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LOGO

 

Chicago Rivet & Machine Co.

2013 Annual Report


LOGO

 

 

 

 

Highlights

 

      2013      2012  

Net Sales

   $ 37,117,830       $ 34,223,772   

Net Income

     2,479,029         1,745,741   

Net Income Per Share

     2.57         1.81   

Dividends Per Share

     .63         .90   

Net Cash Provided by Operating Activities

     3,058,485         2,779,342   

Expenditures for Property, Plant and Equipment

     3,474,858         1,187,746   

Working Capital

     15,527,257         15,875,145   

Total Shareholders’ Equity

     24,871,102         23,000,736   

Common Shares Outstanding at Year-End

     966,132         966,132   

Shareholders’ Equity Per Common Share

     25.74         23.81   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual Meeting
The annual meeting of shareholders
will be held on May 13, 2014 at 10:00 a.m. at
901 Frontenac Road
Naperville, Illinois

Chicago Rivet & Machine Co. • 901 Frontenac Road • P.O. Box 3061 • Naperville, Illinois 60566 • www.chicagorivet.com

 

 


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Management’s Report

on Financial Condition and Results of Operations

 

 

 

 

To Our Shareholders:

 

RESULTS OF OPERATIONS

Results for 2013 reflect strong growth in sales and net income compared to the year earlier periods. Revenues were $37,117,830 in 2013, an 8.5 percent increase from $34,223,772 reported in 2012. This includes a 14.2 percent increase in revenues, to $9,202,673, in the fourth quarter of 2013 from $8,056,614 in the fourth quarter of 2012. Both the fastener segment and the assembly equipment segment achieved increases in revenue and higher gross margins during the year, aided by growth in domestic automotive production, which is our primary market, as well as increased sales to certain non-automotive customers. The increase in revenue and improved margins resulted in a 42 percent increase in net income, to $2,479,029, or $2.57 per share, compared with net income of $1,745,741, or $1.81 per share, in 2012. These positive results have allowed us to make significant investments in production equipment and facilities improvements in 2013, while increasing shareholder distributions.

2013 Compared to 2012

The average age of vehicles on U.S. roads reached a new high in 2013, which, coupled with an improving economy, led to increased sales of automobiles and light trucks during the year. Our fastener segment, which relies on the automotive sector for the majority of its revenues, benefited from this environment as well as our ongoing efforts to increase sales in all markets. Fastener segment sales were $33,616,593 in 2013, compared with $30,999,163 in 2012, an increase of 8.4 percent. This marked the fourth consecutive year of sales exceeding the year earlier period. Favorable material pricing in combination with higher sales resulted in an increase in fastener segment gross margins of $1,054,281 during 2013 compared to 2012.

Assembly equipment segment revenues were $3,501,237 in 2013, an increase of $276,628, or 8.6 percent, compared to $3,224,609 recorded in 2012. An increase in the number of machines shipped, as well as a certain high-value order shipped during the fourth quarter of 2013, accounted for most of the increase in the assembly equipment segment sales. The higher sales for the segment combined with overhead costs that were kept at levels consistent with the prior year, resulted in an increase in assembly equipment segment gross margins of $157,372 in 2013.

Selling and administrative expenses were $5,397,861 in 2013, an increase of $211,101, or 4.1 percent, compared to the 2012 total of $5,186,760. The change is primarily due

to an increase in profit sharing expense of $114,600, related to improved operating results, and higher commissions of $89,477 related to the increase in sales. As a percentage of net sales, selling and administrative expenses declined from 15.2 percent in 2012 to 14.5 percent in 2013.

Other income was $160,835 in 2013 compared to $118,099 in 2012. The increase was primarily due to gains on the sale of certain equipment formerly used in our fastener segment operations, as a result of the investment in new equipment.

DIVIDENDS

In determining to pay dividends, the Board considers current profitability, the outlook for longer-term profitability, known and potential cash requirements and the overall financial condition of the Company. In November 2013, the quarterly dividend was increased from $.15 per share to $.18 per share. The Company paid four regular quarterly dividends totaling $.63 per share during 2013. On February 17, 2014, the Board of Directors declared a regular quarterly dividend of $.18 per share, payable March 20, 2014 to shareholders of record on March 5, 2014. This continues the uninterrupted record of consecutive quarterly dividends paid by the Company to its shareholders that extends over 80 years. At that same meeting, the Board also declared an extra dividend of $.40 per share payable March 20, 2014 to shareholders of record on March 5, 2014.

PROPERTY, PLANT AND EQUIPMENT

Capital expenditures during 2013 totaled $3,474,858, of which $3,092,842 was invested in equipment for our fastener operations. Cold heading and screw machine equipment comprised $2,678,440 of the total and $414,402 was expended for equipment used in performing secondary operations on parts, inspection equipment and other general plant equipment. Assembly equipment segment additions totaled $90,010, primarily for building improvements. Additional investments of $292,006 for building improvements and office equipment were made in 2013 that benefit both operating segments.

Total capital expenditures in 2012 were $1,187,746, of which $1,018,734 was invested in equipment for our fastener operations. Inspection equipment accounted for $450,720 of the fastener segment additions while cold heading and screw machine equipment comprised $371,466 of the total. Equipment to perform secondary

 

 

 

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Management’s Report

(Continued)

 

 

 

operations on parts accounted for $46,582, while the remaining additions of $149,966 were for various general plant and office equipment. Assembly equipment segment additions in 2012 were $68,203, for a new turning center. Investments for the benefit of both operating segments, primarily for building improvements, totaled $100,809 during 2012.

Depreciation expense amounted to $1,093,062 in 2013 and $993,951 in 2012.

LIQUIDITY AND CAPITAL RESOURCES

Working capital at December 31, 2013 was $15.5 million, a reduction of $.3 million from the beginning of the year. The most significant factor reducing working capital during the year was the $2.3 million increase in capital expenditures during the year compared to 2012. Partially offsetting that amount was the $.9 million increase in accounts receivable as of year-end as a result of higher fourth quarter sales. The Company’s holdings in cash, cash equivalents and certificates of deposit amounted to $6.7 million at the end of 2013, a decrease of $.8 million. The Company’s investing activities in 2013 consisted primarily of capital expenditures of $3.5 million. The only financing activity during 2013 was the payment of $.6 million in dividends.

Management believes that current cash, cash equivalents and operating cash flow will be sufficient to provide adequate working capital for the foreseeable future.

Off-Balance Sheet Arrangements

The Company has not entered into, and has no current plans to enter into, any off-balance sheet financing arrangements.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of revenue and expenses during the reporting period. A summary of critical accounting policies can be found in Note 1 of the financial statements.

NEW ACCOUNTING STANDARDS

The Company’s financial statements and financial condition were not, and are not expected to be, materially impacted by new, or proposed, accounting standards. A summary of recent accounting pronouncements can be found in Note 1 of the financial statements.

OUTLOOK FOR 2014

While automotive sales did not reach the double digit growth levels of the previous three years, 2013 was nonetheless another strong year for the automotive sector, which outperformed the overall economy. Currently, most forecasts call for automotive sales in 2014 to improve to their highest level since 2007, which would again outpace the overall domestic economy. Pent-up demand, low interest rates and an improving housing market are all factors cited to support this view. Our fastener segment should continue to benefit, based on this outlook, as the majority of that segment’s revenue comes from that market sector. Growth in our assembly equipment segment, which has a broader customer base, is more closely tied to overall economic activity and may be more difficult due to the moderate economic growth forecast and the inclusion of a certain large order in 2013 sales.

During the past year, we benefited from favorable material pricing, however, history has shown that raw material prices can be volatile and forecasting such costs is difficult. Many of our customers expect us to keep prices unchanged due to similar expectations from their customers, making it difficult to recover such increases in costs. In early 2014, we incurred a significant increase in health insurance expense which will impact results throughout the year. Additionally, heating and fuel costs are higher than a year earlier due to the harsh winter. While we will continue our efforts to mitigate such increases through rigorous quoting and by working to improve our operational efficiency, based on the size of some of these increases, the potential success of such efforts is uncertain.

Our profitable results since the end of the recent recession have allowed us to make significant investments in our operations, which have provided additional capacity and production capabilities. We believe these investments are necessary to allow us to take advantage of opportunities that may improve revenue and profitability in the future. We will continue to pursue new customer relationships and work to build on existing ones in all the markets we serve by emphasizing value over price and by

 

 

 

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Management’s Report

(Continued)

 

 

 

concentrating our efforts on producing more complex parts for which our expertise, quality and service are important factors in our customers’ purchasing decisions.

There are many factors that contributed to the successful results in 2013 and will need to be present for future success. A key element is the dedicated efforts of our employees, who consistently work to meet the ever-

changing challenges that characterize today’s manufacturing environment. We gratefully acknowledge their contributions as well as the loyalty of our customers, who have placed their confidence in us to provide them with quality solutions. We also take this opportunity to thank our shareholders for their support.

 

 

Respectfully,

 

LOGO   LOGO
John A. Morrissey   Michael J. Bourg
Chairman   President

March 21, 2014

 

FORWARD-LOOKING STATEMENTS

This discussion contains certain “forward-looking statements” which are inherently subject to risks and uncertainties that may cause actual events to differ materially from those discussed herein. Factors which may cause such differences in events include, those disclosed under “Risk Factors” in our Annual Report on Form 10-K and in the other filings we make with the United States Securities and Exchange Commission. These factors, include among other things: conditions in the domestic automotive industry, upon which we rely for sales revenue, the intense competition in our markets, the concentration of our sales to two major customers, the price and availability of raw materials, labor relations issues, losses related to product liability, warranty and recall claims, costs relating to environmental laws and regulations, and the loss of the services of our key employees. Many of these factors are beyond our ability to control or predict. Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to publish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

 

 

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Consolidated Balance Sheets

 

December 31    2013     2012  

Assets

    

Current Assets

    

Cash and Cash Equivalents

   $ 443,608      $ 392,810   

Certificates of Deposit

     6,207,348        7,088,000   

Accounts Receivable — Less allowances of $150,000

     5,510,770        4,577,932   

Inventories, net

     4,880,788        4,936,372   

Deferred Income Taxes

     410,191        416,191   

Other Current Assets

     295,521        422,332   
  

 

 

   

 

 

 

Total Current Assets

     17,748,226        17,833,637   

Property, Plant and Equipment, net

     10,409,120        8,077,866   
  

 

 

   

 

 

 

Total Assets

   $ 28,157,346      $ 25,911,503   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

    

Current Liabilities

    

Accounts Payable

   $ 924,943      $ 1,003,647   

Accrued Wages and Salaries

     560,114        409,695   

Other Accrued Expenses

     609,846        460,245   

Unearned Revenue and Customer Deposits

     126,066        84,905   
  

 

 

   

 

 

 

Total Current Liabilities

     2,220,969        1,958,492   

Deferred Income Taxes

     1,065,275        952,275   
  

 

 

   

 

 

 

Total Liabilities

     3,286,244        2,910,767   
  

 

 

   

 

 

 
Commitments and Contingencies (Note 8)     

Shareholders’ Equity

    

Preferred Stock, No Par Value, 500,000 Shares Authorized:

    

None Outstanding

              

Common Stock, $1.00 Par Value, 4,000,000 Shares Authorized:

    

1,138,096 Shares Issued

     1,138,096        1,138,096   

Additional Paid-in Capital

     447,134        447,134   

Retained Earnings

     27,207,970        25,337,604   

Treasury Stock, 171,964 Shares at cost

     (3,922,098     (3,922,098
  

 

 

   

 

 

 

Total Shareholders’ Equity

     24,871,102        23,000,736   
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 28,157,346      $ 25,911,503   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

 

 

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Consolidated Statements of Income

 

For the Years Ended December 31    2013      2012  

Net Sales

   $ 37,117,830       $ 34,223,772   

Cost of Goods Sold

     28,254,775         26,572,370   
  

 

 

    

 

 

 

Gross Profit

     8,863,055         7,651,402   

Selling and Administrative Expenses

     5,397,861         5,186,760   
  

 

 

    

 

 

 

Operating Profit

     3,465,194         2,464,642   

Other Income

     160,835         118,099   
  

 

 

    

 

 

 

Income Before Income Taxes

     3,626,029         2,582,741   

Provision for Income Taxes

     1,147,000         837,000   
  

 

 

    

 

 

 

Net Income

   $ 2,479,029       $ 1,745,741   
  

 

 

    

 

 

 

Net Income Per Share

   $ 2.57       $ 1.81   
  

 

 

    

 

 

 

Consolidated Statements of Retained Earnings

 

For the Years Ended December 31    2013     2012  

Retained Earnings at Beginning of Year

   $ 25,337,604      $ 24,461,381   

Net Income

     2,479,029        1,745,741   

Cash Dividends Paid, $.63 and $.90 Per Share in 2013 and 2012, respectively

     (608,663     (869,518
  

 

 

   

 

 

 

Retained Earnings at End of Year

   $ 27,207,970      $ 25,337,604   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

 

 

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Consolidated Statements of Cash Flows

 

For the Years Ended December 31    2013     2012  

Cash Flows from Operating Activities:

    

Net Income

   $ 2,479,029      $ 1,745,741   

Adjustments to Reconcile Net Income to

    

Net Cash Provided by Operating Activities:

    

Depreciation and Amortization

     1,093,062        993,951   

Gain on the Sale of Equipment

     (114,658     (67,946

Deferred Income Taxes

     119,000        171,000   

Changes in Operating Assets and Liabilities:

    

Accounts Receivable, net

     (932,838     (179,506

Inventories, net

     55,584        275,668   

Other Current Assets

     126,811        (74,595

Accounts Payable

     (108,686     (59,606

Accrued Wages and Salaries

     150,419        34,731   

Other Accrued Expenses

     149,601        6,651   

Unearned Revenue and Customer Deposits

     41,161        (66,747
  

 

 

   

 

 

 

Net Cash Provided by Operating Activities

     3,058,485        2,779,342   
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Capital Expenditures

     (3,444,876     (1,092,759

Proceeds from the Sale of Equipment

     165,200        79,400   

Proceeds from Certificates of Deposit

     7,088,000        5,160,000   

Purchases of Certificates of Deposit

     (6,207,348     (6,368,000
  

 

 

   

 

 

 

Net Cash Used In Investing Activities

     (2,399,024 )      (2,221,359
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Cash Dividends Paid

     (608,663     (869,518
  

 

 

   

 

 

 

Net Cash Used in Financing Activities

     (608,663 )      (869,518
  

 

 

   

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

     50,798        (311,535

Cash and Cash Equivalents:

    

Beginning of Year

     392,810        704,345   
  

 

 

   

 

 

 

End of Year

   $ 443,608      $ 392,810   
  

 

 

   

 

 

 

Net Cash Paid for Income Taxes

   $ 877,494      $ 812,298   

Supplemental Schedule of Non-cash Investing Activities:

    

Capital Expenditures in Accounts Payable

   $ 29,982      $ 94,987   

The accompanying notes are an integral part of the Consolidated Financial Statements.

 

 

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Notes to Consolidated

Financial Statements

 

1—Nature of Business and Significant Accounting Policies

Nature of Business—The Company operates in the fastener industry and is in the business of producing and selling rivets, cold-formed fasteners and parts, screw machine products, automatic rivet setting machines and parts and tools for such machines.

A summary of the Company’s significant accounting policies follows:

Principles of Consolidation—The consolidated financial statements include the accounts of Chicago Rivet & Machine Co. and its wholly-owned subsidiary, H & L Tool Company, Inc. (H & L Tool). All significant intercompany accounts and transactions have been eliminated.

Revenue Recognition—Revenues from product sales are recognized upon shipment and an allowance is provided for estimated returns and discounts based on experience. Cash received by the Company prior to shipment is recorded as deferred revenue. The Company experiences a certain degree of sales returns that varies over time. The Company is able to make a reasonable estimation of expected sales returns based upon history. The Company records all shipping and handling fees billed to customers as revenue, and related costs as cost of sales, when incurred.

Credit Risk—The Company extends credit on the basis of terms that are customary within our markets to various companies doing business primarily in the automotive industry. The Company has a concentration of credit risk primarily within the automotive industry and in the Midwestern United States. The Company has established an allowance for accounts that may become uncollectible in the future. This estimated allowance is based primarily on management’s evaluation of the financial condition of the customer and historical experience. The Company monitors its accounts receivable and charges to expense an amount equal to its estimate of potential credit losses. The Company considers a number of factors in determining its estimates, including the length of time its trade accounts receivable are past due, the Company’s previous loss history and the customer’s current ability to pay its obligation. Accounts receivable balances are charged off against the allowance when it is determined that the receivable will not be recovered.

Cash and Cash Equivalents—The Company considers all highly liquid investments, including certificates of deposit, with a maturity of three months or less when purchased to be cash equivalents. The Company maintains cash on deposit in several financial institutions. At times, the account balances may be in excess of FDIC insured limits.

Fair Value of Financial Instruments—The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, certificates of deposit, accounts receivable and accounts payable approximate fair value based on their short term nature.

Inventories—Inventories are stated at the lower of cost or net realizable value, cost being determined by the first-in, first-out method. The value of inventories is reduced for estimated excess and obsolete inventories based on a review of on-hand inventories compared to historical and estimated future sales and usage.

Property, Plant and Equipment—Properties are stated at cost and are depreciated over their estimated useful lives using the straight-line method for financial reporting purposes. Accelerated methods of depreciation are used for income tax purposes. Direct costs related to developing or obtaining software for internal use are capitalized as property and equipment. Capitalized software costs are amortized over the software’s useful life when the software is placed in service. The estimated useful lives by asset category are:

 

Asset category    Estimated useful life  

Land improvements

     15 to 25 years   

Buildings and improvements

     10 to 35 years   

Machinery and equipment

     7 to 15 years   

Capitalized software costs

     3 to 5 years   

Other equipment

     3 to 15 years   

The Company reviews the carrying value of property, plant and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. There were no triggering events requiring assessment of impairment as of December 31, 2013 and 2012.

When properties are retired or sold, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss on disposition is recognized in current operations. Maintenance, repairs and minor betterments that do not improve the related asset or extend its useful life are charged to operations as incurred.

Income Taxes—Deferred income taxes are determined under the asset and liability method. Deferred income taxes arise from temporary differences between the income tax basis of assets and liabilities and their reported amounts in the financial statements.

 

 

 

 

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The Company applies a comprehensive model for the financial statement recognition, measurement, classification and disclosure of uncertain tax positions. In the first step of the two-step process, the Company evaluates the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. In the second step, the Company measures the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. As of December 31, 2013 and 2012, the Company determined that there are no uncertain tax positions with a more than 50% likelihood of being realized upon settlement.

The Company classifies interest and penalties related to unrecognized tax benefits as a component of income tax expense. There were no such expenses in 2013 or 2012.

The Company’s federal income tax returns for the 2010 through 2012 tax years are subject to examination by the Internal Revenue Service (“IRS”). While it may be possible that a reduction could occur with respect to the Company’s unrecognized tax benefits as an outcome of an IRS examination, management does not anticipate any adjustments that would result in a material change to the results of operations or financial condition of the Company.

No statutes have been extended on any of the Company’s federal income tax filings. The statute of limitations on the Company’s 2010, 2011 and 2012 federal income tax returns will expire on September 15, 2014, 2015 and 2016, respectively.

The Company’s state income tax returns for the 2010 through 2012 tax years are subject to examination by various state authorities with the latest closing period on October 31, 2016. The Company is currently not under examination by any state authority for income tax purposes and no statutes for state income tax filings have been extended.

Segment Information—The Company reports segment information based on the internal structure and reporting of the Company’s operations.

Net Income Per Share—Net income per share of common stock is based on the weighted average number of shares outstanding of 966,132 in 2013 and 2012.

Use of Estimates—The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Significant items subject to estimates and assumptions include deferred taxes and valuation allowances for accounts receivable and inventory obsolescence. Actual results could differ from those estimates.

Recent Accounting Pronouncements—In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-11 “Presentation of Unrecognized Tax Benefit When a Net

Operating Loss Carryforward, a Similar Tax Loss or a Tax Credit Carryforward Exists”, to provide guidance on the presentation in the financial statements of unrecognized tax benefits. ASU No. 2013-11 provides that an entity is required to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU 2013-11 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Retrospective application is permitted. The adoption of ASU 2013-11 is not expected to have a material impact on our financial condition or results of operation.

2—Balance Sheet Details

 

     2013      2012  

Inventories:

     

Raw materials

   $ 2,130,718       $ 2,009,691   

Work in process

     1,507,755         1,869,830   

Finished goods

     1,806,315         1,606,851   
  

 

 

    

 

 

 
     5,444,788         5,486,372   

Valuation reserves

     564,000         550,000   
  

 

 

    

 

 

 
   $ 4,880,788       $ 4,936,372   
  

 

 

    

 

 

 

Property, Plant and Equipment, net:

     

Land and improvements

   $ 1,238,150       $ 1,238,150   

Buildings and improvements

     6,438,022         6,244,064   

Machinery and equipment and other

     31,806,103         29,495,765   
  

 

 

    

 

 

 
     39,482,275         36,977,979   

Accumulated depreciation

     29,073,155         28,900,113   
  

 

 

    

 

 

 
   $ 10,409,120       $ 8,077,866   
  

 

 

    

 

 

 

Other Accrued Expenses:

     

Profit sharing plan contribution

   $ 391,945       $ 278,080   

Property taxes

     91,957         91,547   

All other items

     125,944         90,618   
  

 

 

    

 

 

 
   $ 609,846       $ 460,245   
  

 

 

    

 

 

 

3—Income Taxes—The provision for income tax expense consists of the following:

 

     2013      2012  

Current:

     

Federal

   $ 967,000       $ 624,000   

State

     61,000         42,000   

Deferred

     119,000         171,000   
  

 

 

    

 

 

 
   $ 1,147,000       $ 837,000   
  

 

 

    

 

 

 
 

 

 

 

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The following is a reconciliation of the statutory federal income tax rate to the actual effective tax rate:

 

     2013     2012  
     Amount     %     Amount     %  

Expected tax at U.S. statutory rate

   $ 1,233,000        34.0      $ 878,000        34.0   

Permanent differences

     (127,000     (3.5     (69,000     (2.7

State taxes, net of federal benefit

     41,000        1.1        28,000        1.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense

   $ 1,147,000        31.6      $ 837,000        32.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

The Company’s effective tax rates were lower than the U.S. federal statutory rate in 2013 and 2012 primarily due to the Domestic Production Activities Deduction allowed under Internal Revenue Code Section 199.

The deferred tax liabilities and assets consist of the following:

 

     2013     2012  

Depreciation and amortization

   $ (1,065,275   $ (952,275
  

 

 

   

 

 

 

Inventory

     256,474        274,826   

Accrued vacation

     100,314        89,785   

Allowance for doubtful accounts

     52,500        51,450   

Other, net

     903        130   
  

 

 

   

 

 

 
     410,191        416,191   
  

 

 

   

 

 

 
   $ (655,084   $ (536,084
  

 

 

   

 

 

 

Valuation allowances related to deferred taxes are recorded based on the “more likely than not” realization criteria. The Company reviews the need for a valuation allowance on a quarterly basis for each of its tax jurisdictions. A deferred tax valuation allowance was not required at December 31, 2013 or 2012.

4—Profit Sharing Plan—The Company has a noncontributory profit sharing plan covering substantially all employees. Total expenses relating to the profit sharing plan amounted to approximately $392,000 in 2013 and $277,000 in 2012.

5—Other Income—consists of the following:

 

     2013      2012  

Interest income

   $ 30,802       $ 34,138   

Gain on sale of property and equipment

     114,658         67,946   

Other

     15,375         16,015   
  

 

 

    

 

 

 
   $ 160,835       $ 118,099   
  

 

 

    

 

 

 

6—Segment Information—The Company operates, primarily in the United States, in two business segments as determined by its products. The fastener segment, which comprises H & L Tool and the parent company’s fastener operations, includes rivets, cold-formed fasteners and parts and screw machine products. The assembly equipment segment includes automatic rivet setting machines and parts and tools for such machines. Information by segment is as follows:

 

     Fastener     Assembly
Equipment
    Other     Consolidated  
Year Ended December 31, 2013:        

Net sales

  $ 33,616,593      $ 3,501,237      $      $ 37,117,830   

Depreciation

    957,078        59,195        76,789        1,093,062   

Segment profit

    4,659,006        943,887               5,602,893   

Selling and administrative expenses

        (2,137,699     (2,137,699

Other income

        160,835        160,835   
       

 

 

 

Income before income taxes

          3,626,029   
       

 

 

 

Capital expenditures

    3,092,842        90,010        292,006        3,474,858   

Segment assets:

       

Accounts receivable, net

    5,277,378        233,392               5,510,770   

Inventories, net

    4,076,781        804,007               4,880,788   

Property, plant and equipment, net

    8,727,541        1,137,133        544,446        10,409,120   

Other assets

                  7,356,668        7,356,668   
       

 

 

 
          28,157,346   
       

 

 

 

Year Ended December 31, 2012:

       

Net sales

  $ 30,999,163      $ 3,224,609      $      $ 34,223,772   

Depreciation

    859,045        59,199        75,707        993,951   

Segment profit

    3,775,045        773,902               4,548,947   

Selling and administrative expenses

        (2,084,305     (2,084,305

Other income

        118,099        118,099   
       

 

 

 

Income before income taxes

          2,582,741   
       

 

 

 

Capital expenditures

    1,018,734        68,203        100,809        1,187,746   

Segment assets:

       

Accounts receivable, net

    4,275,890        302,042               4,577,932   

Inventories, net

    4,175,702        760,670               4,936,372   

Property, plant and equipment, net

    6,363,280        1,106,318        608,268        8,077,866   

Other assets

                  8,319,333        8,319,333   
       

 

 

 
          25,911,503   
       

 

 

 

The Company does not allocate certain selling and administrative expenses for internal reporting, thus, no allocation was made for these expenses for segment disclosure purposes. Segment assets reported internally are limited to accounts receivable, inventory and long-lived assets. Certain long-lived assets of one plant location are allocated between the two segments based on estimated plant utilization, as this plant serves both fastener and assembly equipment activities. Other assets are not allocated to segments internally and to do so would be impracticable. Sales to two customers in the fastener segment accounted for 18 and 18 percent and 14 and 15 percent of consolidated revenues during 2013 and 2012, respectively. The accounts receivable balances for these customers accounted for 20 and 22 percent of consolidated accounts receivable for the larger customer and 16 and 16 percent for the other customer as of December 31, 2013 and 2012, respectively.

 

 

 

 

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7—Shareholder Rights Agreement—On November 16, 2009, the Company adopted a shareholder rights agreement and declared a dividend distribution of one right for each outstanding share of Company common stock to shareholders of record at the close of business on December 3, 2009. Each right entitles the holder, upon occurrence of certain events, to buy one one-hundredth of a share of Series A Junior Participating Preferred Stock at a price of $75, subject to adjustment. The rights may only become exercisable under certain circumstances involving acquisition of the Company’s common stock, including the purchase of 10 percent or more by any person or group. The rights will expire on December 1, 2019 unless they are extended, redeemed or exchanged.

8—Commitments and Contingencies—The Company recorded rent expense aggregating approximately $27,000 and $32,000 for 2013 and 2012, respectively. Total future minimum rentals at December 31, 2013 are not significant.

The Company is, from time to time involved in litigation, including environmental claims, in the normal course of business. While it is not possible at this time to establish the ultimate amount of liability with respect to contingent liabilities, including those related to legal proceedings, management is of the opinion that the aggregate amount of any such liabilities, for which provision has not been made, will not have a material adverse effect on the Company’s financial position.

9—Subsequent Event—On February 17, 2014, the Board of Directors declared a regular quarterly dividend of $.18 per share, or $173,904, and an extra dividend of $.40 per share, or $386,453, payable March 20, 2014 to shareholders of record on March 5, 2014.

 

 

 

 

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Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Chicago Rivet & Machine Co.

We have audited the accompanying consolidated balance sheets of Chicago Rivet & Machine Co. (an Illinois corporation) and subsidiary (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of income, retained earnings and cash flows for each of the two years in the period ended December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Chicago Rivet & Machine Co. and subsidiary as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America.

 

LOGO

Chicago, Illinois

March 21, 2014

 

 

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INFORMATION ON COMPANY’S COMMON STOCK

The Company’s common stock is traded on the NYSE MKT (trading privileges only, not registered.) The ticker symbol is CVR.

At December 31, 2013, there were approximately 180 shareholders of record.

The transfer agent and registrar for the Company’s common stock is:

Continental Stock Transfer & Trust Company

17 Battery Place

New York, New York 10004

The following table shows the dividends declared and the quarterly high and low prices of the common stock for the last two years.

 

     Dividends
Declared
    Market Range  

Quarter

   2013      2012     2013      2012  

First

   $ .15       $ .15      $ 27.23       $ 18.84       $ 23.50       $ 17.05   

Second

     .15         .15      $ 27.80       $ 23.25       $ 20.50       $ 18.36   

Third

     .15         .15      $ 31.00       $ 25.78       $ 19.30       $ 18.35   

Fourth

     .18         .45   $ 47.70       $ 29.02       $ 20.30       $ 18.17   

 

* Includes an extra dividend of $.30 per share

 

BOARD OF DIRECTORS

John A. Morrissey (e)

Chairman of the Board

of the Company

Chairman of the Board of

Algonquin State Bank, N.A.

Algonquin, Illinois

Michael J. Bourg (e)

President of the Company

Edward L. Chott (a) (c) (n)

Chairman of the Board of

The Broaster Co

Beloit, Wisconsin

Kent H. Cooney (a)

Chief Financial Officer of

Heldon Bay Limited Partnership

Bigfork, Montana

William T. Divane, Jr. (a) (c) (n)

Chairman of the Board and

Chief Executive Officer of

Divane Bros. Electric Co.

Franklin Park, Illinois

George P. Lynch (c) (n)

Attorney at Law

George Patrick Lynch, Ltd.

Wheaton, Illinois

Walter W. Morrissey (e)

Attorney at Law

Lillig & Thorsness, Ltd.

Oak Brook, Illinois

John L. Showel

Portfolio Manager

Maggiore Fund I, LP

Chicago, Illinois

 

(a) Member of Audit Committee
(c) Member of Compensation Committee
(e) Member of Executive Committee
(n) Member of Nominating Committee

CORPORATE OFFICERS

John A. Morrissey

Chairman, Chief

Executive Officer

Michael J. Bourg

President, Chief Operating

Officer and Treasurer

Kimberly A. Kirhofer

Secretary

CHICAGO RIVET & MACHINE CO.

Administrative & Sales Offices

Naperville, Illinois

Pembroke, Massachusetts

Manufacturing Facilities

Albia Division

Albia, Iowa

Tyrone Division

Tyrone, Pennsylvania

H & L Tool Company, Inc.

Madison Heights, Michigan

 

 

Chicago Rivet & Machine Co. • 901 Frontenac Road • P.O. Box 3061 • Naperville, Illinois 60566 • www.chicagorivet.com

 

 

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Chicago Rivet & Machine Co. • 901 Frontenac Road • P.O. Box 3061 • Naperville, Illinois 60566 • www.chicagorivet.com