Business Context and Reporting Period
Company: Chicago Rivet & Machine Co.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: The Company operates in two segments: Fasteners (rivets, cold-formed fasteners) and Assembly Equipment (automatic rivet setting machines). The Company is a smaller reporting company with significant exposure to the domestic automotive industry.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 |
|---|---|---|
| Net Sales | $4,679,823 | $9,439,113 |
| Gross Profit | $536,368 | $808,979 |
| Gross Margin % | 11.5% | 8.6% |
| Operating Loss | $(698,542) | $(1,706,006) |
| Net Loss | $(439,458) | $(1,063,318) |
| Loss Per Share | $(0.45) | $(1.10) |
| Cash & Equivalents | $823,426 | $823,426 |
| Certificates of Deposit | $6,739,000 | $6,739,000 |
| Total Current Assets | $16,068,373 | $16,068,373 |
| Total Current Liabilities | $1,702,513 | $1,702,513 |
| Working Capital | $14,365,860 | $14,365,860 |
| Net Cash from Operations (6mo) | $390,504 |
Material Changes vs. Prior Period
- Revenue Decline: Net sales for the six months ended June 30, 2009, decreased by 42.7% ($7.0 million) compared to the same period in 2008. The Fastener segment saw a 46.2% decline, while the Assembly Equipment segment declined 18.7%.
- Profitability: The Company reported a net loss of $1.06 million for the first half of 2009, compared to a net income of $8,251 in the first half of 2008. Operating losses were driven by a significant drop in sales volume that cost reductions could not fully offset.
- Segment Performance: The Fastener segment incurred a loss of $813,651 for the six-month period, reversing a profit of $596,394 in the prior year. The Assembly Equipment segment remained profitable with $145,295 in segment profit, down from $373,717.
- Balance Sheet: Inventories decreased by approximately $1.0 million to $4.1 million, reflecting lower raw material prices and reduced quantities. Accounts receivable declined by $0.4 million due to lower sales activity.
Outlook, Risks, and Management Commentary
- Market Conditions: Management attributes the decline to weak economic conditions and a dramatic reduction in domestic vehicle sales (over 50% decline in production in the first half of the year). The bankruptcy of two "Big 3" automakers and production shut-downs significantly impacted demand.
- Cost Management: The Company has reduced headcount and manufacturing costs. Selling and administrative expenses declined $158,000 year-to-date, primarily due to lower commissions and payroll reductions.
- Liquidity: Management believes current cash, cash equivalents, and operating cash flow provide adequate working capital for the foreseeable future. Total liquid assets (cash and certificates of deposit) remained relatively unchanged at approximately $7.6 million.
- Risks: Key risks include continued dependence on the domestic automotive industry, intense competition, concentration of sales to major customers, and raw material price volatility. The Company notes that forward-looking statements are subject to uncertainties regarding the timing and strength of an economic recovery.
- Contingencies: The Company is involved in routine litigation and environmental claims but does not expect a material adverse effect. Federal income tax returns for 2006 and 2007 are under IRS examination.
Investor Verification Checklist
- Automotive Exposure: Verify the extent of revenue concentration in the automotive sector and the specific impact of ongoing production shut-downs by major customers.
- Inventory Valuation: Confirm the adequacy of inventory reserves given the decline in raw material prices and the shift to lower production volumes.
- Cash Burn vs. Liquidity: Monitor the sustainability of the dividend policy ($0.28 per share declared for the six months) against the current operating losses and cash flow trends.
- Cost Structure: Assess whether fixed costs have been sufficiently reduced to match the new, lower revenue baseline.
- Tax Examination: Track the status of the IRS examination for 2006 and 2007 tax returns to ensure no material adjustments to unrecognized tax benefits.