Business Context and Reporting Period
Company: Chicago Rivet & Machine Co.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2010
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, primarily in the Midwestern United States.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2010 |
Six Months Ended June 30, 2010 |
Six Months Ended June 30, 2009 |
|---|---|---|---|
| Net Sales | $7,938,533 | $14,699,926 | $9,439,113 |
| Gross Profit | $1,910,464 | $3,176,327 | $808,979 |
| Gross Margin % | 24.1% | 21.6% | 8.6% |
| Operating Profit | $594,763 | $626,791 | $(1,706,006) |
| Net Income (Loss) | $420,060 | $453,929 | $(1,063,318) |
| Diluted EPS | $0.43 | $0.47 | $(1.10) |
| Cash from Operations | N/A | $343,604 | $390,504 |
| Total Assets | $24,490,868 | N/A | N/A |
| Total Liabilities | $3,068,052 | N/A | N/A |
| Working Capital | $14,648,436 | N/A | N/A |
Note: Working Capital calculated as Total Current Assets ($17,025,213) minus Total Current Liabilities ($2,376,777).
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 69.6% in Q2 2010 and 55.7% year-to-date (YTD) compared to 2009, driven by a rebound in the automotive industry.
- Profitability Turnaround: The Company returned to profitability, reporting a net income of $420,060 in Q2 2010 compared to a net loss of $439,458 in Q2 2009. YTD net income was $453,929 versus a loss of $1,063,318 in 2009.
- Segment Performance:
- Fastener Segment: Sales rose 69.7% in Q2 and 68.2% YTD. Gross margin improved by approximately $1.1 million in Q2 and $2.16 million YTD due to better resource utilization.
- Assembly Equipment Segment: Sales rose 69.1% in Q2 but declined slightly YTD ($1.69M vs $1.70M in 2009) due to a lack of high-dollar machine shipments compared to the prior year's Q1 spike.
- Balance Sheet: Accounts receivable increased by $0.9 million and inventories by $0.3 million, reflecting higher sales volume. Accrued wages increased by $0.4 million due to expanded production payroll.
Outlook, Risks, and Management Commentary
- Management Commentary: Management attributes the strong recovery to improved customer demand in the automotive sector and cost control measures instituted previously. Payroll increased by $540,000 in Q2 to meet demand, but overhead as a percentage of sales decreased.
- Liquidity: Working capital stands at $14.6 million. Management believes current cash, cash equivalents, and operating cash flow are adequate for the foreseeable future.
- Risks and Contingencies:
- Concentration Risk: Significant credit risk and revenue concentration within the automotive industry and reliance on two major customers.
- Economic Sensitivity: Machine sales remain sensitive to economic conditions and consumer confidence.
- Legal/Tax: The Company is involved in routine litigation (environmental/contract disputes) but does not expect material adverse effects. Federal tax returns for 2008 and 2009 are subject to IRS examination.
- Forward-Looking Statements: Results are subject to risks including raw material costs, labor relations, and product liability claims.
Investor Verification Checklist
- Customer Concentration: Verify the specific revenue percentage derived from the "two major customers" mentioned in risk factors.
- Automotive Dependency: Assess the sustainability of the automotive production rebound and its impact on future order books.
- Inventory Levels: Monitor inventory turnover to ensure the $0.3 million increase aligns with sales velocity and does not indicate obsolescence.
- Dividend Policy: Note the cash dividend of $0.20 per share declared for the six-month period; verify sustainability given the recent return to profitability.
- IRS Examination: Track the status of the 2008 and 2009 federal income tax examinations for potential adjustments.