||
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Property, Plant and Equipment: | ||||||||||||||||
Land and improvements | 1,616,041 | 1,535,434 | 1,636,749 | 1,632,299 | ||||||||||||
Buildings and improvements | 8,039,831 | 8,039,831 | 8,246,331 | 8,234,182 | ||||||||||||
Production equipment and other | 35,510,017 | 34,607,507 | 36,154,303 | 35,627,443 | ||||||||||||
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45,165,889 | 44,182,772 | 46,037,383 | 45,493,924 | |||||||||||||
Less accumulated depreciation | 31,939,664 | 31,625,819 | 32,209,494 | 32,235,778 | ||||||||||||
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Net property, plant and equipment | 13,226,225 | 12,556,953 | 13,827,889 | 13,258,146 | ||||||||||||
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Total assets | $ | 33,429,663 | $ | 31,816,302 | $ | 32,807,789 | $ | 33,246,625 | ||||||||
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See Notes to the Condensed Consolidated Financial Statements
2
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Balance Sheets
September 30, 2018March 31, 2019 and December 31, 20172018
March 31, | December 31, | |||||||||||||||
September 30, 2018 | December 31, 2017 | 2019 | 2018 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable | $ | 1,204,908 | $ | 737,040 | $ | 1,113,627 | $ | 1,060,231 | ||||||||
Accrued wages and salaries | 895,390 | 674,316 | 682,890 | 701,434 | ||||||||||||
Other accrued expenses | 440,352 | 495,132 | 239,872 | 475,973 | ||||||||||||
Unearned revenue and customer deposits | 373,848 | 312,775 | 282,114 | 328,154 | ||||||||||||
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Total current liabilities | 2,914,498 | 2,219,263 | 2,318,503 | 2,565,792 | ||||||||||||
Deferred income taxes | 855,084 | 737,084 | 945,084 | 921,084 | ||||||||||||
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Total liabilities | 3,769,582 | 2,956,347 | 3,263,587 | 3,486,876 | ||||||||||||
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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 | 1,138,096 | 1,138,096 | 1,138,096 | ||||||||||||
Additionalpaid-in capital | 447,134 | 447,134 | 447,134 | 447,134 | ||||||||||||
Retained earnings | 31,996,949 | 31,196,823 | 31,881,070 | 32,096,617 | ||||||||||||
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 | 29,660,081 | 28,859,955 | 29,544,202 | 29,759,749 | ||||||||||||
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Total liabilities and shareholders’ equity | $ | 33,429,663 | $ | 31,816,302 | $ | 32,807,789 | $ | 33,246,625 | ||||||||
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See Notes to the Condensed Consolidated Financial Statements
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Statements of Income
For the Three and Nine Months Ended September 30,March 31, 2019 and 2018 and 2017
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2019 | 2018 | |||||||||||||||||||
Net sales | $ | 8,856,049 | $ | 8,386,756 | $ | 28,660,474 | $ | 27,305,591 | $ | 8,621,678 | $ | 10,011,641 | ||||||||||||
Cost of goods sold | 7,221,815 | 6,632,070 | 22,394,801 | 21,224,986 | 6,959,915 | 7,668,636 | ||||||||||||||||||
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Gross profit | 1,634,234 | 1,754,686 | 6,265,673 | 6,080,605 | 1,661,763 | 2,343,005 | ||||||||||||||||||
Selling and administrative expenses | 1,308,884 | 1,278,646 | 4,185,571 | 4,205,493 | 1,342,696 | 1,464,718 | ||||||||||||||||||
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Operating profit | 325,350 | 476,040 | 2,080,102 | 1,875,112 | 319,067 | 878,287 | ||||||||||||||||||
Other income | 38,399 | 24,795 | 109,527 | 68,000 | 48,775 | 33,501 | ||||||||||||||||||
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Income before income taxes | 363,749 | 500,835 | 2,189,629 | 1,943,112 | 367,842 | 911,788 | ||||||||||||||||||
Provision for income taxes | 76,000 | 165,000 | 491,000 | 634,000 | 81,000 | 204,000 | ||||||||||||||||||
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Net income | $ | 287,749 | $ | 335,835 | $ | 1,698,629 | $ | 1,309,112 | $ | 286,842 | $ | 707,788 | ||||||||||||
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Per share data, basic and diluted: | ||||||||||||||||||||||||
Net income per share | $ | 0.30 | $ | 0.35 | $ | 1.76 | $ | 1.36 | $ | 0.30 | $ | 0.73 | ||||||||||||
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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 | $ | 0.21 | $ | 0.20 | $ | 0.93 | $ | 0.95 | $ | 0.52 | $ | 0.51 | ||||||||||||
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See Notes to the Condensed Consolidated Financial Statements
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Statements of Retained EarningsShareholders’ Equity
For the NineThree Months Ended September 30,March 31, 2019 and 2018 and 2017
(Unaudited)
2018 | 2017 | |||||||
Retained earnings at beginning of period | $ | 31,196,823 | $ | 30,228,793 | ||||
Net income | 1,698,629 | 1,309,112 | ||||||
Cash dividends declared in the period; | (898,503 | ) | (917,825 | ) | ||||
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Retained earnings at end of period | $ | 31,996,949 | $ | 30,620,080 | ||||
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Less | ||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-in | Treasury Stock, at Cost | |||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Retained Earnings | Shares | Amount | Total | ||||||||||||||||||||||||||||
Balance, December 31, 2017 | — | $ | — | 966,132 | $ | 1,138,096 | $ | 447,134 | $ | 31,196,823 | 171,964 | $ | (3,922,098 | ) | $ | 28,859,955 | ||||||||||||||||||||
Net Income | $ | 707,788 | $ | 707,788 | ||||||||||||||||||||||||||||||||
Dividends Declared ($0.51 per share) | $ | (492,727 | ) | $ | (492,727 | ) | ||||||||||||||||||||||||||||||
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Balance, March 31, 2018 | — | $ | — | 966,132 | $ | 1,138,096 | $ | 447,134 | $ | 31,411,884 | 171,964 | $ | (3,922,098 | ) | $ | 29,075,016 | ||||||||||||||||||||
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Balance, December 31, 2018 | — | $ | — | 966,132 | $ | 1,138,096 | $ | 447,134 | $ | 32,096,617 | 171,964 | $ | (3,922,098 | ) | $ | 29,759,749 | ||||||||||||||||||||
Net Income | $ | 286,842 | $ | 286,842 | ||||||||||||||||||||||||||||||||
Dividends Declared ($0.52 per share) | $ | (502,389 | ) | $ | (502,389 | ) | ||||||||||||||||||||||||||||||
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Balance, March 31, 2019 | — | $ | — | 966,132 | $ | 1,138,096 | $ | 447,134 | $ | 31,881,070 | 171,964 | $ | (3,922,098 | ) | $ | 29,544,202 | ||||||||||||||||||||
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See Notes to the Condensed Consolidated Financial Statements
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Statements of Cash Flows
For the NineThree Months Ended September 30,March 31, 2019 and 2018 and 2017
(Unaudited)
2018 | 2017 | 2019 | 2018 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 1,698,629 | $ | 1,309,112 | $ | 286,842 | $ | 707,788 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation | 973,182 | 922,347 | 336,389 | 326,520 | ||||||||||||
Gain on disposal of equipment | (26,135 | ) | (1,700 | ) | (5,000 | ) | (300 | ) | ||||||||
Deferred income taxes | 118,000 | (70,000 | ) | 24,000 | (14,000 | ) | ||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | (1,175,724 | ) | (547,573 | ) | (425,167 | ) | (1,427,855 | ) | ||||||||
Inventories | (726,233 | ) | (550,424 | ) | (732,068 | ) | (68,578 | ) | ||||||||
Other current assets and prepaid income taxes | (106,338 | ) | 98,977 | |||||||||||||
Other current assets | 82,154 | 102,899 | ||||||||||||||
Accounts payable | 460,603 | 460,171 | 53,396 | 908,830 | ||||||||||||
Accrued wages and salaries | 221,074 | 199,981 | (18,544 | ) | (14,635 | ) | ||||||||||
Other accrued expenses | (54,780 | ) | (131,262 | ) | (236,101 | ) | (67,446 | ) | ||||||||
Unearned revenue and customer deposits | 61,073 | (45,282 | ) | (46,040 | ) | (238,722 | ) | |||||||||
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Net cash provided by operating activities | 1,443,351 | 1,644,347 | ||||||||||||||
Net cash provided by (used in) operating activities | (680,139 | ) | 214,501 | |||||||||||||
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Cash flows from investing activities: | ||||||||||||||||
Capital expenditures | (1,635,189 | ) | (1,069,559 | ) | (906,132 | ) | (225,000 | ) | ||||||||
Proceeds from the sale of equipment | 26,135 | 1,700 | 5,000 | 300 | ||||||||||||
Proceeds from certificates of deposit | 3,735,000 | 5,320,000 | 3,577,000 | 1,494,000 | ||||||||||||
Purchases of certificates of deposit | (2,739,000 | ) | (4,573,000 | ) | (1,594,000 | ) | (1,245,000 | ) | ||||||||
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Net cash used in investing activities | (613,054 | ) | (320,859 | ) | ||||||||||||
Net cash provided by investing activities | 1,081,868 | 24,300 | ||||||||||||||
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Cash flows from financing activities: | ||||||||||||||||
Cash dividends paid | (898,503 | ) | (917,825 | ) | (502,389 | ) | (492,727 | ) | ||||||||
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Net cash used in financing activities | (898,503 | ) | (917,825 | ) | (502,389 | ) | (492,727 | ) | ||||||||
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Net increase (decrease) in cash and cash equivalents | (68,206 | ) | 405,663 | |||||||||||||
Net decrease in cash and cash equivalents | (100,660 | ) | (253,926 | ) | ||||||||||||
Cash and cash equivalents at beginning of period | 1,152,569 | 353,475 | 706,873 | 1,152,569 | ||||||||||||
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Cash and cash equivalents at end of period | $ | 1,084,363 | $ | 759,138 | $ | 606,213 | $ | 898,643 | ||||||||
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Supplemental schedule ofnon-cash investing activities: | $ | 7,265 | $ | 1,487 | ||||||||||||
Supplemental schedule ofnon-cash investing activities: | ||||||||||||||||
Capital expenditures in accounts payable | $ | — | $ | 1,427 |
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, 2018March 31, 2019 (unaudited) and December 31, 20172018 (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, 2017.2018.
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, 2018ended March 31, 2019 are not necessarily indicative of the results to be expected for the year.
In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”)No. 2016-02, “Leases (Topic 842).” The ASU will increaseincreases transparency and comparability among entities by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU will requirerequires lessees to recognize in the balance sheet a liability to make lease payments (the lease liability) and aright-of-use asset representing its right to use the underlying asset for the lease term. The ASU is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those annual periods. The impact ofCompany adopted Topic 842 on January 1, 2019 using the modified retrospective method. Based on the Company’s current lease agreements, adopting this ASU isdid not expected to be significant basedhave a material impact on current lease agreements.the Company’s financial statements.
2. The Company extends credit on the basis of terms that are customary within our markets to various companies doing business primarily in the automotive industry. The Company has a concentration of credit risk primarily within the automotive industry and in the Midwestern United States.
3. The Company is, from time to time, involved in litigation, including environmental claims and contract disputes, in the normal course of business. While it is not possible at this time to establish the ultimate amount of liability with respect to contingent liabilities, including those related to legal proceedings, management is of the opinion that the aggregate amount of any such liabilities, for which provision has not been made, will not have a material adverse effect on the Company’s financial position.
4. Revenue—On January 1, 2018, the Company adopted ASC Topic 606, “Revenue from Contracts with Customers” using the modified retrospective method. The adoption did not result in the recognition of a cumulative adjustment to beginning retained earnings, nor did it have a material impact on the condensed consolidated financial statements. For the Company, the most significant impact of the new standard is the addition of required disclosures within the notes to the financial statements.
The Company operates in the fastener industry and is in the business of manufacturing and selling rivets, cold-formed fasteners and parts, screw machine products, automatic rivet setting machines and parts and tools for such machines. Revenue is recognized when control of the promised goods or services is transferred to our customers, generally upon shipment of goods or completion of services, in an amount that reflects the consideration we expect to receive in exchange for those goods or services. Sales taxes we may collect concurrent with revenue producing activities are excluded from revenue. Revenue is recognized net of certain sales adjustments to arrive at net sales as reported on the statement of income. These adjustments primarily relate to customer returns and allowances. The Company records a liability and reduction in sales for estimated product returns based upon historical experience. If we determine that our obligation under warranty claims is probable and subject to reasonable determination, an estimate of that liability is recorded as an offset against revenue at that time. As of September 30, 2018March 31, 2019 and December 31, 20172018 reserves for warranty claims were not material. Cash received by the Company prior to shipment is recorded as unearned revenue.
Shipping and handling fees billed to customers are recognized in net sales, and related costs as cost of sales, when incurred.
Sales commissions are expensed when incurred because the amortization period is less than one year. These costs are recorded within selling and administrative expenses in the statement of income.
The following table presents revenue by segment, further disaggregated byend-market:
Assembly | ||||||||||||
Fastener | Equipment | Consolidated | ||||||||||
Three Months Ended September 30, 2018: |
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Automotive | 5,291,033 | 100,751 | 5,391,784 | |||||||||
Non-automotive | 2,645,765 | 818,500 | 3,464,265 | |||||||||
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Total | 7,936,798 | 919,251 | 8,856,049 | |||||||||
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Three Months Ended September 30, 2017: |
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Automotive | 5,181,974 | 49,040 | 5,231,014 | |||||||||
Non-automotive | 2,304,219 | 851,523 | 3,155,742 | |||||||||
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Total | 7,486,193 | 900,563 | 8,386,756 | |||||||||
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Nine Months Ended September 30, 2018: | ||||||||||||
Automotive | 17,225,475 | 189,656 | 17,415,131 | |||||||||
Non-automotive | 8,670,697 | 2,574,646 | 11,245,343 | |||||||||
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Total | 25,896,172 | 2,764,302 | 28,660,474 | |||||||||
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Nine Months Ended September 30, 2017: | ||||||||||||
Automotive | 17,116,399 | 130,631 | 17,247,030 | |||||||||
Non-automotive | 7,203,326 | 2,855,235 | 10,058,561 | |||||||||
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Total | 24,319,725 | 2,985,866 | 27,305,591 | |||||||||
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Fastener | Assembly Equipment | Consolidated | ||||||||||
Three Months Ended March 31, 2019: | ||||||||||||
Automotive | 4,718,215 | 41,766 | 4,759,981 | |||||||||
Non-automotive | 2,860,905 | 1,000,792 | 3,861,697 | |||||||||
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Total net sales | 7,579,120 | 1,042,558 | 8,621,678 | |||||||||
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Three Months Ended March 31, 2018: | ||||||||||||
Automotive | 6,049,194 | 49,362 | 6,098,556 | |||||||||
Non-automotive | 2,875,905 | 1,037,180 | 3,913,085 | |||||||||
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Total net sales | 8,925,099 | 1,086,542 | 10,011,641 | |||||||||
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The following table presents revenue by segment, further disaggregated by location: |
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Three Months Ended March 31, 2019: | ||||||||||||
United States | 6,581,338 | 956,310 | 7,537,648 | |||||||||
Foreign | 997,782 | 86,248 | 1,084,030 | |||||||||
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Total net sales | 7,579,120 | 1,042,558 | 8,621,678 | |||||||||
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Three Months Ended March 31, 2018: | ||||||||||||
United States | 7,681,647 | 1,040,869 | 8,722,516 | |||||||||
Foreign | 1,243,452 | 45,673 | 1,289,125 | |||||||||
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Total net sales | 8,925,099 | 1,086,542 | 10,011,641 | |||||||||
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5. The Company’s effective tax rates were 20.9%approximately 22.0% and 32.9%22.4% for the thirdfirst quarter of 2019 and 2018, and 2017, respectively, and 22.4% and 32.6% for the nine months ended September 30, 2018 and 2017, respectively. The lower rate in 2018 is due to the enactment of the Tax Cuts and Jobs Act in December 2017 that reduced the maximum federal corporate tax rate from 35% to 21% beginning in 2018. The effective rate was lower than the U.S. federal statutory rate in 2017 primarily due to the Domestic Production Activities Deduction allowed under Internal Revenue Code Section 199.
The Company’s federal income tax returns for the 2015 2016 and 2017through 2018 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 2015 2016 and 2017through 2018 federal income tax returns will expire on September 15, 2019 2020 and 2021,through 2022, respectively.
The Company’s state income tax returns for the 2015 through 20172018 tax years remain subject to examination by various state authorities with the latest closing period on October 31, 2021.2022. 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.
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, 2018 | December 31, 2017 | |||||||
Raw material | $ | 2,231,154 | $ | 1,812,603 | ||||
Work-in-process | 1,828,478 | 1,604,867 | ||||||
Finished goods | 1,784,701 | 1,674,630 | ||||||
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Inventories, gross | 5,844,333 | 5,092,100 | ||||||
Valuation reserves | (590,000 | ) | (564,000 | ) | ||||
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Inventories, net | $ | 5,254,333 | $ | 4,528,100 | ||||
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CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2019 | December 31, 2018 | |||||||
Raw material | $ | 3,086,524 | $ | 2,798,918 | ||||
Work-in-process | 2,289,540 | 1,878,977 | ||||||
Finished goods | 2,033,395 | 2,001,496 | ||||||
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Inventories, gross | 7,409,459 | 6,679,391 | ||||||
Valuation reserves | (577,000 | ) | (579,000 | ) | ||||
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Inventories, net | $ | 6,832,459 | $ | 6,100,391 | ||||
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7. Segment Information—The Company operates in two business segments as determined by its products. The fastener segment includes rivets, cold-formed fasteners and parts rivets and screw machine products. The assembly equipment segment includes automatic rivet setting machines and parts and tools for such machines. Information by segment is as follows:
Fastener | Equipment | Other | Consolidated | |||||||||||||
Three Months Ended September 30, 2018: | ||||||||||||||||
Net sales | $ | 7,936,798 | $ | 919,251 | $ | — | $ | 8,856,049 | ||||||||
Depreciation | 281,418 | 28,358 | 9,869 | 319,645 | ||||||||||||
Segment operating profit | 599,188 | 297,009 | — | 896,197 | ||||||||||||
Selling and administrative expenses | — | — | (563,347 | ) | (563,347 | ) | ||||||||||
Interest income | — | — | 30,899 | 30,899 | ||||||||||||
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Income before income taxes | $ | 363,749 | ||||||||||||||
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Capital expenditures | 813,649 | 5,489 | 187,598 | 1,006,736 | ||||||||||||
Segment assets: | ||||||||||||||||
Accounts receivable, net | 5,961,946 | 540,428 | — | 6,502,374 | ||||||||||||
Inventories, net | 4,226,263 | 1,028,070 | — | 5,254,333 | ||||||||||||
Property, plant and equipment, net | 10,696,801 | 1,596,585 | 932,839 | 13,226,225 | ||||||||||||
Other assets | — | — | 8,446,731 | 8,446,731 | ||||||||||||
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$ | 33,429,663 | |||||||||||||||
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Three Months Ended September 30, 2017: | ||||||||||||||||
Net sales | $ | 7,486,193 | $ | 900,563 | $ | — | $ | 8,386,756 | ||||||||
Depreciation | 275,820 | 24,390 | 8,970 | 309,180 | ||||||||||||
Segment operating profit | 768,247 | 317,602 | — | 1,085,849 | ||||||||||||
Selling and administrative expenses | — | — | (603,809 | ) | (603,809 | ) | ||||||||||
Interest income | — | — | 18,795 | 18,795 | ||||||||||||
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Income before income taxes | $ | 500,835 | ||||||||||||||
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Capital expenditures | 263,563 | 8,325 | — | 271,888 | ||||||||||||
Segment assets: | ||||||||||||||||
Accounts receivable, net | 5,576,022 | 295,070 | — | 5,871,092 | ||||||||||||
Inventories, net | 4,134,219 | 953,898 | — | 5,088,117 | ||||||||||||
Property, plant and equipment, net | 10,409,913 | 1,613,245 | 576,099 | 12,599,257 | ||||||||||||
Other assets | — | — | 8,452,225 | 8,452,225 | ||||||||||||
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$ | 32,010,691 | |||||||||||||||
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Fastener | Assembly Equipment | Other | Consolidated | |||||||||||||
Three Months Ended March 31, 2019: | ||||||||||||||||
Net sales | $ | 7,579,120 | $ | 1,042,558 | $ | — | $ | 8,621,678 | ||||||||
Depreciation | 297,723 | 28,924 | 9,742 | 336,389 | ||||||||||||
Segment operating profit | 588,895 | 336,074 | — | 924,969 | ||||||||||||
Selling and administrative expenses | — | — | (593,402 | ) | (593,402 | ) | ||||||||||
Interest income | — | — | 36,275 | 36,275 | ||||||||||||
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Income before income taxes | $ | 367,842 | ||||||||||||||
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Capital expenditures | 756,107 | 124,000 | 26,025 | 906,132 | ||||||||||||
Segment assets: | ||||||||||||||||
Accounts receivable, net | 5,500,631 | 453,843 | — | 5,954,474 | ||||||||||||
Inventories, net | 5,831,166 | 1,001,293 | — | 6,832,459 | ||||||||||||
Property, plant and equipment, net | 11,184,576 | 1,674,573 | 968,740 | 13,827,889 | ||||||||||||
Other assets | — | — | 6,192,967 | 6,192,967 | ||||||||||||
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$ | 32,807,789 | |||||||||||||||
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Three Months Ended March 31, 2018: | ||||||||||||||||
Net sales | $ | 8,925,099 | $ | 1,086,542 | $ | — | $ | 10,011,641 | ||||||||
Depreciation | 291,881 | 27,298 | 7,341 | 326,520 | ||||||||||||
Segment operating profit | 1,177,462 | 384,185 | — | 1,561,647 | ||||||||||||
Selling and administrative expenses | — | — | (676,939 | ) | (676,939 | ) | ||||||||||
Interest income | — | — | 27,080 | 27,080 | ||||||||||||
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Income before income taxes | $ | 911,788 | ||||||||||||||
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Capital expenditures | 184,227 | 31,495 | 10,705 | 226,427 | ||||||||||||
Segment assets: | ||||||||||||||||
Accounts receivable, net | 6,420,410 | 334,095 | — | 6,754,505 | ||||||||||||
Inventories, net | 3,658,938 | 937,740 | — | 4,596,678 | ||||||||||||
Property, plant and equipment, net | 10,175,256 | 1,646,752 | 634,852 | 12,456,860 | ||||||||||||
Other assets | — | — | 8,798,774 | 8,798,774 | ||||||||||||
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$ | 32,606,817 | |||||||||||||||
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CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Assembly | ||||||||||||||||
Fastener | Equipment | Other | Consolidated | |||||||||||||
Nine Months Ended September 30, 2018: | ||||||||||||||||
Net sales | $ | 25,896,172 | $ | 2,764,302 | $ | — | $ | 28,660,474 | ||||||||
Depreciation | 865,677 | 82,954 | 24,551 | 973,182 | ||||||||||||
Segment operating profit | 3,006,367 | 930,570 | — | 3,936,937 | ||||||||||||
Selling and administrative expenses | — | — | (1,831,926 | ) | (1,831,926 | ) | ||||||||||
Interest income | — | — | 84,618 | 84,618 | ||||||||||||
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Income before income taxes | $ | 2,189,629 | ||||||||||||||
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Capital expenditures | 1,279,568 | 36,984 | 325,902 | 1,642,454 | ||||||||||||
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 |
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 2019 were $8,621,678 compared to $10,011,641 in the thirdfirst quarter were $8,856,049of 2018, a decline of $1,389,963, or 13.9%. The decline was primarily due to reduced demand for fastener segment parts, especially from automotive customers. The lower sales resulted in net income of $286,842, or $0.30 per share, in the first quarter of this year compared to $8,386,756 in the third quarter of 2017, an increase of $469,293,$707,788, or 5.6%. As of September 30, 2018, year to date sales totaled $28,660,474 compared to $27,305,591, for the first three quarters of 2017, an increase of $1,354,883, or 5.0%. Net income for the third quarter of 2018 was $287,749, or $0.30 per share, compared with $335,835, or $0.35$0.73 per share, in the thirdfirst quarter of 2017. Net income for2018. During the first three quartersquarter, a regular quarterly dividend of 2018 was $1,698,629, or $1.76$0.22 per share compared with $1,309,112, or $1.36was paid and an extra dividend of $0.30 per share reportedwas paid based on the strong operating results achieved in 2017.2018.
Fastener segment revenues were $7,936,798$7,579,120 in the thirdfirst quarter of 2018 compared to $7,486,1932019, a decline of $1,345,979, or 15.1%, from $8,925,099 reported in the year earlierfirst quarter an increase of $450,605, or 6.0%. For the first three quarters of 2018, fastener segment revenues were $25,896,172 compared to $24,319,725 in 2017, an increase of $1,576,447, or 6.5%.2018. The automotive sector is the primary market for our fastener segment products and while North Americansales to automotive customers accounted for $1,330,979 of the total segment decline. U.S. light-vehicle production hasand sales both declined during the first quarter of 2019. Our sales to automotive customers in 2018the United States declined $1,059,880, or 21.5%, in the first quarter of the current year compared to the first nine months of 2017,quarter a year ago. For the same period, our sales to foreign automotive customers increased 2.1% duringdeclined $271,099, or 24.3%, with most of the third quarter and 0.6% on a yeardecline relating to date basis. Additionally, weshipments to China where passenger car sales have added a number ofdeclined year-over-year for nine straight months. Fastener segment sales tonon-automotive customers declined less than 1% during the first quarter. Production costs in the past year which has contributed to an increase in such sales of 14.8% and 20.4% in the thirdfirst quarter and the first nine months of 2018, respectively, compared to 2017. For the third quarter, the fastener segment gross margin was $1,336,359 compared to $1,457,421 in thewere higher than a year earlier, quarter, a decline of $121,062.mainly due to higher material costs related to tariffs instituted in 2018. Steel is our primary raw material and while we had incurred higheron average, steel prices earlywere approximately 15% higher in the first quarter of 2019 than in the year earlier quarter. Higher production costs combined with the decline in sales contributed to a decline in fastener segment gross margins from $1,976,640 in the first quarter of 2018 to $1,325,186 in the first quarter of 2019.
Assembly equipment segment revenues were $1,042,558 in the first quarter of 2019 compared to $1,086,542 in the first quarter of 2018, a decline of $43,984, or 4.0%. Overall, customer demand was relatively stable during the quarter with tools and parts sales reflecting an increase in the current year such increases were more pronounced during the third quarter compared to a year earlier and were primarily responsible for the nettotal number of machines shipped also increasing. The decline in gross margins during the quarter despite the increase in sales. Further impacting third quarter margins was an increase in tooling expense of $202,000 compared to the third quarter of 2017. For the first nine months of the year, the gross margin was $5,360,071 compared to $5,044,905 in the same period of 2017, an increase of $315,166. In addition to higher raw material prices, we have also incurred higher than expected wages in the current year due to the tight labor market. These factors combined to limit the improvement in gross margins reported on a year to date basis.
Assembly equipment segment revenues were $919,251 in the third quarter of 2018, an increase of $18,688, or 2.1%, compared to the third quarter of 2017 when revenues were $900,563. The increase in third quarternet sales was primarily due to an increasethe shipment of a high-dollar machine order in the number of machines sold.prior year quarter. The increasedecline in net sales for the quarter leftcontributed to a $29,788 decrease in segment gross margin relatively unchanged comparedfrom $366,365 in 2018 to last year’s third quarter at $297,725. For the first nine months of 2018, assembly equipment segment sales were $2,764,302 compared to $2,985,866 for the first nine months of 2017, a decline of $221,564, or 7.4%. Although we have shipped a greater number of machines through the first three quarters of 2018 than a year earlier, there have been fewer high-dollar machines shipped$336,577 in the current year. Due to the decline in machine sales, assembly equipment segment gross margin for the first nine months of 2018 declined to $905,152 from $1,035,700 for the same period of 2017.2019.
Selling and administrative expenses forduring the thirdfirst quarter of 2019 were $1,342,696 compared to $1,464,718 recorded in the first quarter of 2018, were $1,308,884 compared to the year earlier quarter totala decline of $1,278,646, an increase of $30,238,$122,022, or 2.4%8.3%. The increase during the quarterdecline was primarily due to higher commissionsa $62,000 reduction in profit sharing expense related to lower operating profit in the increasecurrent year quarter and a $33,000 reduction in sales commissions due to the drop in net sales. SellingCompared to net sales, selling and administrative expenses forwere 15.6% in the first three quartersquarter of 2018 were $4,185,5712019 compared to $4,205,493 for the same period of 2017, a reduction of $19,922, or 0.5%. Expenditures for14.6% in the first three quartersquarter of 2018 were lower than the prior year primarily due to the ERP system conversion that was completed at one of our locations last year. This accounted for $167,000 of additional expenses over the first three quarters of 2017, which was only partially offset by increases in sales commissions of $113,000 and profit sharing expense of $28,000 during the current year. Selling and administrative expenses as a percentage of net sales for the first nine months of 2018 was 14.6% compared to 15.4% for the first nine months of 2017.2018.
Other Income
Other income in the thirdfirst quarter of 20182019 was $38,399$48,775 compared to $24,795$33,501 in the thirdfirst quarter of 2017. Other income for the first three quarters of 2018 was $109,527 compared2018. The increase is primarily related to $68,000an increase in the same period of 2017. Other income consists primarily of interest income on certificates of deposit. The increases were primarilydeposit due to higher interest rates in the current year compared to the year earlier periods.year.
Income Tax Expense
The Company’s effective tax rates were 20.9%approximately 22.0% and 32.9%22.4% for the thirdfirst quarter of 2019 and 2018, and 2017, respectively, and 22.4% and 32.6% for the nine months ended September 30, 2018 and 2017, respectively. The lower rates in 2018 are due to the enactment of the Tax Cuts and Jobs Act in December 2017 that reduced the maximum federal corporate tax rate from 35% to 21% beginning in 2018. The new tax law has resulted in an estimated reduction in income tax expense of $168,000 during the first three quarters of 2018. The 2017 rates were lower than the U.S. federal statutory rate primarily due to the Domestic Production Activities Deduction allowed under Internal Revenue Code Section 199.
Liquidity and Capital Resources
Working capital amounted to $16.7 million as of September 30, 2018 amounted to $17.3 million, an increaseMarch 31, 2019, a decrease of approximately $0.3$0.8 million from the beginning of the current year. The largest individual component of the net increase in workingContributing to that decline were capital expenditures in the first three quartersquarter of 2018$0.9 million, which primarily consisted of equipment used in production activities, and dividends paid of $0.5 million. Overall, cash, cash equivalents and certificates of deposit balances declined $2.1 million during the first quarter. Partially offsetting that decline was a $0.7 million increase in inventory as raw material purchases were accelerated in advance of price increases and delivery delays by certain customers. Additionally, accounts receivable which increased $1.2by $0.4 million since the beginning of the year due to the greater sales activity
during the third quarter compared to the seasonally lower fourth quarter of 2017. Partially offsetting this net change was the reduction in cash and certificates of deposit. Capital expenditures for the first three quarters of 2018 were $1.6 million, which primarily consisted of equipment used in production activities. Dividends paid in the first three quarters of 2018 were $0.9 million, including three regular quarterly payments of $0.21 per share and an extra dividend of $0.30 per share paid in the first quarter.2018. The net result of these changes and other cash flow itemsactivity was to leave cash, cash equivalents and certificates of deposit at $7.9$5.7 million as of September 30, 2018March 31, 2019 compared to $9.0$7.8 million atas of the beginning of the 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
We are pleased to report increased salesResults for the first quarter were disappointing, but followed the downturn in automotive activity in the third quarterfirst three months of 2018 and for the current year to date compared to the year earlier periods. Demand for our fastener segment products has benefited from a healthy domestic automotive market and the addition of newnon-automotive customers during the past year. However, significantAdditionally, we have experienced increases in steel prices our primary raw material, in recent monthsand other materials over the past year that have negatively impacted our gross margins and were the primary factor in reporting lower net income in the third quarter this year. Higher raw material prices remain a concern andas further increases are expected in the near-term. Such costsexpected. Since material price increases can be difficult to recovermitigate, we will emphasize cost controls in some of the markets we serveother areas and strive for greater operating efficiencies in an effort to improve operating results as certain customers expect priceswell as pursuing new sales opportunities. In contrast to be held constant over the multi-year life of their parts. Current yearour fastener segment, our assembly equipment salessegment demand and machine order backlog have trailed year earlier amounts primarily due to fewer high-dollar orders inbeen relatively stable. Given the current year rather than an overall decline in demand. As our results continue to be impacted by increases in raw material prices and other costs,challenges we currently face, we will continue our efforts to obtain price relief from customers while working to improve internal operational efficiencies as a means of mitigating such costs. We will also make other adjustments to our activities which we feelbelieve are necessary based on changing market conditions.conditions, while maintaining an emphasis on quality and reliability of service our customers demand.
Forward-Looking Statements
This discussion contains certain “forward-looking statements” which are inherently subject to risks and uncertainties that may cause actual events to differ materially from those discussed herein. Factors which may cause such differences in events include, those disclosed under “Risk Factors” in our Annual Report on Form10-K and in the other filings we make with the United States Securities and Exchange Commission. These factors, include among other things: conditions in the domestic automotive industry, upon which we rely for sales revenue, the intense competition in our markets, the concentration of our sales with a major customer,customers, risks related to export sales, the price and availability of raw materials, labor relations issues, losses related to product liability, warranty and recall claims, costs relating to environmental laws and regulations, 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: November 6, 2018
Date: May 8, 2019 | ||||||
/s/ John A. Morrissey | ||||||
John A. Morrissey | ||||||
Chairman of the Board of Directors | ||||||
and Chief Executive Officer | ||||||
(Principal Executive Officer) |
Date: November 6, 2018
Date: May 8, 2019 | ||||||
/s/ Michael J. Bourg | ||||||
Michael J. Bourg | ||||||
President, Chief Operating | ||||||
Officer and Treasurer | ||||||
(Principal Financial Officer) |
16
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