Chicago Rivet & Machine Co. — Form 10-Q Summary
Business context and reporting period
Quarterly report for the three and nine months ended September 30, 2012. The company operates in 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 primarily in the automotive industry and the Midwestern United States.
Key financial metrics
| Metric | Q3 2012 | Q3 2011 | 9M 2012 | 9M 2011 |
|---|---|---|---|---|
| Net sales | $8.54 million | $7.82 million | $26.17 million | $23.77 million |
| Gross profit | $1.92 million | $1.75 million | $5.90 million | $5.12 million |
| Gross margin | 22.5% | 22.3% | 22.5% | 21.5% |
| Operating profit | $0.66 million | $0.46 million | $1.96 million | $1.29 million |
| Operating margin | 7.7% | 5.8% | 7.5% | 5.4% |
| Net income | $0.46 million | $0.32 million | $1.40 million | $1.02 million |
| Net margin | 5.4% | 4.1% | 5.3% | 4.3% |
| Earnings per share | $0.48 | $0.33 | $1.45 | $1.06 |
Nine-month net cash provided by operating activities was $1.74 million, compared with $0.55 million in the prior-year period. Capital expenditures were $0.58 million, down from $0.99 million. Cash dividends paid were $0.43 million, and dividends declared increased to $0.45 per share from $0.36 per share.
At September 30, 2012, cash and cash equivalents were $1.31 million and certificates of deposit were $6.06 million, for total cash and short-term deposit balances of approximately $7.36 million, compared with $6.58 million at December 31, 2011. Working capital was approximately $16.1 million. The filing does not disclose outstanding debt; reported liabilities consisted primarily of accounts payable, accrued compensation and other accrued expenses, and deferred taxes.
Total assets were $26.55 million and shareholders’ equity was $23.09 million at September 30, 2012. Accounts receivable increased to $5.45 million from $4.40 million at year-end, while inventories were essentially unchanged at $5.21 million.
Material changes versus the prior comparable period
- Third-quarter sales increased 9.2%; nine-month sales increased 10.1%.
- Fastener revenue increased 13.4% in the third quarter and 11.5% year to date. Fastener gross margin improved to $1.71 million from $1.40 million in the quarter and to $5.08 million from $4.29 million year to date, aided by higher sales and lower recent raw-material prices.
- Assembly equipment revenue decreased 23.3% in the third quarter and 2.2% year to date. The company stated that this segment’s sales fluctuate because of large, unpredictable orders.
- Selling and administrative expense decreased 2.0% in the third quarter but increased 2.7% year to date. Year-to-date expense growth included approximately $61,000 of additional profit-sharing expense related to improved profitability.
- Year-to-date results benefited from efficiency initiatives and higher sales. The prior-year period included a larger gain on the disposal of property and equipment, primarily related to the sale of the Jefferson, Iowa property.
Guidance, outlook, risks, contingencies, and unusual items
No quantitative earnings or revenue guidance was provided. Management said it intends to pursue profitable revenue growth, improve profitability, maintain product quality and service, and make prudent operational investments. Management believes existing cash, certificates of deposit, and operating cash flow will provide adequate working capital for the foreseeable future.
Management characterized the domestic economic recovery as tentative because of high unemployment and weak consumer confidence. Principal disclosed risks include dependence on the domestic automotive industry, concentration of sales to two major customers, intense competition, raw-material price and availability volatility, labor-relations issues, product-liability, warranty and recall claims, environmental costs, loss of key employees, and difficulty achieving expected cost savings.
The company is involved from time to time in ordinary-course litigation, including environmental claims and contract disputes. Management believes unprovided contingent liabilities will not materially affect financial position, although the ultimate amount of such liabilities cannot currently be determined. Federal tax returns for 2009 through 2011 and certain state returns remain subject to examination; management does not expect a material adjustment.
The financial statements are unaudited and interim results are not necessarily indicative of full-year results. Management concluded that disclosure controls and procedures were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether fastener revenue and margins remain resilient if automotive production, customer demand, or raw-material prices weaken.
- The degree of customer concentration, including the exposure represented by the two major customers.
- Assembly equipment order timing and backlog, given the segment’s quarterly volatility.
- Accounts receivable growth, collection performance, and the adequacy of the $150,000 allowance.
- Inventory valuation reserves of $590,600 and any potential effects of demand changes or product obsolescence.
- The status and potential financial impact of litigation, environmental matters, product claims, and pending tax examinations.
- Future capital expenditures, dividend sustainability, and the absence of disclosed debt balances or borrowing facilities.