Chicago Rivet & Machine Co. — Form 10-Q Summary
Business Context and Reporting Period
Quarterly report for the three and nine months ended September 30, 2013, filed November 8, 2013. The company operates two segments: fasteners, including cold-formed parts, rivets and screw-machine products; and assembly equipment, including automatic rivet-setting machines, parts and tools. Sales are concentrated in the automotive industry and the Midwest.
Financial Performance and Liquidity
| Metric | Three months ended September 30, 2013 | Three months ended September 30, 2012 | Nine months ended September 30, 2013 | Nine months ended September 30, 2012 |
|---|---|---|---|---|
| Net sales | $9.46 million | $8.54 million | $27.92 million | $26.17 million |
| Gross profit | $2.53 million | $1.92 million | $6.75 million | $5.90 million |
| Operating profit | $1.14 million | $0.66 million | $2.68 million | $1.96 million |
| Net income | $0.82 million | $0.46 million | $1.91 million | $1.40 million |
| Net income per share | $0.85 | $0.48 | $1.98 | $1.45 |
- Third-quarter gross margin was approximately 26.7%, operating margin 12.0% and net margin 8.7%. Nine-month gross margin was approximately 24.2%, operating margin 9.6% and net margin 6.9%.
- Third-quarter sales increased 10.8%; nine-month sales increased 6.7%. Third-quarter net income increased 77.1%, while nine-month net income increased 36.8%.
- Fastener sales increased 10.1% in the quarter and 6.8% year to date. Assembly equipment sales increased 19.4% in the quarter and 5.5% year to date.
- Cash provided by operating activities was $2.41 million for the nine months, compared with $1.74 million in the prior-year period.
- Capital expenditures were $2.75 million, compared with $0.58 million in the prior-year period; approximately $2.4 million was invested in cold-heading equipment intended to increase capabilities and capacity.
- At September 30, 2013, cash and cash equivalents were $0.91 million and certificates of deposit were $5.96 million, for combined cash and certificates of deposit of approximately $6.87 million. Management reported working capital of approximately $15.5 million.
- Total assets were $28.79 million and shareholders’ equity was $24.48 million. The filing does not report outstanding borrowings or debt; total liabilities were $4.31 million, primarily current liabilities and deferred taxes.
- Accounts receivable increased to $6.25 million from $4.58 million at December 31, 2012, primarily reflecting higher sales. Net inventories were $4.89 million, broadly unchanged from year-end.
- Cash dividends declared and paid were $0.15 per share in the quarter and $0.45 per share year to date.
Material Changes Versus the Prior Comparable Period
- Improved automotive production and sales supported revenue growth, particularly in the fastener segment.
- Favorable raw-material prices and approximately $47,000 of third-quarter production-tooling savings improved fastener gross margin. Fastener gross profit increased to $2.23 million from $1.71 million in the quarter and to $5.84 million from $5.08 million year to date.
- Selling and administrative expenses increased 10.2% in the quarter and 3.5% year to date. Higher profit-sharing expense and commissions were partly offset by lower payroll costs following headcount reductions.
- Gains on equipment disposals increased other income by approximately $74,000 in the quarter and $57,000 year to date, associated with replacing equipment in the fastener segment.
- Working capital declined approximately $0.4 million from year-end because of increased capital expenditures and accounts receivable, partially offset by higher accounts payable and accrued expenses. Management stated that cash, cash equivalents and operating cash flow should provide adequate working capital for the foreseeable future.
Outlook, Risks, Contingencies and Unusual Items
Management expressed optimism regarding continued profitable revenue growth, improved operating results and the expected contribution of recently installed equipment. No quantitative earnings or revenue guidance was provided, and management cautioned that quarterly and year-to-date results are not necessarily indicative of full-year results.
- Key risks include domestic automotive industry conditions, competition, dependence on two major customers, 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 involved from time to time in litigation, including environmental claims and contract disputes. Management believes unprovided liabilities will not have a material adverse effect, but the ultimate amounts are not determinable from the filing.
- Federal tax returns for 2010 through 2012 and state returns for 2010 through 2012 remain subject to examination. Management does not expect a material adjustment.
- The third quarter included a $74,235 gain from equipment disposal; the nine-month period included a $116,721 gain.
- Disclosure controls were determined to be effective, and no material changes to internal control over financial reporting were reported.
Important Facts for Investors to Verify
- Whether automotive production and the company’s two major-customer concentration can sustain the reported sales growth.
- The utilization, productivity benefits and return on the approximately $2.8 million of 2013 capital expenditures, including cold-heading equipment.
- Whether favorable raw-material prices and tooling savings persist and offset labor, commission and profit-sharing costs.
- Accounts receivable growth, collection trends and the effect of higher working-capital requirements on cash generation.
- The absence of separately reported debt balances and the composition, maturity and availability of the $5.96 million in certificates of deposit.
- Potential exposure from environmental, product liability, warranty, recall and tax matters, notwithstanding management’s assessment that they are not expected to be material.