Chicago Rivet & Machine Co. — Form 10-Q Summary
Business context and reporting period
Quarterly report for the three months ended March 31, 2013. The company operates in two segments: fasteners, including rivets, cold-formed fasteners and screw-machine products; and assembly equipment, including automatic rivet-setting machines, parts and tools. Sales are concentrated in the automotive industry and primarily in the Midwestern United States. The interim financial statements are unaudited.
Financial performance and condition
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Net sales | $9.126 million | $9.200 million |
| Gross profit | $2.010 million | $2.078 million |
| Gross margin | 22.0% | 22.6% |
| Operating profit | $658,447 | $686,691 |
| Operating margin | 7.2% | 7.5% |
| Net income | $453,532 | $493,734 |
| Net margin | 5.0% | 5.4% |
| Earnings per share | $0.47 | $0.51 |
| Cash dividends per share | $0.15 | $0.15 |
- Net cash used in operating activities was $144,771, compared with $369,402 in Q1 2012. Accounts receivable increased $1.285 million and inventories increased $348,120 during the quarter.
- Investing activities provided $1.652 million, principally from net proceeds from certificates of deposit. Capital expenditures were $50,988 in the cash-flow statement; the segment disclosure reports $82,590, including capital expenditures recorded in accounts payable.
- Cash and cash equivalents were $1.755 million at March 31, 2013, compared with $392,810 at December 31, 2012. Cash plus certificates of deposit totaled approximately $7.140 million, down from approximately $7.481 million at year-end.
- Total current assets were $19.034 million and current liabilities were $2.739 million, producing working capital of approximately $16.3 million. Total assets were $26.929 million and shareholders’ equity was $23.309 million.
- No borrowings or debt are reported on the condensed balance sheet. The filing text does not provide a separate debt facility or unused borrowing capacity.
- At March 31, 2013, accounts receivable were $5.863 million and net inventories were $5.284 million. Inventory valuation reserves were $560,000.
Material changes versus the prior comparable period
- Sales declined 0.8%, primarily because Q1 2013 had fewer shipping days. Net income decreased 8.1% and diluted or basic share count was unchanged at 966,132 shares.
- Fastener revenue declined fractionally to $8.303 million from $8.334 million, ending more than three years of year-over-year quarterly sales increases. Management attributed the decline to fewer shipping days and slower growth in domestic automotive production.
- Assembly equipment revenue declined 5.0% to $823,000 from $866,000 because fewer machines were shipped and machine-tool sales were lower. Segment margins improved by approximately $11,000 because of lower material costs and variable overhead.
- Fastener segment gross margin declined by approximately $79,000. Tooling costs increased approximately $186,000, largely due to new parts, partly offset by lower steel and other raw-material costs.
- Selling and administrative expenses declined 2.9% to $1.352 million, or 14.8% of sales versus 15.1%. Lower payroll and related expenses more than offset an approximately $18,000 increase in sales commissions.
- Q1 2012 included a $30,000 gain on disposal of equipment; Q1 2013 had no comparable gain.
Guidance, outlook, risks and unusual items
Management reported that machine orders at March 31, 2013 exceeded the level one year earlier and described the near-term outlook as positive, citing an improved order backlog and forecasted growth in domestic automotive sales. Management believes current cash, cash equivalents and operating cash flow will provide adequate working capital for the foreseeable future. After quarter-end, the company invested $1.3 million in equipment for production of cold-formed parts.
- Key risks include dependence on the domestic automotive industry, concentration of sales to two major customers, intense competition, raw-material price and availability, labor-relations issues, product-liability, warranty and recall claims, environmental compliance costs, loss of key employees and the ability to achieve cost savings.
- The company is periodically involved in litigation, including environmental claims and contract disputes. Management believes unprovided liabilities will not materially adversely affect financial position, although the ultimate amounts cannot presently be determined.
- Federal tax returns for 2010–2012 and state returns for 2010–2012 remain subject to examination. Management does not anticipate a material effect from potential adjustments.
- The effective tax rate was approximately 32.4% in Q1 2013 versus 32.3% in Q1 2012.
- Management stated that disclosure controls were effective and that no material changes occurred in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether domestic automotive production and the company’s two major-customer concentration support the stated backlog and sales outlook.
- The sustainability of margins given higher tooling costs, raw-material prices and the recent decline in fastener sales.
- The effect of the $1.3 million post-quarter-end equipment purchase on liquidity, capacity and future depreciation.
- Working-capital conversion, particularly the elevated accounts receivable and inventory balances and the negative operating cash flow in Q1.
- Potential exposure from litigation, environmental matters, product claims and tax examinations.
- The filing’s statement that quarterly results are not necessarily indicative of full-year results.