Business Context and Reporting Period
Company: Chicago Rivet & Machine Co.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2011
Business Overview: The Company operates in two segments: Fasteners (rivets, cold-formed fasteners, screw machine products) and Assembly Equipment (automatic rivet setting machines and parts). The Company is a smaller reporting company with significant exposure to the automotive industry.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Net Sales | $7,814,368 | $6,761,393 |
| Gross Profit | $1,444,508 | $1,265,863 |
| Gross Margin | 18.5% | 18.7% |
| Operating Profit | $161,493 | $32,028 |
| Net Income | $117,022 | $33,869 |
| Diluted EPS | $0.12 | $0.04 |
| Cash & Equivalents | $591,993 | $543,350 |
| Certificates of Deposit | $5,828,000 | $6,380,000 |
| Total Current Assets | $16,984,002 | $16,179,967 |
| Total Current Liabilities | $2,452,191 | $1,551,206 |
| Working Capital | $14,531,811 | $14,628,761 |
| Net Cash Used in Operating Activities | ($330,671) | ($141,667) |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 15.6% year-over-year, driven primarily by the Fastener segment which grew 17.7% due to improved domestic demand for autos and trucks.
- Profitability: Net income increased 245% to $117,022. Operating profit rose significantly from $32,028 to $161,493.
- Segment Performance:
- Fasteners: Segment profit increased by approximately $147,500. Higher sales volume and improved plant utilization offset higher raw material costs.
- Assembly Equipment: Revenues declined 2.3% to $704,713 due to a drop in tools and parts sales, despite slight improvement in machine shipments. Segment margins decreased by $14,000.
- Working Capital: Accounts receivable increased by $1.0 million due to higher sales activity. Accounts payable increased by $0.8 million. Inventories rose by $0.5 million due to production increases and raw material price hikes.
- Cash Flow: Net cash used in operating activities increased to $330,671 (from $141,667 usage in 2010), primarily due to the buildup in receivables and inventory. Investing activities provided $313,076, largely from the net sale of certificates of deposit.
Outlook, Risks, and Unusual Items
- Management Commentary: Management reports solid improvement in sales and profits but remains cautious regarding higher raw material prices and a sluggish economy.
- Risks:
- Supply Chain Disruption: Potential negative impact from the earthquake and nuclear catastrophe in Japan on the automotive supply chain.
- Customer Concentration: Significant reliance on the domestic automotive industry and concentration of sales to two major customers.
- Raw Materials: Volatility in the price and availability of raw materials.
- Subsequent Event: On April 20, 2011, the Company sold its Jefferson, Iowa property (formerly used for fastener operations) for a net gain of approximately $140,000.
- Dividends: Cash dividends declared were $0.12 per share, an increase from $0.10 per share in the prior year.
Investor Verification Checklist
- Automotive Exposure: Verify the extent of revenue concentration in the automotive sector and the specific impact of the Japan supply chain disruptions on Q2 and Q3 orders.
- Raw Material Costs: Assess the sustainability of gross margins given the noted increase in raw material costs and the ability to pass these costs to customers.
- Working Capital Trends: Monitor the continued growth in accounts receivable and inventory to ensure they align with sales growth and do not indicate collection or obsolescence issues.
- Cash Position: Confirm the adequacy of the $6.4 million in cash and certificates of deposit to fund operations and capital expenditures without external financing.
- Segment Mix: Evaluate the long-term viability of the Assembly Equipment segment, which showed declining revenues and margins compared to the Fastener segment.