Chicago Rivet & Machine Co. — Form 10-Q Summary
Business Context and Reporting Period
Chicago Rivet & Machine Co. manufactures and sells rivets, cold-formed fasteners, screw-machine products, automatic rivet-setting machines, and related parts and tools. Operations are organized into the Fastener and Assembly Equipment segments. This unaudited Form 10-Q covers the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods.
Key Financial Metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Net sales | $7.95 million | $8.57 million | $24.73 million | $26.79 million |
| Gross profit | $41,153 | $1.12 million | $189,620 | $4.42 million |
| Gross margin | 0.5% | 13.1% | 0.8% | 16.5% |
| Operating profit (loss) | $(1.23) million | $4.61 million | $(3.70) million | $5.35 million |
| Net income (loss) | $(964,042) | $3.58 million | $(2.86) million | $4.18 million |
| Basic and diluted EPS | $(1.00) | $3.71 | $(2.96) | $4.33 |
| Operating cash flow | Not separately reported for the quarter | Not separately reported for the quarter | $(2.73) million | $(412,742) |
Q3 2023 net sales declined 7.3% year over year; nine-month sales declined 7.7%. Q3 net margin was approximately negative 12.1%, versus 41.8% in Q3 2022, while nine-month net margin was approximately negative 11.6%, versus 15.6% in the prior-year period. The 2022 results included a $4.74 million gain on sale of property.
At September 30, 2023, cash and cash equivalents were $2.36 million and certificates of deposit were $200,000, for combined cash and certificates of deposit of $2.56 million. Total current assets were $18.19 million, current liabilities were $2.23 million, and working capital was $15.96 million. Total assets were $30.09 million and shareholders’ equity was $27.61 million. The balance sheet does not present a debt balance. Management stated that available cash and operating cash flow are expected to provide adequate working capital for the next twelve months.
Nine-month capital expenditures were $949,862, primarily for fastener-production equipment. Dividends paid were $521,711, and dividends declared were $0.54 per share for the nine-month period, compared with $0.66 per share in 2022.
Material Changes Versus the Prior Comparable Period
- Fastener revenue decreased 10.6% in Q3 and 7.6% year to date. Automotive fastener sales increased 7.7% in Q3 and 6.2% year to date, but non-automotive fastener sales fell 40.1% in Q3 and 27.7% year to date, primarily due to reduced orders from an industrial customer and customer destocking after elevated 2022 ordering.
- Assembly Equipment revenue increased 27.1% in Q3 because of higher machine volume and average selling prices, but declined 8.6% year to date. Nine-month segment gross profit decreased to $542,778 from $699,764.
- Fastener gross profit was a loss of $161,831 in Q3 and a loss of $353,158 year to date, compared with gross profit of $972,363 and $3.72 million, respectively, in the prior-year periods.
- Higher production costs, including labor, inflation-related costs, and costs that have been difficult to recover through pricing, substantially compressed margins. Expediting and quality-related expenses improved during Q3 compared with the first half of the year.
- Selling and administrative expenses increased 1.8% in Q3 and 2.1% year to date. Increases in consulting, recruiting, and rent following the sale of the headquarters were partly offset by lower commissions and profit-sharing costs.
- Cash and certificates of deposit declined from $6.74 million at December 31, 2022 to $2.56 million at September 30, 2023, primarily reflecting operating losses, capital expenditures, dividends, and working-capital changes.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
The filing provides no formal quantitative revenue or earnings guidance. Management expects elevated production-related costs and pricing pressure to persist in the near term. Priorities include obtaining updated customer pricing, improving production efficiency, developing customer relationships, and expanding existing relationships.
Management reported that the United Auto Workers strike beginning in September did not materially affect Q3 results, but the strike’s expansion in Q4 had reduced demand by the filing date. Key risks include dependence on the domestic automotive industry and major customers, raw-material pricing and availability, supply-chain disruptions, labor relations, competition, export sales, product liability and warranty claims, environmental costs, information-system disruptions, key-person risk, and the ability to achieve cost savings.
The company recognized $161,594 of revenue during Q3 from assembly-equipment contracts accounted for using progress toward completion. Remaining performance obligations under those contracts were $303,906, expected to be recognized over the following six months.
The company adopted the current expected credit-loss standard on January 1, 2023. Adoption did not produce a cumulative retained-earnings adjustment or a material financial-statement impact. Litigation, including environmental claims and contract disputes, arises in the ordinary course; management believes unprovided liabilities will not materially affect financial position. Federal tax returns for 2020–2022 and state returns for 2020–2022 remain subject to examination, but management does not expect a material adjustment.
Disclosure controls were not effective at September 30, 2023 because of a material weakness in controls over the presentation of tax provisions related to unusual items. Management is implementing remediation procedures, including use of external tax advisers as necessary. Management nevertheless concluded that the financial statements fairly present the company’s financial position, results of operations, and cash flows.
Important Facts for Investors to Verify
- Whether fastener pricing actions and efficiency investments can restore positive gross margins, particularly in the automotive business.
- The effect of the expanded UAW strike and broader automotive demand on fourth-quarter and future sales.
- Whether non-automotive customer destocking is temporary or represents a sustained reduction in demand.
- The pace of cash usage, operating-cash-flow recovery, capital expenditures, and dividend payments given the September 30 cash and certificate-of-deposit balance of $2.56 million.
- Progress and testing results for remediation of the material weakness in income-tax controls.
- The company’s ability to fund operations without reported debt while operating cash flow remains negative.
- Recognition timing for the $303,906 of remaining assembly-equipment performance obligations.