Chicago Rivet & Machine Co. — 2013 Q2 Form 10-Q Summary
Business context and reporting period
Quarterly report for the three and six months ended June 30, 2013. Chicago Rivet operates in two segments: fasteners and assembly equipment. Sales are concentrated in automotive customers, particularly in the Midwest and North American markets. The financial statements are unaudited.
Financial performance and position
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Net sales | $9.33 million | $8.43 million | $18.45 million | $17.63 million |
| Gross profit | $2.21 million | $1.90 million | $4.22 million | $3.97 million |
| Operating profit | $0.88 million | $0.62 million | $1.54 million | $1.30 million |
| Net income | $0.64 million | $0.44 million | $1.09 million | $0.93 million |
| Net income per share | $0.66 | $0.46 | $1.13 | $0.97 |
- Q2 sales increased 10.7%; six-month sales increased 4.7%.
- Q2 gross margin was approximately 23.7%, compared with 22.5% in the prior-year quarter. Six-month gross margin was approximately 22.9%, compared with 22.5%.
- Q2 operating margin was approximately 9.5%, compared with 7.3%; six-month operating margin was approximately 8.4%, compared with 7.4%.
- Q2 net margin was approximately 6.8%, compared with 5.2%; six-month net margin was approximately 5.9%, compared with 5.3%.
- Fastener revenue rose 11.3% in Q2 and 5.2% year to date. Assembly equipment revenue rose 4.9% in Q2 and was fractionally lower year to date.
- Six-month net cash provided by operating activities was $1.28 million, versus $0.87 million in 2012. Capital expenditures were $1.78 million in the cash-flow statement, versus $0.43 million in 2012; the filing identifies approximately $1.5 million for cold-heading equipment.
- Cash and cash equivalents were $0.88 million at June 30, 2013, compared with $0.39 million at December 31, 2012. Certificates of deposit were $5.91 million, compared with $7.09 million.
- Working capital was approximately $15.2 million, down approximately $0.7 million from year-end. Management stated that cash, certificates of deposit, and operating cash flow provide adequate working capital for the foreseeable future.
- Total assets were $27.75 million and total liabilities were $3.95 million at June 30, 2013. The filing does not report borrowings or other debt balances.
- Shareholders’ equity was $23.80 million. The company declared $0.15 per share in Q2 and $0.30 per share for the first half.
Material changes versus the prior comparable period
- Profitability improved primarily from higher sales and improved margins. Six-month net income increased 16.9%.
- Fastener margins benefited from higher volume, lower raw-material prices, and cost controls, partially offset by approximately $146,000 of additional tooling costs for new parts.
- Q2 selling and administrative expenses increased 3.8%, mainly because of higher profit-sharing and commission expense. Six-month selling and administrative expense increased only $9,105, and declined to 14.5% of sales from 15.2%.
- Accounts receivable increased $1.22 million from year-end, reflecting higher sales. Accounts payable, accrued wages, and other accrued expenses also increased.
- The company made substantially greater investments in production equipment, particularly cold-heading capacity and capabilities.
Outlook, commentary, risks, and unusual items
Management cited continued strength in domestic automotive production and intends to pursue additional automotive sales and other favorable operating initiatives. Management expects recent operational investments to contribute positively to future results, but provided no quantitative earnings or revenue guidance.
- The company has customer and industry concentration, including significant reliance on the automotive industry and two major customers.
- Key risks include automotive-market conditions, competition, raw-material price and availability, labor relations, product liability, warranty and recall claims, environmental costs, loss of key employees, and failure to achieve expected cost savings.
- The company is periodically involved in litigation, including environmental claims and contract disputes. Management believes unprovided liabilities will not materially affect financial position, but the ultimate amounts cannot presently be established.
- Federal tax returns for 2010–2012 and state returns for 2010–2012 remain subject to examination. Management does not expect a material adjustment.
- Q2 included a $42,486 gain on disposal of equipment; six-month interest income was $15,485.
- Results for the six months ended June 30, 2013 are not necessarily indicative of full-year results.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether automotive production and sales remain strong enough to support continued fastener-segment growth.
- The concentration of revenue among the automotive industry and two major customers.
- The utilization, returns, and future contribution of the approximately $1.5 million cold-heading equipment investment.
- Accounts receivable growth, customer collections, and inventory valuation reserves, which totaled $602,000 at June 30, 2013.
- The effect of raw-material prices, tooling costs, and labor costs on gross margins.
- Potential exposure from litigation, environmental matters, product liability, warranty and recall claims, and pending tax examinations.
- The filing’s differing capital-expenditure presentations: $1.78 million in the cash-flow statement versus approximately $1.97 million in segment information; the underlying reconciliation should be reviewed.