Chicago Rivet & Machine Co.
2014 Annual Report
Highlights
| | | | | | | | |
| | | 2014 | | | 2013 | |
| | |
Net Sales | | $ | 37,135,207 | | | $ | 37,117,830 | |
| | |
Net Income | | | 1,951,889 | | | | 2,479,029 | |
| | |
Net Income Per Share | | | 2.02 | | | | 2.57 | |
| | |
Dividends Per Share | | | 1.12 | | | | .63 | |
| | |
Net Cash Provided by Operating Activities | | | 2,357,494 | | | | 3,058,485 | |
| | |
Expenditures for Property, Plant and Equipment | | | 1,735,041 | | | | 3,474,858 | |
| | |
Working Capital | | | 15,970,203 | | | | 15,527,257 | |
| | |
Total Shareholders’ Equity | | | 25,740,923 | | | | 24,871,102 | |
| | |
Common Shares Outstanding at Year-End | | | 966,132 | | | | 966,132 | |
| | |
Shareholders’ Equity Per Common Share | | | 26.64 | | | | 25.74 | |
Annual Meeting
The annual meeting of shareholders
will be held on May 12, 2015 at 10:00 a.m. at
901 Frontenac Road
Naperville, Illinois
Chicago Rivet & Machine Co. • 901 Frontenac Road • P.O. Box 3061 • Naperville, Illinois 60566 • www.chicagorivet.com
Management’s Report
on Financial Condition and Results of Operations
To Our Shareholders:
RESULTS OF OPERATIONS
Net sales in 2014 increased to $37,135,207 from $37,117,830 in 2013. The first half of 2014 continued to build on the strong sales growth we have reported since the end of the recession in 2009, as net sales for the first six months of the year increased 5.4% over the first half of 2013. This growth in sales contributed to an increase in net income for the first half of the year, even though certain expenses had increased. Sales growth stalled in the second half of the year compared to the particularly strong results in the second half of 2013, with both operating segments recording declines. Overall, net sales in the third and fourth quarters reflected a decline of 5.3% compared to the same period a year earlier. While sales in 2014 were fractionally higher than a year earlier, net income declined to $1,951,889, or $2.02 per share, in 2014 from $2,479,029, or $2.57 per share, in 2013. Increases in tooling, depreciation and health insurance expense as well as a reduction in gains from equipment disposals and a less favorable product mix compared to 2013, all contributed to the reduction in net income.
2014 Compared to 2013
Fastener segment sales were $34,116,301 in 2014, compared with $33,616,593 in 2013, an increase of 1.5%. This marked the fifth consecutive year that segment sales exceeded the year earlier period. Our fastener segment, which relies on the automotive sector for the majority of its revenues, benefited from strong automobile sales in 2014. Although net sales increased in 2014, fastener segment margins declined due to increases in certain operating expenses. Tooling expense increased $267,000 in 2014 compared to 2013, primarily due to new parts production. As a result of the significant investments we have made in production equipment in the past year, depreciation increased $165,000 compared to 2013. A rise in health insurance premiums resulted in an increase of $138,000 for employee health insurance. Certain operating expenses were reduced during the year, but only partially offset the larger increases, resulting in a net reduction in gross margin for the fastener segment of $354,414 in 2014 compared to 2013.
Assembly equipment segment revenues were $3,018,906 in 2014, a decrease of $482,331, or 13.8%, compared to $3,501,237 recorded in 2013. A decline in the number of machines shipped, as well as the inclusion of a certain high-value order shipped during the fourth quarter of 2013, accounted for the decline in the assembly equipment segment sales. Machine parts and tooling sales, however, were higher in 2014 compared to 2013. While operating expenses in the assembly equipment segment were kept at levels consistent with the prior year, the lower
sales resulted in a reduction in assembly equipment segment gross margins of $219,136 in 2014.
Selling and administrative expenses were $5,439,555 in 2014, an increase of $41,694, or less than 1%, compared to the 2013 total of $5,397,861. The change is primarily due to an increase in commissions of $75,402 and payroll and health insurance which increased $54,705. Partially offsetting these increases was a reduction in profit sharing expense of $77,767, related to reduced operating results. As a percentage of net sales, selling and administrative expenses were 14.6% in 2014 compared to 14.5% in 2013.
Other income was $56,939 in 2014 compared to $160,835 in 2013. The decrease was primarily due to a reduction in the amount of gains from the sale of equipment formerly used in our fastener segment operations, which resulted from the investment in new equipment.
The Company’s effective income tax rates were 32.9% and 31.6% in 2014 and 2013, respectively. Rates were lower than the U.S. federal statutory rate primarily due to the Domestic Production Activities Deduction allowed under Internal Revenue Code Section 199.
DIVIDENDS
In determining to pay dividends, the Board considers current profitability, the outlook for longer-term profitability, known and potential cash requirements and the overall financial condition of the Company. The Company paid four regular quarterly dividends totaling $.72 per share during 2014. In addition, an extra dividend of $.40 per share was paid during the first quarter, bringing the total distribution for the year to $1.12 per share. On February 16, 2015, the Board of Directors declared a regular quarterly dividend of $.18 per share, payable March 20, 2015 to shareholders of record on March 5, 2015. This continues the uninterrupted record of consecutive quarterly dividends paid by the Company to its shareholders that extends over 81 years. At that same meeting, the Board also declared an extra dividend of $.25 per share payable March 20, 2015 to shareholders of record on March 5, 2015.
PROPERTY, PLANT AND EQUIPMENT
Total capital expenditures in 2014 were $1,735,041. Fastener segment additions accounted for $1,667,248 of the total, including $801,139 for cold heading and screw machine equipment and $201,901 for secondary processing equipment. Inspection equipment comprised $325,133 of the fastener segment additions, while the remaining additions of $339,075 were for various general plant equipment and facilities improvements. Assembly
1
Management’s Report
(Continued)
equipment segment additions in 2014 were $42,411, for production equipment. Investments for the benefit of both operating segments, primarily for building improvements, totaled $25,382 during 2014.
Capital expenditures during 2013 totaled $3,474,858, of which $3,092,842 was invested in equipment for our fastener operations. Cold heading and screw machine equipment comprised $2,678,440 of the total and $414,402 was expended for equipment used in performing secondary operations on parts, inspection equipment and other general plant equipment. Assembly equipment segment additions totaled $90,010, primarily for building improvements. Additional investments of $292,006 for building improvements and office equipment were made in 2013 that benefit both operating segments.
Depreciation expense amounted to $1,262,725 in 2014 and $1,093,062 in 2013.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 2014 was approximately $16 million, an increase of $.4 million from the beginning of the year. Contributing to the change was a $.3 million increase in inventory and a $.2 million increase in prepaid income taxes. The Company’s holdings in cash, cash equivalents and certificates of deposit amounted to $6.3 million at the end of 2014, a decrease of $.4 million. The Company’s investing activities in 2014 consisted primarily of capital expenditures of $1.7 million. The only financing activity during 2014 was the payment of $1.1 million in dividends.
Management believes that current cash, cash equivalents and operating cash flow will be sufficient to provide adequate working capital for the foreseeable future.
Off-Balance Sheet Arrangements
The Company has not entered into, and has no current plans to enter into, any off-balance sheet financing arrangements.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of revenue and expenses during the reporting period. A summary of critical accounting policies can be found in Note 1 of the financial statements.
NEW ACCOUNTING STANDARDS
The Company’s financial statements and financial condition were not, and are not expected to be, materially impacted by new, or proposed, accounting standards. A summary of recent accounting pronouncements can be found in Note 1 of the financial statements.
OUTLOOK FOR 2015
The overall economy in 2015 is widely expected to improve over 2014. The timing and speed of monetary policy tightening by the Federal Reserve is an unknown variable at this time, but one that is not expected to impact growth in 2015 to a great extent. North American car and truck production increased approximately 6% during 2014, to its third largest year ever. Now that production has returned to pre-recession levels, growth is expected to be closer to the rate of the overall economy. An improving job market, low interest rates and the recent drop in gasoline prices are underpinnings that support growth in consumer spending, which is favorable to our fastener segment, as the majority of that segment’s revenue comes from the automotive sector. The outlook for our assembly equipment segment, which has had a more uneven recovery, remains more difficult to forecast.
During the past year, there were increases in certain expenses which negatively impacted margins. Unfortunately, we had limited control over some of these expenses and the increases could not be wholly mitigated by reductions elsewhere. Increased costs can be difficult to recover in our market, as many of our customers expect prices to be held constant over the life of a part. As in the past, we will continue our efforts to improve operational efficiency as a means to improve margins.
Our profitable results in recent years have allowed us to make significant investments in our operations, which have provided additional capacity and production capabilities. We believe these investments are necessary to allow us to take advantage of opportunities that may improve revenue and profitability in the future. In the upcoming year, we will continue to make significant investments in equipment and our facilities. This includes a planned expansion of our Madison Heights fastener plant in order to increase capacity and improve production efficiency. We will continue our efforts to foster new customer relationships and build on existing ones in all the markets we serve by emphasizing value over price and by focusing our efforts on producing more complex parts for which our expertise, quality and service are important factors in our customers’ purchasing decisions.
A key element of the successful results in 2014 is the dedicated efforts of our employees, who consistently work to meet the ever-changing challenges that characterize
2
Management’s Report
(Continued)
today’s manufacturing environment. We are grateful for their contributions as well as the loyalty of our customers, who have placed their confidence in us to provide them
with quality solutions. We also acknowledge our shareholders for their continued support.
Respectfully,
| | |
 | |  |
| |
| John A. Morrissey | | Michael J. Bourg |
| Chairman | | President |
March 20, 2015
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 Form 10-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 to two major 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, and the loss of the services of our key employees. 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.
3
Consolidated Balance Sheets
| | | | | | | | |
| December 31 | | 2014 | | | 2013 | |
| | |
Assets | | | | | | | | |
Current Assets | | | | | | | | |
Cash and Cash Equivalents | | $ | 231,252 | | | $ | 443,608 | |
Certificates of Deposit | | | 6,058,000 | | | | 6,207,348 | |
Accounts Receivable – Less allowances of $150,000 | | | 5,669,654 | | | | 5,510,770 | |
Inventories, net | | | 5,162,474 | | | | 4,880,788 | |
Deferred Income Taxes | | | 446,191 | | | | 410,191 | |
Prepaid Income Taxes | | | 173,656 | | | | — | |
Other Current Assets | | | 348,413 | | | | 295,521 | |
| | | | | | | | |
Total Current Assets | | | 18,089,640 | | | | 17,748,226 | |
Property, Plant and Equipment, net | | | 10,877,995 | | | | 10,409,120 | |
| | | | | | | | |
Total Assets | | $ | 28,967,635 | | | $ | 28,157,346 | |
| | | | | | | | |
Liabilities and Shareholders’ Equity | | | | | | | | |
Current Liabilities | | | | | | | | |
Accounts Payable | | $ | 923,819 | | | $ | 924,943 | |
Accrued Wages and Salaries | | | 605,029 | | | | 560,114 | |
Other Accrued Expenses | | | 520,723 | | | | 609,846 | |
Unearned Revenue and Customer Deposits | | | 69,866 | | | | 126,066 | |
| | | | | | | | |
Total Current Liabilities | | | 2,119,437 | | | | 2,220,969 | |
Deferred Income Taxes | | | 1,107,275 | | | | 1,065,275 | |
| | | | | | | | |
Total Liabilities | | | 3,226,712 | | | | 3,286,244 | |
| | | | | | | | |
| Commitments and Contingencies (Note 8) | | | | | | | | |
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 | | | 1,138,096 | | | | 1,138,096 | |
AdditionalPaid-in Capital | | | 447,134 | | | | 447,134 | |
Retained Earnings | | | 28,077,791 | | | | 27,207,970 | |
Treasury Stock, 171,964 Shares at cost | | | (3,922,098 | ) | | | (3,922,098 | ) |
| | | | | | | | |
Total Shareholders’ Equity | | | 25,740,923 | | | | 24,871,102 | |
| | | | | | | | |
Total Liabilities and Shareholders’ Equity | | $ | 28,967,635 | | | $ | 28,157,346 | |
| | | | | | | | |
The accompanying notes are an integral part of the Consolidated Financial Statements.
4
Consolidated Statements of Income
| | | | | | | | |
| For the Years Ended December 31 | | 2014 | | | 2013 | |
| | |
Net Sales | | $ | 37,135,207 | | | $ | 37,117,830 | |
Cost of Goods Sold | | | 28,845,702 | | | | 28,254,775 | |
| | | | | | | | |
Gross Profit | | | 8,289,505 | | | | 8,863,055 | |
Selling and Administrative Expenses | | | 5,439,555 | | | | 5,397,861 | |
| | | | | | | | |
Operating Profit | | | 2,849,950 | | | | 3,465,194 | |
Other Income | | | 56,939 | | | | 160,835 | |
| | | | | | | | |
Income Before Income Taxes | | | 2,906,889 | | | | 3,626,029 | |
Provision for Income Taxes | | | 955,000 | | | | 1,147,000 | |
| | | | | | | | |
Net Income | | $ | 1,951,889 | | | $ | 2,479,029 | |
| | | | | | | | |
Net Income Per Share | | $ | 2.02 | | | $ | 2.57 | |
| | | | | | | | |
Consolidated Statements of Retained Earnings
| | | | | | | | |
| For the Years Ended December 31 | | 2014 | | | 2013 | |
| | |
Retained Earnings at Beginning of Year | | $ | 27,207,970 | | | $ | 25,337,604 | |
Net Income | | | 1,951,889 | | | | 2,479,029 | |
Cash Dividends Paid, $1.12 and $.63 Per Share in 2014 and 2013, respectively | | | (1,082,068 | ) | | | (608,663 | ) |
| | | | | | | | |
Retained Earnings at End of Year | | $ | 28,077,791 | | | $ | 27,207,970 | |
| | | | | | | | |
The accompanying notes are an integral part of the Consolidated Financial Statements.
5
Consolidated Statements of Cash Flows
| | | | | | | | |
| For the Years Ended December 31 | | 2014 | | | 2013 | |
| | |
Cash Flows from Operating Activities: | | | | | | | | |
Net Income | | $ | 1,951,889 | | | $ | 2,479,029 | |
Adjustments to Reconcile Net Income to | | | | | | | | |
Net Cash Provided by Operating Activities: | | | | | | | | |
Depreciation and Amortization | | | 1,262,725 | | | | 1,093,062 | |
Gain on the Sale of Equipment | | | (15,659 | ) | | | (114,658 | ) |
Deferred Income Taxes | | | 6,000 | | | | 119,000 | |
Changes in Operating Assets and Liabilities: | | | | | | | | |
Accounts Receivable, net | | | (158,884 | ) | | | (932,838 | ) |
Inventories, net | | | (281,686 | ) | | | 55,584 | |
Other Current Assets | | | (226,548 | ) | | | 126,811 | |
Accounts Payable | | | (79,935 | ) | | | (108,686 | ) |
Accrued Wages and Salaries | | | 44,915 | | | | 150,419 | |
Other Accrued Expenses | | | (89,123 | ) | | | 149,601 | |
Unearned Revenue and Customer Deposits | | | (56,200 | ) | | | 41,161 | |
| | | | | | | | |
Net Cash Provided by Operating Activities | | | 2,357,494 | | | | 3,058,485 | |
| | | | | | | | |
Cash Flows from Investing Activities: | | | | | | | | |
Capital Expenditures | | | (1,656,230 | ) | | | (3,444,876 | ) |
Proceeds from the Sale of Equipment | | | 19,100 | | | | 165,200 | |
Proceeds from Certificates of Deposit | | | 4,133,348 | | | | 7,088,000 | |
Purchases of Certificates of Deposit | | | (3,984,000 | ) | | | (6,207,348 | ) |
| | | | | | | | |
Net Cash Used In Investing Activities | | | (1,487,782 | ) | | | (2,399,024 | ) |
| | | | | | | | |
Cash Flows from Financing Activities: | | | | | | | | |
Cash Dividends Paid | | | (1,082,068 | ) | | | (608,663 | ) |
| | | | | | | | |
Net Cash Used in Financing Activities | | | (1,082,068 | ) | | | (608,663 | ) |
| | | | | | | | |
Net Increase (Decrease) in Cash and Cash Equivalents | | | (212,356 | ) | | | 50,798 | |
Cash and Cash Equivalents: | | | | | | | | |
Beginning of Year | | | 443,608 | | | | 392,810 | |
| | | | | | | | |
End of Year | | $ | 231,252 | | | $ | 443,608 | |
| | | | | | | | |
Net Cash Paid for Income Taxes | | $ | 1,160,769 | | | $ | 877,494 | |
| | |
Supplemental Schedule of Non-cash Investing Activities: | | | | | | | | |
Capital Expenditures in Accounts Payable | | $ | 78,811 | | | $ | 29,982 | |
The accompanying notes are an integral part of the Consolidated Financial Statements.
6
Notes to Consolidated
Financial Statements
1—Nature of Business and Significant Accounting Policies
Nature of Business—The Company operates in the fastener industry and is in the business of producing and selling rivets, cold-formed fasteners and parts, screw machine products, automatic rivet setting machines and parts and tools for such machines.
A summary of the Company’s significant accounting policies follows:
Principles of Consolidation—The consolidated financial statements include the accounts of Chicago Rivet & Machine Co. and its wholly-owned subsidiary, H & L Tool Company, Inc. (“H & L Tool”). All significant intercompany accounts and transactions have been eliminated.
Revenue Recognition—Revenues from product sales are recognized upon shipment and an allowance is provided for estimated returns and discounts based on experience. Cash received by the Company prior to shipment is recorded as deferred revenue. The Company experiences a certain degree of sales returns that varies over time. The Company is able to make a reasonable estimation of expected sales returns based upon history. The Company records all shipping and handling fees billed to customers as revenue, and related costs as cost of sales, when incurred.
Credit Risk—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. The Company has established an allowance for accounts that may become uncollectible in the future. This estimated allowance is based primarily on management’s evaluation of the financial condition of the customer and historical experience. The Company monitors its accounts receivable and charges to expense an amount equal to its estimate of potential credit losses. The Company considers a number of factors in determining its estimates, including the length of time its trade accounts receivable are past due, the Company’s previous loss history and the customer’s current ability to pay its obligation. Accounts receivable balances are charged off against the allowance when it is determined that the receivable will not be recovered.
Cash and Cash Equivalents and Certificates of Deposit—The Company considers all highly liquid investments, including certificates of deposit, with a maturity of three months or less when purchased to be cash equivalents. Certificates of deposit with an original maturity
of greater than three months are separately presented at cost which approximates market value. The Company maintains cash on deposit in several financial institutions. At times, the account balances may be in excess of Federal Deposit Insurance Corporation insured limits.
Fair Value of Financial Instruments—The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, certificates of deposit, accounts receivable and accounts payable approximate fair value based on their short term nature.
Inventories—Inventories are stated at the lower of cost or net realizable value, cost being determined by thefirst-in,first-out method. The value of inventories is reduced for estimated excess and obsolete inventories based on a review of on-hand inventories compared to historical and estimated future sales and usage.
Property, Plant and Equipment—Properties are stated at cost and are depreciated over their estimated useful lives using thestraight-line method for financial reporting purposes. Accelerated methods of depreciation are used for income tax purposes. Direct costs related to developing or obtaining software for internal use are capitalized as property and equipment. Capitalized software costs are amortized over the software’s useful life when the software is placed in service. The estimated useful lives by asset category are:
| | | | |
| Asset category | | Estimated useful life | |
Land improvements | | | 15 to 25 years | |
Buildings and improvements | | | 10 to 35 years | |
Machinery and equipment | | | 7 to 15 years | |
Capitalized software costs | | | 3 to 5 years | |
Other equipment | | | 3 to 15 years | |
The Company reviews the carrying value of property, plant and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. There were no triggering events requiring assessment of impairment as of December 31, 2014 and 2013.
When properties are retired or sold, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss on disposition is recognized in current operations. Maintenance, repairs and minor betterments that do not improve the related asset or extend its useful life are charged to operations as incurred.
7
Income Taxes—Deferred income taxes are determined under the asset and liability method. Deferred income taxes arise from temporary differences between the income tax basis of assets and liabilities and their reported amounts in the financial statements.
The Company applies a comprehensive model for the financial statement recognition, measurement, classification and disclosure of uncertain tax positions. In the first step of the two-step process, the Company evaluates the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. In the second step, the Company measures the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. As of December 31, 2014 and 2013, the Company determined that there are no uncertain tax positions with a more than 50% likelihood of being realized upon settlement.
The Company classifies interest and penalties related to unrecognized tax benefits as a component of income tax expense. There were no such expenses in 2014 or 2013.
The Company’s federal income tax returns for the 2011 through 2013 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 2011, 2012 and 2013 federal income tax returns will expire on September 15, 2015, 2016 and 2017, respectively.
The Company’s state income tax returns for the 2011 through 2013 tax years are subject to examination by various state authorities with the latest closing period on October 31, 2017. The Company is currently not under examination by any state authority for income tax purposes and no statutes for state income tax filings have been extended.
Segment Information—The Company reports segment information based on the internal structure and reporting of the Company’s operations.
Net Income Per Share—Net income per share of common stock is based on the weighted average number of shares outstanding of 966,132 in 2014 and 2013.
Use of Estimates—The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Significant items subject to estimates and assumptions include depreciable lives, deferred taxes and valuation allowances for accounts receivable and inventory
obsolescence. Actual results could differ from those estimates.
Recent Accounting Pronouncements—In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which provides guidance for revenue recognition. This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets. The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. The standard will be effective for periods beginning after December 15, 2016 with early adoption permitted. The Company has not yet evaluated the impact of the adoption of this ASU on the consolidated financial statements.
2—Balance Sheet Details
| | | | | | | | |
| | | 2014 | | | 2013 | |
Inventories: | | | | | | | | |
Raw materials | | $ | 2,154,572 | | | $ | 2,130,718 | |
Work in process | | | 1,664,899 | | | | 1,507,755 | |
Finished goods | | | 1,961,003 | | | | 1,806,315 | |
| | | | | | | | |
| | | 5,780,474 | | | | 5,444,788 | |
Valuation reserves | | | (618,000 | ) | | | (564,000 | ) |
| | | | | | | | |
| | $ | 5,162,474 | | | $ | 4,880,788 | |
| | | | | | | | |
| | |
Property, Plant and Equipment, net: | | | | | | | | |
Land and improvements | | $ | 1,270,242 | | | $ | 1,238,150 | |
Buildings and improvements | | | 6,494,896 | | | | 6,438,022 | |
Machinery and equipment | | | 32,032,724 | | | | 30,532,728 | |
Capitalized software and other | | | 1,158,065 | | | | 1,273,375 | |
| | | | | | | | |
| | | 40,955,927 | | | | 39,482,275 | |
Accumulated depreciation | | | (30,077,932 | ) | | | (29,073,155 | ) |
| | | | | | | | |
| | $ | 10,877,995 | | | $ | 10,409,120 | |
| | | | | | | | |
| | |
Other Accrued Expenses: | | | | | | | | |
Profit sharing plan contribution | | $ | 314,155 | | | $ | 391,945 | |
Property taxes | | | 92,901 | | | | 91,957 | |
All other items | | | 113,667 | | | | 125,944 | |
| | | | | | | | |
| | $ | 520,723 | | | $ | 609,846 | |
| | | | | | | | |
| | |
Allowance for Doubtful Accounts: | | | | | | | | |
Balance at beginning of year | | $ | 150,000 | | | $ | 150,000 | |
Charges to statement of income | | | 1,867 | | | | 11,248 | |
Write-offs | | | (1,867 | ) | | | (11,248 | ) |
| | | | | | | | |
Balance at end of year | | $ | 150,000 | | | $ | 150,000 | |
| | | | | | | | |
| | |
Inventory Valuation Reserves: | | | | | | | | |
Balance at beginning of year | | $ | 564,000 | | | $ | 550,000 | |
Charges to statement of income | | | 134,271 | | | | 121,380 | |
Write-offs | | | (80,271 | ) | | | (107,380 | ) |
| | | | | | | | |
Balance at end of year | | $ | 618,000 | | | $ | 564,000 | |
| | | | | | | | |
8
3—Income Taxes—The provision for income tax expense consists of the following:
| | | | | | | | |
| | | 2014 | | | 2013 | |
Current: | | | | | | | | |
Federal | | $ | 907,000 | | | $ | 967,000 | |
State | | | 42,000 | | | | 61,000 | |
Deferred | | | 6,000 | | | | 119,000 | |
| | | | | | | | |
| | $ | 955,000 | | | $ | 1,147,000 | |
| | | | | | | | |
The following is a reconciliation of the statutory federal income tax rate to the actual effective tax rate:
| | | | | | | | | | | | | | | | |
| | | 2014 | | | 2013 | |
| | | Amount | | | % | | | Amount | | | % | |
Expected tax at U.S. statutory rate | | $ | 988,000 | | | | 34.0 | | | $ | 1,233,000 | | | | 34.0 | |
Permanent differences | | | (61,000 | ) | | | (2.1 | ) | | | (127,000 | ) | | | (3.5 | ) |
State taxes, net of federal benefit | | | 28,000 | | | | 1.0 | | | | 41,000 | | | | 1.1 | |
| | | | | | | | | | | | | | | | |
Income tax expense | | $ | 955,000 | | | | 32.9 | | | $ | 1,147,000 | | | | 31.6 | |
| | | | | | | | | | | | | | | | |
The Company’s effective tax rates were lower than the U.S. federal statutory rate in 2014 and 2013 primarily due to the Domestic Production Activities Deduction allowed under Internal Revenue Code Section 199.
The deferred tax liabilities and assets consist of the following:
| | | | | | | | |
| | | 2014 | | | 2013 | |
Depreciation and amortization | | $ | (1,107,275 | ) | | $ | (1,065,275 | ) |
| | | | | | | | |
Inventory | | | 283,359 | | | | 256,474 | |
Accrued vacation | | | 108,642 | | | | 100,314 | |
Allowance for doubtful accounts | | | 53,625 | | | | 52,500 | |
Other, net | | | 565 | | | | 903 | |
| | | | | | | | |
| | | 446,191 | | | | 410,191 | |
| | | | | | | | |
| | $ | (661,084 | ) | | $ | (655,084 | ) |
| | | | | | | | |
Valuation allowances related to deferred taxes are recorded based on the “more likely than not” realization criteria. The Company reviews the need for a valuation allowance on a quarterly basis for each of its tax jurisdictions. A deferred tax valuation allowance was not required at December 31, 2014 or 2013.
4—Profit Sharing Plan—The Company has a noncontributory profit sharing plan covering substantially all employees. Total expenses relating to the profit sharing plan amounted to approximately $314,000 in 2014 and $392,000 in 2013.
5—Other Income—consists of the following:
| | | | | | | | |
| | | 2014 | | | 2013 | |
Interest income | | $ | 25,904 | | | $ | 30,802 | |
Gain on sale of equipment | | | 15,659 | | | | 114,658 | |
Other | | | 15,376 | | | | 15,375 | |
| | | | | | | | |
| | $ | 56,939 | | | $ | 160,835 | |
| | | | | | | | |
6—Segment Information—The Company operates, primarily in the United States, in two business segments as determined by its products. The fastener segment, which comprises H & L Tool and the parent company’s fastener operations, includes rivets, cold-formed fasteners and parts 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 | | | Assembly
Equipment | | | Other | | | Consolidated | |
| Year Ended December 31, 2014: | | | | | | | | | | | | | | | | |
Net sales | | $ | 34,116,301 | | | $ | 3,018,906 | | | $ | — | | | $ | 37,135,207 | |
Depreciation | | | 1,123,818 | | | | 65,621 | | | | 73,286 | | | | 1,262,725 | |
Segment operating profit | | | 4,219,161 | | | | 745,682 | | | | — | | | | 4,964,843 | |
Selling and administrative expenses | | | | | | | | | | | (2,114,893 | ) | | | (2,114,893 | ) |
Other income | | | | | | | | | | | 56,939 | | | | 56,939 | |
| | | | | | | | | | | | | | | | |
Income before income taxes | | | | | | | | | | | | | | | 2,906,889 | |
| | | | | | | | | | | | | | | | |
Capital expenditures | | | 1,667,248 | | | | 42,411 | | | | 25,382 | | | | 1,735,041 | |
Segment assets: | | | | | | | | | | | | | | | | |
Accounts receivable, net | | | 5,362,201 | | | | 307,453 | | | | — | | | | 5,669,654 | |
Inventories, net | | | 4,308,987 | | | | 853,487 | | | | — | | | | 5,162,474 | |
Property, plant and equipment, net | | | 9,267,529 | | | | 1,113,923 | | | | 496,543 | | | | 10,877,995 | |
Other assets | | | — | | | | — | | | | 7,257,512 | | | | 7,257,512 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 28,967,635 | |
| | | | | | | | | | | | | | | | |
Year Ended December 31, 2013: | | | | | | | | | | | | | | | | |
Net sales | | $ | 33,616,593 | | | $ | 3,501,237 | | | $ | — | | | $ | 37,117,830 | |
Depreciation | | | 957,078 | | | | 59,195 | | | | 76,789 | | | | 1,093,062 | |
Segment operating profit | | | 4,659,006 | | | | 943,887 | | | | — | | | | 5,602,893 | |
Selling and administrative expenses | | | | | | | | | | | (2,137,699 | ) | | | (2,137,699 | ) |
Other income | | | | | | | | | | | 160,835 | | | | 160,835 | |
| | | | | | | | | | | | | | | | |
Income before income taxes | | | | | | | | | | | | | | | 3,626,029 | |
| | | | | | | | | | | | | | | | |
Capital expenditures | | | 3,092,842 | | | | 90,010 | | | | 292,006 | | | | 3,474,858 | |
Segment assets: | | | | | | | | | | | | | | | | |
Accounts receivable, net | | | 5,277,378 | | | | 233,392 | | | | — | | | | 5,510,770 | |
Inventories, net | | | 4,076,781 | | | | 804,007 | | | | — | | | | 4,880,788 | |
Property, plant and equipment, net | | | 8,727,541 | | | | 1,137,133 | | | | 544,446 | | | | 10,409,120 | |
Other assets | | | — | | | | — | | | | 7,356,668 | | | | 7,356,668 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | 28,157,346 | |
| | | | | | | | | | | | | | | | |
The Company does not allocate certain selling and administrative expenses for internal reporting, thus, no allocation was made for these expenses for segment disclosure purposes. Segment assets reported internally are limited to accounts receivable, inventory and long-lived assets. Certain long-lived assets of one plant location are allocated between the two segments based on estimated plant utilization, as this plant serves both fastener and assembly equipment activities. Other assets are not allocated to segments internally and to do so would be impracticable. Sales to two customers in the fastener segment accounted for 20 and 18 percent and 13 and 14 percent of consolidated revenues during 2014 and 2013, respectively. The accounts receivable balances for these customers accounted for 23 and 20 percent of consolidated accounts receivable for the larger customer and 12 and 16 percent for the other customer as of December 31, 2014 and 2013, respectively.
9
7—Shareholder Rights Agreement—On November 16, 2009, the Company adopted a shareholder rights agreement and declared a dividend distribution of one right for each outstanding share of Company common stock to shareholders of record at the close of business on December 3, 2009. Each right entitles the holder, upon occurrence of certain events, to buy one one-hundredth of a share of Series A Junior Participating Preferred Stock at a price of $75, subject to adjustment. The rights may only become exercisable under certain circumstances involving acquisition of the Company’s common stock, including the purchase of 10 percent or more by any person or group. The rights will expire on December 1, 2019 unless they are extended, redeemed or exchanged.
8—Commitments and Contingencies—The Company recorded rent expense aggregating approximately $24,000 and $27,000 for 2014 and 2013, respectively. Total future minimum rentals at December 31, 2014 are not significant.
The Company has entered into a contract to expand the fastener facility in Madison Heights, Michigan in order to provide additional capacity and improve workflow through the plant. The base contract amount is $1,502,500 and is expected to be completed before the end of 2015.
The Company is, from time to time involved in litigation, including environmental claims, 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.
9—Subsequent Event—On February 16, 2015, the Board of Directors declared a regular quarterly dividend of $.18 per share, or $173,904, and an extra dividend of $.25 per share, or $241,533, payable March 20, 2015 to shareholders of record on March 5, 2015.
10
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Chicago Rivet & Machine Co.
We have audited the accompanying consolidated balance sheet of Chicago Rivet & Machine Co. and subsidiary (the “Company”) as of December 31, 2014, and the related consolidated statements of income, retained earnings and cash flows for the year ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2014, and the results of their operations and their cash flows for the year ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
Crowe Horwath LLP
Oak Brook, Illinois
March 20, 2015
11
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Chicago Rivet & Machine Co.
We have audited the accompanying consolidated balance sheet of Chicago Rivet & Machine Co. (an Illinois corporation) and subsidiary (the “Company”) as of December 31, 2013 and the related consolidated statements of income, retained earnings and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Chicago Rivet & Machine Co. and subsidiary as of December 31, 2013 and the results of their operations and their cash flows for the year ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America.
Chicago, Illinois
March 21, 2014
12
INFORMATION ON COMPANY’S COMMON STOCK
The Company’s common stock is traded on the NYSE MKT (trading privileges only, not registered.) The ticker symbol is CVR.
At December 31, 2014, there were approximately 170 shareholders of record.
The transfer agent and registrar for the Company’s common stock is:
Continental Stock Transfer & Trust Company
17 Battery Place
New York, New York 10004
The following table shows the dividends declared and the quarterly high and low prices of the common stock for the last two years.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Dividends
Declared | | | Market Range | |
Quarter | | 2014 | | | 2013 | | | 2014 | | | 2013 | |
First | | $ | .58 | * | | $ | .15 | | | $ | 43.54 | | | $ | 32.76 | | | $ | 27.23 | | | $ | 18.84 | |
Second | | | .18 | | | | .15 | | | $ | 40.71 | | | $ | 31.53 | | | $ | 27.80 | | | $ | 23.25 | |
Third | | | .18 | | | | .15 | | | $ | 37.11 | | | $ | 31.00 | | | $ | 31.00 | | | $ | 25.78 | |
Fourth | | | .18 | | | | .18 | | | $ | 32.98 | | | $ | 28.01 | | | $ | 47.70 | | | $ | 29.02 | |
| * | Includes an extra dividend of $.40 per share |
BOARD OF DIRECTORS
John A. Morrissey(e)
Chairman of the Board
of the Company
Chairman of the Board of
Algonquin State Bank, N.A.
Algonquin, Illinois
Michael J. Bourg (e)
President of the Company
Edward L. Chott (a) (c) (n)
Chairman of the Board of
The Broaster Co.
Beloit, Wisconsin
Kent H. Cooney(a)
Chief Financial Officer of
Heldon Bay Limited Partnership
Bigfork, Montana
William T. Divane, Jr.(a) (c) (n)
Chairman of the Board and
Chief Executive Officer of
Divane Bros. Electric Co.
Franklin Park, Illinois
George P. Lynch(c) (n)
Attorney at Law
George Patrick Lynch, Ltd.
Wheaton, Illinois
Walter W. Morrissey(e)
Attorney at Law
Lillig & Thorsness, Ltd.
Oak Brook, Illinois
John L. Showel (n)
Portfolio Manager
Maggiore Fund I, LP
Chicago, Illinois
| (a) | Member of Audit Committee |
| (c) | Member of Compensation Committee |
| (e) | Member of Executive Committee |
| (n) | Member of Nominating Committee |
CORPORATE OFFICERS
John A. Morrissey
Chairman, Chief
Executive Officer
Michael J. Bourg
President, Chief Operating
Officer and Treasurer
Kimberly A. Kirhofer
Secretary
CHICAGO RIVET & MACHINE CO.
Administrative & Sales Offices
Naperville, Illinois
Pembroke, Massachusetts
Manufacturing Facilities
Albia Division
Albia, Iowa
Tyrone Division
Tyrone, Pennsylvania
H & L Tool Company, Inc.
Madison Heights, Michigan
Chicago Rivet & Machine Co. • 901 Frontenac Road • P.O. Box 3061 • Naperville, Illinois 60566 • www.chicagorivet.com
13
Chicago Rivet & Machine Co. • 901 Frontenac Road • P.O. Box 3061 • Naperville, Illinois 60566 • www.chicagorivet.com
