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 SeptemberJune 30, 20192020
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
| |
| 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, 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 and post 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”, “accelerated 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:
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As of November 4, 2019,August 3, 2020, there were 966,132 shares of the registrant’s common stock outstanding.
CHICAGO RIVET & MACHINE CO.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets
SeptemberJune 30, 20192020 and December 31, 20182019
| September 30, 2019 | December 31, 2018 | June 30, 2020 | December 31 2019, | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
| Assets | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 1,209,524 | $ | 706,873 | $ | 1,258,864 | $ | 1,429,454 | ||||||||
Certificates of deposit | 6,076,000 | 7,063,000 | 6,823,000 | 6,574,000 | ||||||||||||
Accounts receivable - Less allowances of $140,000 | 5,614,022 | 5,529,307 | ||||||||||||||
Accounts receivable—Less allowances of $160,000 and $140,000, respectively | 3,557,637 | 4,609,314 | ||||||||||||||
Inventories, net | 5,476,333 | 6,100,391 | 4,745,786 | 4,951,177 | ||||||||||||
Prepaid income taxes | 74,186 | 150,686 | 316,186 | 58,186 | ||||||||||||
Other current assets | 835,333 | 438,222 | 461,779 | 427,192 | ||||||||||||
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Total current assets | 19,285,398 | 19,988,479 | 17,163,252 | 18,049,323 | ||||||||||||
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Property, Plant and Equipment: | ||||||||||||||||
Land and improvements | 1,636,749 | 1,632,299 | 1,636,749 | 1,636,749 | ||||||||||||
Buildings and improvements | 8,327,006 | 8,234,182 | 8,341,461 | 8,331,804 | ||||||||||||
Production equipment and other | 36,363,188 | 35,627,443 | 36,654,440 | 36,408,746 | ||||||||||||
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| 46,326,943 | 45,493,924 | 46,632,650 | 46,377,299 | |||||||||||||
Less accumulated depreciation | 32,536,011 | 32,235,778 | 33,379,382 | 32,703,246 | ||||||||||||
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Net property, plant and equipment | 13,790,932 | 13,258,146 | 13,253,268 | 13,674,053 | ||||||||||||
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Total assets | $ | 33,076,330 | $ | 33,246,625 | $ | 30,416,520 | $ | 31,723,376 | ||||||||
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See Notes to the Condensed Consolidated Financial Statements
CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Balance Sheets
SeptemberJune 30, 20192020 and December 31, 20182019
| September 30, 2019 | December 31, 2018 | |||||||||||||||
| (Unaudited) | June 30, 2020 | December 31, 2019 | ||||||||||||||
| Liabilities and Shareholders’ Equity | (Unaudited) | |||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable | $ | 987,976 | $ | 1,060,231 | $ | 345,179 | $ | 490,580 | ||||||||
Accrued wages and salaries | 861,953 | 701,434 | 749,513 | 629,972 | ||||||||||||
Other accrued expenses | 304,232 | 475,973 | 222,205 | 349,069 | ||||||||||||
Unearned revenue and customer deposits | 202,625 | 328,154 | 79,621 | 152,644 | ||||||||||||
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Total current liabilities | 2,356,786 | 2,565,792 | 1,396,518 | 1,622,265 | ||||||||||||
Deferred income taxes | 1,055,084 | 921,084 | 894,084 | 943,084 | ||||||||||||
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Total liabilities | 3,411,870 | 3,486,876 | 2,290,602 | 2,565,349 | ||||||||||||
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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 | 1,138,096 | 1,138,096 | ||||||||||||
Additionalpaid-in capital | 447,134 | 447,134 | 447,134 | 447,134 | ||||||||||||
Retained earnings | 32,001,328 | 32,096,617 | 30,462,786 | 31,494,895 | ||||||||||||
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 | 29,664,460 | 29,759,749 | 28,125,918 | 29,158,027 | ||||||||||||
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Total liabilities and shareholders’ equity | $ | 33,076,330 | $ | 33,246,625 | $ | 30,416,520 | $ | 31,723,376 | ||||||||
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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 Six Months Ended June 30, 2020 and 2019
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
Net sales | $ | 4,103,520 | $ | 8,875,451 | $ | 11,679,975 | $ | 17,497,129 | ||||||||
Cost of goods sold | 4,033,370 | 7,327,481 | 10,299,398 | 14,287,396 | ||||||||||||
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Gross profit | 70,150 | 1,547,970 | 1,380,577 | 3,209,733 | ||||||||||||
Selling and administrative expenses | 1,214,423 | 1,306,665 | 2,499,757 | 2,649,361 | ||||||||||||
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Operating profit (loss) | (1,144,273) | 241,305 | (1,119,180) | 560,372 | ||||||||||||
Other income | 43,757 | 49,254 | 90,232 | 98,029 | ||||||||||||
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Income (loss) before income taxes | (1,100,516) | 290,559 | (1,028,948) | 658,401 | ||||||||||||
Provision (benefit) for income taxes | (321,000) | 61,000 | (306,000) | 142,000 | ||||||||||||
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Net income (loss) | $ | (779,516) | $ | 229,559 | $ | (722,948) | $ | 516,401 | ||||||||
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Per share data, basic and diluted: | ||||||||||||||||
Net income (loss) per share | $ | (0.81) | $ | 0.24 | $ | (0.75) | $ | 0.54 | ||||||||
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Average common shares outstanding | 966,132 | 966,132 | 966,132 | 966,132 | ||||||||||||
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Cash dividends declared per share | $ | 0.10 | $ | 0.22 | $ | 0.32 | $ | 0.74 | ||||||||
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See Notes to the Condensed Consolidated Financial Statements |
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CHICAGO RIVET & MACHINE CO.
Condensed Consolidated Statements of Shareholders’ Equity
For the Three and Six Months Ended June 30, 2020 and 2019
(Unaudited)
| Preferred | Common Stock | Additional Paid- in | Retained Earnings | Treasury Stock, at Cost | Total | |||||||||||||||||||||||||||
| Stock | Shares | Amount | Capital | Shares | Amount | |||||||||||||||||||||||||||
| 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 | ||||||||||||||||||
| Net income (loss) | $ | (779,516) | $ | (779,516) | ||||||||||||||||||||||||||||
| Dividends declared ($0.10 per share) | $ | (96,612) | $ | (96,612) | ||||||||||||||||||||||||||||
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| Balance, June 30, 2020 | $ | — | 966,132 | $ | 1,138,096 | $ | 447,134 | $ | 30,462,786 | 171,964 | $ | (3,922,098) | $ | 28,125,918 | ||||||||||||||||||
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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 | ||||||||||||||||||
| Net income | $ | 229,559 | $ | 229,559 | ||||||||||||||||||||||||||||
| Dividends declared ($0.22 per share) | $ | (212,549) | $ | (212,549) | ||||||||||||||||||||||||||||
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| Balance, June 30, 2019 | $ | — | 966,132 | $ | 1,138,096 | $ | 447,134 | $ | 31,898,080 | 171,964 | $ | (3,922,098) | $ | 29,561,212 | ||||||||||||||||||
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See Notes to the Condensed Consolidated Financial Statements
Condensed Consolidated Statements of IncomeCash Flows
For the Three and NineSix Months Ended SeptemberJune 30, 20192020 and 20182019
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
Net sales | $ | 8,188,905 | $ | 8,856,049 | $ | 25,686,034 | $ | 28,660,474 | ||||||||
Cost of goods sold | 6,539,138 | 7,221,815 | 20,826,534 | 22,394,801 | ||||||||||||
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Gross profit | 1,649,767 | 1,634,234 | 4,859,500 | 6,265,673 | ||||||||||||
Selling and administrative expenses | 1,282,149 | 1,308,884 | 3,931,510 | 4,185,571 | ||||||||||||
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Operating profit | 367,618 | 325,350 | 927,990 | 2,080,102 | ||||||||||||
Other income | 47,179 | 38,399 | 145,208 | 109,527 | ||||||||||||
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Income before income taxes | 414,797 | 363,749 | 1,073,198 | 2,189,629 | ||||||||||||
Provision for income taxes | 99,000 | 76,000 | 241,000 | 491,000 | ||||||||||||
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Net income | $ | 315,797 | $ | 287,749 | $ | 832,198 | $ | 1,698,629 | ||||||||
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Per share data, basic and diluted: | ||||||||||||||||
Net income per share | $ | 0.32 | $ | 0.30 | $ | 0.86 | $ | 1.76 | ||||||||
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Average common shares outstanding | 966,132 | 966,132 | 966,132 | 966,132 | ||||||||||||
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Cash dividends declared per share | $ | 0.22 | $ | 0.21 | $ | 0.96 | $ | 0.93 | ||||||||
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| 2020 | 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (722,948) | $ | 516,401 | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation | 676,137 | 682,667 | ||||||
Gain on disposal of equipment | — | (5,000) | ||||||
Deferred income taxes | (49,000) | 78,000 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 1,051,677 | (258,048) | ||||||
Inventories | 205,391 | 1,568 | ||||||
Other current assets and prepaid income taxes | (292,587) | 72,115 | ||||||
Accounts payable | (145,401) | (265,603) | ||||||
Accrued wages and salaries | 119,541 | 261,219 | ||||||
Other accrued expenses | (126,864) | (195,368) | ||||||
Unearned revenue and customer deposits | (73,023) | (178,075) | ||||||
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Net cash provided by operating activities | 642,923 | 709,876 | ||||||
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Cash flows from investing activities: | ||||||||
Capital expenditures | (255,352) | (1,283,736) | ||||||
Proceeds from the sale of equipment | — | 5,000 | ||||||
Proceeds from certificates of deposit | 3,486,000 | 4,324,000 | ||||||
Purchases of certificates of deposit | (3,735,000) | (2,839,000) | ||||||
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Net cash (used in) provided by investing activities | (504,352) | 206,264 | ||||||
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Cash flows from financing activities: | ||||||||
Cash dividends paid | (309,161) | (714,938) | ||||||
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Net cash used in financing activities | (309,161) | (714,938) | ||||||
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Net (decrease) increase in cash and cash equivalents | (170,590) | 201,202 | ||||||
Cash and cash equivalents at beginning of period | 1,429,454 | 706,873 | ||||||
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Cash and cash equivalents at end of period | $ | 1,258,864 | $ | 908,075 | ||||
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Supplemental schedule of non-cash investing activities: | ||||||||
Capital expenditures in accounts payable | $ | — | $ | 9,293 | ||||
See Notes to the Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Shareholders’ Equity
For the Three and Nine Months Ended September 30, 2019 and 2018
(Unaudited)
| Preferred | Common Stock | Additional Paid-in | Treasury Stock, at Cost | |||||||||||||||||||||||||||||
| Stock | Shares | Amount | Capital | Retained Earnings | Shares | Amount | Total | |||||||||||||||||||||||||
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 | |||||||||||||||||
Net Income | $ | 229,559 | $ | 229,559 | ||||||||||||||||||||||||||||
Dividends Declared ($0.22 per share) | $ | (212,549 | ) | $ | (212,549 | ) | ||||||||||||||||||||||||||
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Balance, June 30, 2019 | $ | — | 966,132 | $ | 1,138,096 | $ | 447,134 | $ | 31,898,080 | 171,964 | $ | (3,922,098 | ) | $ | 29,561,212 | |||||||||||||||||
Net Income | $ | 315,797 | $ | 315,797 | ||||||||||||||||||||||||||||
Dividends Declared ($0.22 per share) | $ | (212,549 | ) | $ | (212,549 | ) | ||||||||||||||||||||||||||
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Balance, September 30, 2019 | $ | — | 966,132 | $ | 1,138,096 | $ | 447,134 | $ | 32,001,328 | 171,964 | $ | (3,922,098 | ) | $ | 29,664,460 | |||||||||||||||||
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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 | |||||||||||||||||
Net Income | $ | 703,092 | $ | 703,092 | ||||||||||||||||||||||||||||
Dividends Declared ($0.21 per share) | $ | (202,888 | ) | $ | (202,888 | ) | ||||||||||||||||||||||||||
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Balance, June 30, 2018 | $ | — | 966,132 | $ | 1,138,096 | $ | 447,134 | $ | 31,912,088 | 171,964 | $ | (3,922,098 | ) | $ | 29,575,220 | |||||||||||||||||
Net Income | $ | 287,749 | $ | 287,749 | ||||||||||||||||||||||||||||
Dividends Declared ($0.21 per share) | $ | (202,888 | ) | $ | (202,888 | ) | ||||||||||||||||||||||||||
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Balance, September 30, 2018 | $ | — | 966,132 | $ | 1,138,096 | $ | 447,134 | $ | 31,996,949 | 171,964 | $ | (3,922,098 | ) | $ | 29,660,081 | |||||||||||||||||
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See Notes to the Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2019 and 2018
(Unaudited)
| 2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 832,198 | $ | 1,698,629 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 1,029,998 | 973,182 | ||||||
Gain on disposal of equipment | (5,000 | ) | (26,135 | ) | ||||
Deferred income taxes | 134,000 | 118,000 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (84,715 | ) | (1,175,724 | ) | ||||
Inventories | 624,058 | (726,233 | ) | |||||
Other current assets and prepaid income taxes | (320,611 | ) | (106,338 | ) | ||||
Accounts payable | (72,255 | ) | 460,603 | |||||
Accrued wages and salaries | 160,519 | 221,074 | ||||||
Other accrued expenses | (171,741 | ) | (54,780 | ) | ||||
Unearned revenue and customer deposits | (125,529 | ) | 61,073 | |||||
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Net cash provided by operating activities | 2,000,922 | 1,443,351 | ||||||
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Cash flows from investing activities: | ||||||||
Capital expenditures | (1,562,784 | ) | (1,635,189 | ) | ||||
Proceeds from the sale of equipment | 5,000 | 26,135 | ||||||
Proceeds from certificates of deposit | 5,569,000 | 3,735,000 | ||||||
Purchases of certificates of deposit | (4,582,000 | ) | (2,739,000 | ) | ||||
|
|
|
| |||||
Net cash used in investing activities | (570,784 | ) | (613,054 | ) | ||||
|
|
|
| |||||
Cash flows from financing activities: | ||||||||
Cash dividends paid | (927,487 | ) | (898,503 | ) | ||||
|
|
|
| |||||
Net cash used in financing activities | (927,487 | ) | (898,503 | ) | ||||
|
|
|
| |||||
Net increase (decrease) in cash and cash equivalents | 502,651 | (68,206 | ) | |||||
Cash and cash equivalents at beginning of period | 706,873 | 1,152,569 | ||||||
|
|
|
| |||||
Cash and cash equivalents at end of period | $ | 1,209,524 | $ | 1,084,363 | ||||
|
|
|
| |||||
Supplemental schedule ofnon-cash investing activities: | ||||||||
Capital expenditures in accounts payable | $ | — | $ | 7,265 | ||||
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 SeptemberJune 30, 20192020 (unaudited) and December 31, 20182019 (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, 2018.2019.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three and nine-monthsix-month period ending SeptemberJune 30, 20192020 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 increases 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 requires 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 Company adopted Topic 842 on January 1, 2019 using the modified retrospective method. Based on the Company’s current lease agreements, adopting this ASU did not have a material impact on 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 concentrationconcentrations of credit risk primarily within the automotive industry and in the Midwestern United States.
3. The Company is, from time to time, involved in litigation, including environmental claims and contract disputes, in the normal course of business. While it is not possible at this time to establish the ultimate amount of liability with respect to contingent liabilities, including those related to legal proceedings, management is of the opinion that the aggregate amount of any such liabilities, for which provision has not been made, will not have a material adverse effect on the Company’s financial position.
4. Revenue—The Company operates in the fastener industry and is in the business of manufacturing and selling rivets, cold-formed fasteners and parts, screw machine products, automatic rivet setting machines and parts and tools for such machines. Revenue is recognized when control of the promised goods or services is transferred to our customers, generally upon shipment of goods or completion of services, in an amount that reflects the consideration we expect to receive in exchange for those goods or services. For certain assembly equipment segment transactions, revenue is recognized based on progress toward completion of the performance obligation using a labor-based measure. Labor incurred and specific material costs are compared to milestone payments per sales contract. Based on our experience, this method most accurately reflects the transfer of goods under such contracts. During the second quarter of 2019,2020, the Company realized $219,700 related tohad no such a contract and the remaining performance obligation under that contract of $118,300 was recognized as revenue in the third quarter.contracts.
Sales taxes we may collect concurrent with revenue producing activities are excluded from revenue. Revenue is recognized net of certain sales adjustments to arrive at net sales as reported on the statement of income. These adjustments primarily relate to customer returns and allowances. The Company records a liability and reduction in sales for estimated product returns based upon historical experience. If we determine that our obligation under warranty claims is probable and subject to reasonable determination, an estimate of that liability is recorded as an offset against revenue at that time. As of SeptemberJune 30, 20192020 and December 31, 20182019 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 | Assembly | |||||||||||||||||||||||
| Fastener | Equipment | Consolidated | Fastener | Equipment | Consolidated | |||||||||||||||||||
Three Months Ended September 30, 2019: | ||||||||||||||||||||||||
Three Months Ended June 30, 2020: | ||||||||||||||||||||||||
Automotive | 4,698,298 | 61,298 | 4,759,596 | 1,577,488 | 38,250 | 1,615,738 | ||||||||||||||||||
Non-automotive | 2,608,597 | 820,712 | 3,429,309 | 1,936,254 | 551,528 | 2,487,782 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total net sales | 7,306,895 | 882,010 | 8,188,905 | 3,513,742 | 589,778 | 4,103,520 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Three Months Ended September 30, 2018: | ||||||||||||||||||||||||
Three Months Ended June 30, 2019: | ||||||||||||||||||||||||
Automotive | 5,291,033 | 100,751 | 5,391,784 | 4,880,038 | 63,650 | 4,943,688 | ||||||||||||||||||
Non-automotive | 2,645,765 | 818,500 | 3,464,265 | 2,936,666 | 995,097 | 3,931,763 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total net sales | 7,936,798 | 919,251 | 8,856,049 | 7,816,704 | 1,058,747 | 8,875,451 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Nine Months Ended September 30, 2019: | ||||||||||||||||||||||||
Six Months Ended June 30, 2020: | ||||||||||||||||||||||||
Automotive | 14,296,552 | 166,713 | 14,463,265 | 5,991,225 | 71,709 | 6,062,934 | ||||||||||||||||||
Non-automotive | 8,406,167 | 2,816,602 | 11,222,769 | 4,259,914 | 1,357,127 | 5,617,041 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total net sales | 22,702,719 | 2,983,315 | 25,686,034 | 10,251,139 | 1,428,836 | 11,679,975 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Nine Months Ended September 30, 2018: | ||||||||||||||||||||||||
Six Months Ended June 30, 2019: | ||||||||||||||||||||||||
Automotive | 17,225,475 | 189,656 | 17,415,131 | 9,598,254 | 105,415 | 9,703,669 | ||||||||||||||||||
Non-automotive | 8,670,697 | 2,574,646 | 11,245,343 | 5,797,570 | 1,995,890 | 7,793,460 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total net sales | 25,896,172 | 2,764,302 | 28,660,474 | 15,395,824 | 2,101,305 | 17,497,129 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
The following table presents revenue by segment, further disaggregated by location:
| Assembly | Assembly | |||||||||||||||||||||||
| Fastener | Equipment | Consolidated | Fastener | Equipment | Consolidated | |||||||||||||||||||
Three Months Ended September 30, 2019: | ||||||||||||||||||||||||
Three Months Ended June 30, 2020: | ||||||||||||||||||||||||
United States | 6,252,110 | 823,137 | 7,075,247 | 3,070,643 | 539,141 | 3,609,784 | ||||||||||||||||||
Foreign | 1,054,785 | 58,873 | 1,113,658 | 443,099 | 50,637 | 493,736 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total net sales | 7,306,895 | 882,010 | 8,188,905 | 3,513,742 | 589,778 | 4,103,520 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Three Months Ended September 30, 2018: | ||||||||||||||||||||||||
Three Months Ended June 30, 2019: | ||||||||||||||||||||||||
United States | 6,926,372 | 856,248 | 7,782,620 | 6,612,996 | 951,679 | 7,564,675 | ||||||||||||||||||
Foreign | 1,010,426 | 63,003 | 1,073,429 | 1,203,708 | 107,068 | 1,310,776 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total net sales | 7,936,798 | 919,251 | 8,856,049 | 7,816,704 | 1,058,747 | 8,875,451 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Nine Months Ended September 30, 2019: | ||||||||||||||||||||||||
Six Months Ended June 30, 2020: | ||||||||||||||||||||||||
United States | 19,443,934 | 2,731,126 | 22,175,060 | 8,811,569 | 1,287,627 | 10,099,196 | ||||||||||||||||||
Foreign | 3,258,785 | 252,189 | 3,510,974 | 1,439,570 | 141,209 | 1,580,779 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total net sales | 22,702,719 | 2,983,315 | 25,686,034 | 10,251,139 | 1,428,836 | 11,679,975 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Nine Months Ended September 30, 2018: | ||||||||||||||||||||||||
Six Months Ended June 30, 2019: | ||||||||||||||||||||||||
United States | 22,659,279 | 2,608,197 | 25,267,476 | 13,194,334 | 1,907,989 | 15,102,323 | ||||||||||||||||||
Foreign | 3,236,893 | 156,105 | 3,392,998 | 2,201,490 | 193,316 | 2,394,806 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total net sales | 25,896,172 | 2,764,302 | 28,660,474 | 15,395,824 | 2,101,305 | 17,497,129 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
5. The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act allows for the carryback of any net operating loss arising in a tax year beginning after December 31, 2017 and before January 1, 2021, to each of the five tax years preceding the tax year in which the loss arises. As a result, the Company’s effective tax rates wererate was approximately 23.9% and 20.9%(29.2)% for the thirdsecond quarter of 2019 and 2018, respectively, and 22.5% and 22.4%2020 compared to 21% for the ninesecond quarter of 2019. The Company’s effective tax rate was (29.7)% and 21.6% for the six months ended SeptemberJune 30, 20192020 and 2018,2019, respectively.
The Company’s federal income tax returns for the 2016 2017 and 2018through 2019 tax years are subject to examination by the Internal Revenue Service (“IRS”). While it may be possible that a reduction could occur with respect to the Company’s unrecognized tax benefits as an outcome of an IRS examination, management does not anticipate any adjustments that would result in a material change to the results of operations or financial condition of the Company. No statutes have been extended on any of the Company’s federal income tax filings. The statute of limitations on the Company’s 2016 2017 and 2018through 2019 federal income tax returns will expire on September 15, 2020 2021 and 2022,through 2023, respectively.
The Company’s state income tax returns for the 2016 through 20182019 tax years remain subject to examination by various state authorities with the latest closing period on October 31, 2022.2023. The Company is not currently not under examination by any state authority for income tax purposes and no statutes for state income tax filings have been extended.
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, 2019 | December 31, 2018 | June 30, 2020 | December 31, 2019 | |||||||||||||
Raw material | $ | 2,342,744 | $ | 2,798,918 | $ | 2,315,730 | $ | 2,337,278 | ||||||||
Work-in-process | 1,508,728 | 1,878,977 | 1,091,787 | 1,201,099 | ||||||||||||
Finished goods | 2,181,861 | 2,001,496 | 1,865,269 | 1,869,800 | ||||||||||||
|
|
|
| |||||||||||||
Inventories, gross | 6,033,333 | 6,679,391 | 5,272,786 | 5,408,177 | ||||||||||||
Valuation reserves | (557,000 | ) | (579,000 | ) | (527,000 | ) | (457,000 | ) | ||||||||
|
|
|
| |||||||||||||
Inventories, net | $ | 5,476,333 | $ | 6,100,391 | $ | 4,745,786 | $ | 4,951,177 | ||||||||
|
|
|
| |||||||||||||
CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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:
| Assembly | Assembly | |||||||||||||||||||||||||||||||
| Fastener | Equipment | Other | Consolidated | Fastener | Equipment | Other | Consolidated | |||||||||||||||||||||||||
Three Months Ended September 30, 2019: | ||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2020: | ||||||||||||||||||||||||||||||||
Net sales | $ | 3,513,742 | $ | 589,778 | $ | — | $ | 4,103,520 | ||||||||||||||||||||||||
Depreciation | 297,534 | 32,869 | 8,378 | 338,781 | ||||||||||||||||||||||||||||
Segment operating profit (loss) | (653,510 | ) | 31,010 | — | (622,500 | ) | ||||||||||||||||||||||||||
Selling and administrative expenses | — | — | (503,340 | ) | (503,340 | ) | ||||||||||||||||||||||||||
Interest income | — | — | 25,324 | 25,324 | ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Income (loss) before income taxes | $ | (1,100,516 | ) | |||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Capital expenditures | 29,545 | — | 57,810 | 87,355 | ||||||||||||||||||||||||||||
Segment assets: | ||||||||||||||||||||||||||||||||
Accounts receivable, net | 3,327,037 | 230,600 | — | 3,557,637 | ||||||||||||||||||||||||||||
Inventories, net | 3,782,622 | 963,164 | — | 4,745,786 | ||||||||||||||||||||||||||||
Property, plant and equipment, net | 10,651,338 | 1,621,026 | 980,904 | 13,253,268 | ||||||||||||||||||||||||||||
Other assets | — | — | 8,859,829 | 8,859,829 | ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
| $ | 30,416,520 | |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2019: | ||||||||||||||||||||||||||||||||
Net sales | $ | 7,306,895 | $ | 882,010 | $ | — | $ | 8,188,905 | $ | 7,816,704 | $ | 1,058,747 | $ | — | $ | 8,875,451 | ||||||||||||||||
Depreciation | 305,082 | 32,507 | 9,742 | 347,331 | 305,082 | 31,453 | 9,743 | 346,278 | ||||||||||||||||||||||||
Segment operating profit | 605,503 | 336,320 | — | 941,823 | 487,305 | 315,802 | — | 803,107 | ||||||||||||||||||||||||
Selling and administrative expenses | — | — | (563,705 | ) | (563,705 | ) | — | — | (548,052 | ) | (548,052 | ) | ||||||||||||||||||||
Interest income | — | — | 36,679 | 36,679 | — | — | 35,504 | 35,504 | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Income before income taxes | $ | 414,797 | $ | 290,559 | ||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Capital expenditures | 267,179 | 2,576 | — | 269,755 | 284,573 | 102,324 | — | 386,897 | ||||||||||||||||||||||||
Segment assets: | ||||||||||||||||||||||||||||||||
Accounts receivable, net | 5,174,674 | 439,348 | — | 5,614,022 | 5,426,139 | 361,216 | — | 5,787,355 | ||||||||||||||||||||||||
Inventories, net | 4,294,760 | 1,181,573 | — | 5,476,333 | 4,996,608 | 1,102,215 | — | 6,098,823 | ||||||||||||||||||||||||
Property, plant and equipment, net | 11,126,165 | 1,715,513 | 949,254 | 13,790,932 | 11,164,067 | 1,745,444 | 958,997 | 13,868,508 | ||||||||||||||||||||||||
Other assets | — | — | 8,195,043 | 8,195,043 | — | — | 7,002,868 | 7,002,868 | ||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
| $ | 33,076,330 | $ | 32,757,554 | |||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Three Months Ended September 30, 2018: | ||||||||||||||||||||||||||||||||
Net sales | $ | 7,936,798 | $ | 919,251 | $ | — | $ | 8,856,049 | ||||||||||||||||||||||||
Depreciation | 281,418 | 28,358 | 9,869 | 319,645 | ||||||||||||||||||||||||||||
Segment operating profit | 599,188 | 297,009 | — | 896,197 | ||||||||||||||||||||||||||||
Selling and administrative expenses | — | — | (563,347 | ) | (563,347 | ) | ||||||||||||||||||||||||||
Interest income | — | — | 30,899 | 30,899 | ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Income before income taxes | $ | 363,749 | ||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Capital expenditures | 813,649 | 5,489 | 187,598 | 1,006,736 | ||||||||||||||||||||||||||||
Segment assets: | ||||||||||||||||||||||||||||||||
Accounts receivable, net | 5,961,946 | 540,428 | — | 6,502,374 | ||||||||||||||||||||||||||||
Inventories, net | 4,226,263 | 1,028,070 | — | 5,254,333 | ||||||||||||||||||||||||||||
Property, plant and equipment, net | 10,696,801 | 1,596,585 | 932,839 | 13,226,225 | ||||||||||||||||||||||||||||
Other assets | — | — | 8,446,731 | 8,446,731 | ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
| $ | 33,429,663 | |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
| Assembly | ||||||||||||||||
| Fastener | Equipment | Other | Consolidated | |||||||||||||
Six Months Ended June 30, 2020: | ||||||||||||||||
Net sales | $ | 10,251,139 | $ | 1,428,836 | $ | — | $ | 11,679,975 | ||||||||
Depreciation | 593,644 | 65,738 | 16,755 | 676,137 | ||||||||||||
Segment operating profit (loss) | (249,492 | ) | 215,581 | — | (33,911 | ) | ||||||||||
Selling and administrative expenses | — | — | (1,054,236 | ) | (1,054,236 | ) | ||||||||||
Interest income | — | — | 59,199 | 59,199 | ||||||||||||
|
| |||||||||||||||
Income (loss) before income taxes | $ | (1,028,948 | ) | |||||||||||||
|
| |||||||||||||||
Capital expenditures | 197,542 | — | 57,810 | 255,352 | ||||||||||||
Six Months Ended June 30, 2019: | ||||||||||||||||
Net sales | $ | 15,395,824 | $ | 2,101,305 | $ | — | $ | 17,497,129 | ||||||||
Depreciation | 602,805 | 60,377 | 19,485 | 682,667 | ||||||||||||
Segment operating profit | 1,076,200 | 651,876 | — | 1,728,076 | ||||||||||||
Selling and administrative expenses | — | — | (1,141,454 | ) | (1,141,454 | ) | ||||||||||
Interest income | — | — | 71,779 | 71,779 | ||||||||||||
|
| |||||||||||||||
Income before income taxes | $ | 658,401 | ||||||||||||||
|
| |||||||||||||||
Capital expenditures | 1,040,680 | 226,324 | 26,025 | 1,293,029 | ||||||||||||
8. COVID-19—In March 2020, the World Health Organization characterized the novel coronavirus (“COVID-19”) a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. The rapid spread of the virus and the evolving response domestically and internationally to combat it have had a significant negative impact on the global economy, including the automotive industry upon which we rely for sales. Beginning in March, most states issued executive orders which temporarily closed businesses deemed non-essential in an effort to prevent the spread of the coronavirus. Similar measures also took place in foreign markets we serve. As a result, our operations and the operations of our customers and suppliers have been adversely affected. Since some of our customers are classified as essential businesses and were allowed to continue to operate during this period, we were able to continue our operations, but at a significantly reduced level, in order to service those customers. Our automotive customers were particularly affected, as much of the sector was idled for an extended period of time during the second quarter due to employee safety concerns. While most shut-down orders were lifted late in the second quarter, various work-related restrictions remain in place. Due to the rapidly changing business environment and heightened degree of uncertainty resulting from COVID-19, we have taken measures to reduce expenses and conserve capital during this period, including reduced work schedules, delayed capital expenditures and a reduction in dividend payments. We have seen improved demand since government-imposed restrictions were relaxed, however the timing of any broad economic recovery is uncertain and will likely be tied to the course of the pandemic. As we cannot predict the duration or scope of the COVID-19 pandemic, or its broader impact on the global economy, including the demand for automobiles, it is unknown how long the COVID-19 restrictions will remain in place or what the impact of COVID-19 and its related effects will be on our business, results of operations or financial condition, but the impact could be material and last for an extended period of time.
CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| Fastener | Assembly Equipment | Other | Consolidated | |||||||||||||
Nine Months Ended September 30, 2019: | ||||||||||||||||
Net sales | $ | 22,702,719 | $ | 2,983,315 | $ | — | $ | 25,686,034 | ||||||||
Depreciation | 907,887 | 92,884 | 29,227 | 1,029,998 | ||||||||||||
Segment operating profit | 1,681,703 | 988,196 | — | 2,669,899 | ||||||||||||
Selling and administrative expenses | — | — | (1,705,159 | ) | (1,705,159 | ) | ||||||||||
Interest income | — | — | 108,458 | 108,458 | ||||||||||||
|
| |||||||||||||||
Income before income taxes | $ | 1,073,198 | ||||||||||||||
|
| |||||||||||||||
Capital expenditures | 1,307,859 | 228,900 | 26,025 | 1,562,784 | ||||||||||||
Nine Months Ended September 30, 2018: | ||||||||||||||||
Net sales | $ | 25,896,172 | $ | 2,764,302 | $ | — | $ | 28,660,474 | ||||||||
Depreciation | 865,677 | 82,954 | 24,551 | 973,182 | ||||||||||||
Segment operating profit | 3,006,367 | 930,570 | — | 3,936,937 | ||||||||||||
Selling and administrative expenses | — | — | (1,831,926 | ) | (1,831,926 | ) | ||||||||||
Interest income | — | — | 84,618 | 84,618 | ||||||||||||
|
| |||||||||||||||
Income before income taxes | $ | 2,189,629 | ||||||||||||||
|
| |||||||||||||||
Capital expenditures | 1,279,568 | 36,984 | 325,902 | 1,642,454 | ||||||||||||
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 thirdsecond quarter of 2020 were $4,103,520 compared to $8,875,451 in the second quarter of 2019, were $8,188,905 compared to $8,856,049 in the third quarter of 2018, a decline of $667,144,$4,771,931, or 7.5%. As53.8%, as the impact of September 30, 2019, yeargovernment-mandated business closures due to datethe novel coronavirus (“COVID-19”) pandemic severely limited demand for our products. For the first half of 2020, net sales totaled $25,686,034$11,679,975 compared to $28,660,474, for$17,497,129 in the first three quartershalf of 2018,2019, a decline of $2,974,440,$5,817,154, or 10.4%33.2%. TheAlthough we acted swiftly to reduce expenses in response to the sudden drop in demand, cost reductions were not sufficient to offset the effects of the decline in sales. The result was a net sales in the current year is primarily due to reduced demand for fastener segment parts, especially from automotive customers. Net incomeloss for the thirdsecond quarter of 2019 was $315,797,2020 of $779,516, or $0.32$0.81 per share, compared to $287,749,net income of $229,559, or $0.30$0.24 per share, in the thirdsecond quarter of 2018. Net income2019. The net loss for the first three quartershalf of 20192020 was $832,198,$722,948, or $0.86$0.75 per share, compared with $1,698,629,to net income of $516,401, or $1.76$0.54 per share, reported in 2018. Net income in the current year has been negatively impacted by the decline in sales as well as the increase in certain production costs.first half of 2019.
Fastener segment revenues were $7,306,895$3,513,742 in the thirdsecond quarter of 2020 compared to $7,816,704 reported in the second quarter of 2019, compared to $7,936,798 in the year earlier quarter, a decline of $629,903,$4,302,962, or 7.9%55.0%. For the first three quarterssix months of 2019,2020, fastener segment revenues were $22,702,719$10,251,139 compared to $25,896,172$15,395,824 in 2018,the first half of 2019, a decline of $3,193,453,$5,144,685, or 12.3%33.4%. The automotive sector is the primary market for our fastener segment products and while North American light-vehicle production has declined in 2019 compared tomuch of that sector was idled for an extended period of time during the first nine months of 2018, our sales to automotive customers in certain other locations has been particularly weak in the current yearsecond quarter due to the global economic slowdown impacting many foreign countries. FastenerCOVID-19 pandemic. As a result, fastener segment sales to automotive customers declined $592,735,$3,302,550, or 11.2%67.7%, in the thirdsecond quarter and $2,928,923,$3,607,029, or 17.0%37.6%, in the first three quartershalf of 20192020 compared to the prior year periods. Sales toAlthough some of our non-automotive customers havewere allowed to remain open during the second quarter as essential businesses, sales to non-automotive customers also experienced significant reductions and declined a more modest 3.1%$1,000,412, or 34.1%, in the first three quarters of the current year. Fastener segment gross margins were $1,314,044 in the thirdsecond quarter of 2019 compared to $1,336,509 in the third quarter of 2018, a decline of $22,465. The decline in gross margin during the quarter was less than the decline in net sales due to the combined effects of improved operating efficiencies and significant reductions in tooling and supplies expenditures as well as lower repair expenses. For the first nine months of 2019, gross margins for the fastener segment were $3,858,277 compared to $5,360,521 in the first nine months of 2018, a decline of $1,502,244. In addition to the negative impact lower sales have had on gross margins, certain production costs in 2019 have been higher than a year earlier. Steel is our primary raw material and on average, steel prices were 7% higher in the first three quarters of 2019 than a year earlier. The impact of higher steel prices was more pronounced$1,537,656, or 26.5%, in the first half of the current year ascompared to the prior year periods. In response to the reduced demand for our products, we were ablehave taken steps to obtain more favorable pricingreduce expenses where practicable, including reductions in staffing and work schedules. Even though we reduced all major categories of manufacturing costs, these savings did not fully offset the decline in sales volume, resulting in a $1,259,211 reduction in fastener segment gross margin in the third quarter. Labor costs have also risen more than expectedsecond quarter and a $1,492,445 reduction in the current year dueto date amount, compared to the tight labor market.year earlier periods
Assembly equipment segment revenues were $882,010$589,778 in the thirdsecond quarter of 2020 compared to $1,058,747 in the second quarter of 2019, compared to $919,251 in the third quarter of 2018, a decline of $37,241,$468,969, or 4.1%44.3%. DespiteFor the first half of 2020, assembly equipment revenues were $1,428,836 compared to $2,101,305 for the first half of 2019, a decline of $672,469, or 32.0%. The decline in sales during the second quarter gross margins improved from $297,725and the year to $335,723date was primarily due to a more profitable product mix. For the first nine months of 2019, assembly equipment segment sales were $2,983,315 compared to $2,764,302 for the same period in 2018, an increase of $219,013, or 7.9%. For the first three quartersbroad effects of the year,COVID-19 pandemic, but also due to the inclusion of certain high-dollar value machine orders in the second quarter of 2019. The reduction in revenue was the primary cause of the decline in assembly equipment segment gross margins to $110,314 in the second quarter of 2020 from $328,923 in the second quarter of 2019. For the first half of the year, gross margins were $1,001,223$328,789 compared to $905,152$665,500 in 2018, an increase2019, a decline of $96,071.$336,711.
Selling and administrative expenses for the thirdsecond quarter of 20192020 were $1,282,149,$1,214,423, a decline of $26,735,$92,242, or 2%7.1%, compared towith the year earlier quarter total of $1,308,884.$1,306,665. The decline was primarily due to a $20,000 reduction in commission expense related to lower sales in the current year quarter. Selling and administrative expenses for the first three quarters of 2019 were $3,931,510 compared to $4,185,571 for the same period of 2018, a reduction of $254,061, or 6.1%. The decline was primarily due to a $121,000 reduction in profit sharing expense related to lower operating profit in the current year and a $103,000$100,000 reduction in sales commissions due to lower sales.sales and reductions of $30,000 and $25,000 related to salaries and outside services, respectively, during the quarter. These reductions were partially offset by a $53,000 increase in consulting fees related to an ERP system update. The net difference was related to various smaller items. For the first six months of 2020, selling and administrative expenses were $2,499,757 compared to $2,649,361 in 2019, a decline of $149,604, or 5.6%. As in the second quarter, expenditures for the first half of 2020 were lower primarily due to a reduction in commissions of approximately $117,000 and reductions of $40,000 and $30,000 related to salaries and outside services, respectively. These reductions were partially offset by a $44,000 increase in consulting expense. Various smaller items made up the remaining difference. Selling and administrative expenses as a percentage of net sales for the first nine monthshalf of 2019 was 15.3%2020 were 21.4% compared to 14.6% for15.1% in the first nine monthshalf of 2018.2019.
Other Income
Other income in the thirdsecond quarter of 20192020 was $47,179$43,757, compared to $38,399$49,254 in the thirdsecond quarter of 2018.2019. Other income for the first three quarterssix months of 20192020 was $145,208$90,232, compared to $109,527$98,029 in the same periodfirst six months of 2018. Other income consists2019. The declines were primarily ofdue to a reduction in interest income on certificates of deposit. The increases were primarilydeposit due to higherlower interest rates in the current year compared to the year earlier periods.year.
Income Tax Expense
The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act allows for the carryback of any net operating loss arising in a tax year beginning after December 31, 2017 and before January 1, 2021, to each of the five tax years preceding the tax year in which the loss arises. As a result, the Company’s effective tax rates were 23.9% and 20.9%rate was approximately (29.2)% for the thirdsecond quarter of 2019 and 2018, respectively, and 22.5% and 22.4%2020 compared to 21% for the ninesecond quarter of 2019. The Company’s effective tax rate was (29.7)% and 21.6% for the six months ended SeptemberJune 30, 20192020 and 2018,2019, respectively.
Liquidity and Capital Resources
Working capital as of Septemberat June 30, 2019 amounted to $16.92020 was $15.8 million, a decrease of $0.5$0.7 million from the beginning of the year. ContributingThe decline was primarily due to thata $1.1 million drop in accounts receivable due to the severe decline were capital expendituresin sales during the current year of $1.6 million, which consisted primarily of equipment used in production activities, and dividends paid of $0.9 million, including three regularsecond quarter. Due to the uncertain outlook, the quarterly payments ofdividend was reduced from $0.22 per share and an extra dividend of $0.30to $0.10 per share paidin the second quarter and capital expenditures were reduced to $255,352 for the first half of 2020 from $1,283,736 in the first quarter.half of 2019, in order to conserve cash. The net result of these changes and other cash flow itemsactivity was to leave cash, cash equivalents and certificates of deposit at $7.3$8.1 million as of SeptemberJune 30, 20192020 compared to $7.8$8 million at 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 SummaryCOVID-19
As inWe continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our operations. Results for the second quarter and the first half of the year, overall results in the third quarter continued to be pressured by reduced demand in the fastener segment, especially from automotive customers. Demand was further2020 were negatively impacted by the widening spread of COVID-19 and the resultant measures taken domestically and internationally to combat this threat. During the first quarter, various states and foreign governments issued orders which temporarily closed businesses deemed non-essential as the coronavirus outbreak spread. These government-mandated closures extended well into the second quarter and resulted in a strikedramatic reduction in our revenues. As a result, our operations and the operations of our customers and suppliers have been adversely affected. Since some of our customers are classified as essential businesses and were able to continue to operate during these closures, we were able to continue our operations, but at a significantly reduced level, in order to service those customers. To ensure the safety of our own employees during this unprecedented crisis, we have reduced personnel in our facilities and adjusted work schedules in order to practice social distancing protocols and are following other safety practices recommended by the United Auto Workers against General Motors which began during September. TheCenters for Disease Control. As we cannot predict the duration or scope of the COVID-19 pandemic, or its broader impact on the global economy, including the demand for automobiles, it is unknown how long the COVID-19 restrictions will remain in place or what the impact of COVID-19 and its related effects will be on our business, results of operations or financial condition, but the strike will extend into fourth quarter results. Although we have seen some more favorable pricesimpact could be material and last for steel recently, raw material prices are still above year earlier levels and remain a concern as trade disputes persist. In contrast to the fastener segment, our current year assembly equipment segment results have exceeded thosean extended period of a year earlier and demand for such products remains relatively stable. Given the challenges of the current environment, we will continue to make adjustments to our activities in an effort to improve operational efficiencies as a means of improving operating margins, while seeking to increase sales by developing new customer relationships and building on existing ones in all the markets we serve.time.
Forward-Looking Statements
This discussion contains certain “forward-looking statements” which are inherently subject to risks and uncertainties that may cause actual events to differ materially from those discussed herein. Factors which may cause such differences in events include, those disclosed under “Risk Factors” in our Annual Report on Form10-K and in the other filings we make with the United States Securities and Exchange Commission. These factors, include among other things: risk related to 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 with 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 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 | Rule 13a-14(a) or 15d-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 onForm 10-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/ | ||||||
| Chairman of the Board of Directors | ||||||
and Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
| Date: | ||||||
/s/ Michael J. Bourg | ||||||
| Michael J. Bourg | ||||||
| President, Chief Operating | ||||||
Officer and Treasurer | ||||||
(Principal Financial Officer) | ||||||
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