UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2017

OR

For the transition period from                      to                     

Commission file number 000-01227

Chicago Rivet & Machine Co.

(Exact Name of Registrant as Specified in Its Charter)

(630) 357-8500

Registrant’s Telephone Number, Including Area Code

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of May 1, 2017, there were 966,132 shares of the registrant’s common stock outstanding.

CHICAGO RIVET & MACHINE CO.

INDEX

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Item 1. Financial Statements.

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Balance Sheets

March 31, 2017 and December 31, 2016

See Notes to the Condensed Consolidated Financial Statements

2

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Balance Sheets

March 31, 2017 and December 31, 2016

See Notes to the Condensed Consolidated Financial Statements

3

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Income

For the Three Months Ended March 31, 2017 and 2016

(Unaudited)

See Notes to the Condensed Consolidated Financial Statements

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CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Retained Earnings

For the Three Months Ended March 31, 2017 and 2016

(Unaudited)

See Notes to the Condensed Consolidated Financial Statements

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CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2017 and 2016

(Unaudited)

See Notes to the Condensed Consolidated Financial Statements

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CHICAGO RIVET & MACHINE CO.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. In the opinion of the Company, the accompanying unaudited interim financial statements contain all adjustments necessary to present fairly the financial position of the Company as of March 31, 2017 (unaudited) and December 31, 2016 (audited) and the results of operations and changes in cash flows for the indicated periods. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted from these unaudited financial statements in accordance with applicable rules. Please refer to the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three month period ended March 31, 2017 are not necessarily indicative of the results to be expected for the year.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASU 2014-09”) which is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), which updated ASU 2014-09. ASU 2016-12 clarifies certain core recognition principles including collectability, sales tax presentation, noncash consideration, contract modifications and completed contracts at transition and disclosures no longer required if the full retrospective transition method is adopted. ASU 2014-09 and ASU 2016-12 are effective for annual reporting periods after December 15, 2017 and interim periods within those reporting periods, and are to be applied using either the modified retrospective or full retrospective transition methods, with early adoption permitted. The Company has reviewed its revenue sources and contracts within the scope of the ASU and based on its evaluation to date, does not anticipate this standard will have a material impact on its consolidated financial statements. The Company does not plan to early adopt the ASU and has not yet determined the transition method.

2. 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.

3. The Company is, from time to time, involved in litigation, including environmental claims and contract disputes, 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.

4. The Company’s effective tax rates were approximately 33.7% and 34.2% for the first quarter of 2017 and 2016, respectively. The rate was lower than the U.S. federal statutory rate in 2017 primarily due to the Domestic Production Activities Deduction allowed under Internal Revenue Code Section 199.

The Company’s federal income tax returns for the 2013 through 2016 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 2013 through 2016 federal income tax returns will expire on September 15, 2017 through 2020, respectively.

The Company’s state income tax returns for the 2013 through 2016 tax years remain subject to examination by various state authorities with the latest closing period on October 31, 2020. The Company is not currently under examination by any state authority for income tax purposes and no statutes for state income tax filings have been extended.

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5. Inventories are stated at the lower of cost or net realizable value, cost being determined by the first-in, first-out method. A summary of inventories is as follows:

6. Segment Information—The Company operates in two business segments as determined by its products. The fastener segment includes rivets, cold-formed fasteners 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:

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CHICAGO RIVET & MACHINE CO.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations

Revenues for the first quarter of 2017 were $9,483,327 compared to $9,596,395 in the first quarter of 2016, a decline of $113,068, or 1.2%. The decline was primarily due to lower machine sales which more than offset an improvement in fastener segment sales during the quarter. The shift to a less favorable product mix, along with the net decline in sales, contributed to lower gross margins compared to a year earlier. Net income was $510,922, or $0.53 per share, in the first quarter of this year compared to $647,057, or $0.67 per share, in the first quarter of 2016. In addition to a regular quarterly dividend of $0.20 per share, an extra dividend of $0.35 per share was paid in the first quarter based on the strong operating results achieved in 2016.

Fastener segment revenues were $8,736,188 in the first quarter of 2017, an increase of $288,859, or 3.4%, from $8,447,329 reported in the first quarter of 2016. The automotive sector is the primary market for our fastener segment products and the increase in sales was achieved despite a decline in U.S. auto and light-truck sales during the quarter. Production costs in the first quarter were comparable to last year with the notable exception of tooling expense which was $52,000 greater, primarily due to new parts being produced. That increase was the primary factor limiting the improvement in the fastener segment gross margin to $15,290.

Assembly equipment segment revenues were $747,139 in the first quarter of 2017 compared to $1,149,066 in the first quarter of 2016, a decline of $401,927, or 35%. The decline in revenue was primarily due to fewer machines being shipped in the current year quarter compared to the particularly strong results in the first quarter of last year. The decline in revenue during the quarter compared to the same period last year, resulted in a reduction in the assembly equipment segment margin of $187,396 compared to the first quarter of 2016.

Selling and administrative expenses during the first quarter of 2017 were $1,506,272, an increase of $47,553, or 3.3%, compared to $1,458,719 recorded in the first quarter of 2016. The installation of a new ERP system at one of our locations was primarily responsible for the increase during the quarter. Expenditures for the system upgrade were approximately $77,000 during the first quarter and the project is expected to be completed before the end of the year. Partially offsetting the higher computer related expenses was a reduction in profit sharing expense of $26,000 due to lower operating profit in the current year. Compared to net sales, selling and administrative expenses were 15.9% in the first quarter of 2017 compared to 15.2% in the first quarter of 2016.

Other Income

Other income in the first quarter of 2017 was $20,683 compared to $13,159 in the first quarter of 2016. The increase is primarily related to an increase in interest income on certificates of deposit due to higher interest rates and greater invested balances.

Income Tax Expense

The Company’s effective tax rates were approximately 33.7% and 34.2% for the first quarter of 2017 and 2016, respectively. The 2017 rate was lower than the U.S. federal statutory rate primarily due to the Domestic Production Activities Deduction allowed under Internal Revenue Code Section 199.

Liquidity and Capital Resources

Working capital amounted to $16.6 million as of March 31, 2017, an increase of approximately $0.1 million from the beginning of the current year. The components making the largest contribution to the increase in working capital in the first quarter were accounts receivable, which increased by $0.9 million due to greater sales activity during the quarter compared to the seasonally lower fourth quarter of 2016, and inventory, which increased $0.7 million to support greater production activity during the quarter compared to the fourth quarter of the prior year. Partially offsetting these increases was a reduction in cash and certificates of deposit of $0.8 million, due in part to the payment of dividends during the first quarter of $.5 million. The net result of these changes and other cash flow items was to leave cash, cash equivalents and certificates of deposit at $7.6 million as of March 31, 2017 compared to $8.4 million as of the beginning of the year. Management believes that current cash, cash equivalents and operating cash flow will provide adequate working capital for the next twelve months.

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Results of Operations Summary

Sales in the first quarter were mixed as the increase in fastener segment revenues was offset by the reduction in the smaller assembly equipment segment. Sales of machines were particularly strong in 2016 which provided for difficult comparison to current year figures. Most costs during the first quarter were relatively comparable to a year earlier although we have experienced increases in certain raw materials recently that could adversely impact results going forward if sustained. Since material price increases can be difficult to mitigate, we will emphasize cost controls in other areas and strive for greater operating efficiencies in an effort to improve operating results. Due to our sound financial condition, we believe that we remain in a position to pursue future opportunities to profitably grow our revenues and improve net income.

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, risks related to export sales, 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, the loss of the services of our key employees and difficulties in achieving cost savings. 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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CHICAGO RIVET & MACHINE CO.

Item 4. Controls and Procedures.

(a) Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and President, Chief Operating Officer and Treasurer (the Company’s principal financial officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and President, Chief Operating Officer and Treasurer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

(b) Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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CHICAGO RIVET & MACHINE CO.

EXHIBITS

INDEX TO EXHIBITS

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