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CHICAGO RIVET & MACHINE CO - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

May 9, 2014

Revenues for the first quarter of 2014 were $9,950,424, an increase of $824,688, or 9%, compared with $9,125,736 recorded in the first quarter of 2013. The increase in sales is the result of our continued efforts to grow our business, as well as an increase in U.S. automotive production. The increase in revenue during the quarter was enough to offset certain higher expenses incurred, resulting in net income of $568,373, or $0.59 per share, in the first quarter of this year compared to $453,532, or $0.47 per share, in the first quarter of 2013. In addition to a regular quarterly dividend of $.18 per share, an extra dividend of $.40 per share was paid in the first quarter based on 2013 results.

Fastener segment revenues were $9,087,735 in the first quarter of 2014, increasing $784,991, or 9.5%, from $8,302,744 reported in the first quarter of 2013. This marks the fourth straight quarterly increase in sales over the previous year quarter. The increase was due to our successful efforts to grow sales, especially among automotive customers upon which we rely for the majority of our fastener segment sales. Partially offsetting the higher sales was a $61,000 increase in heating and gas expense, primarily related to the harsh winter conditions this year, and a $36,000 increase in depreciation due to equipment placed in service recently. With material prices being relatively unchanged during the quarter, the higher sales volume resulted in an increase in fastener segment gross margin of approximately $221,000.

Assembly equipment segment revenues were $862,689 in the first quarter of 2014 compared to $822,992 in the first quarter of 2013. The 4.8% increase in revenue was primarily due to an increase in the average selling price of machines shipped in the current year quarter. The increase in sales during the quarter, while keeping manufacturing costs comparable to the same period last year, resulted in an improvement in segment margins of approximately $14,000 in the first quarter of 2014. As of March 31, 2014, machine orders trail the level of a year earlier.

Selling and administrative expenses during the first quarter of 2014 were $1,414,052, an increase of $62,238, or 4.6%, compared to $1,351,814 recorded in the first quarter of 2013. Sales commissions increased by approximately $21,000 for the quarter due to higher sales in the current year, while profit sharing expense increased by $15,000 due to improved profitability. Most of the remaining net increase relates to higher payroll and health insurance expense. When compared to net sales, selling and administrative expenses declined to 14.2% for the current year quarter compared to 14.8% in the first quarter of 2013.

Working capital amounted to $15.3 million as of March 31, 2014, a decrease of approximately $.2 million from the beginning of the current year. The largest component of the net change in the first quarter was accounts receivable, which increased by $.9 million due to greater sales activity during the quarter, compared to the seasonally lower fourth quarter of 2013. Partially offsetting this change was an increase of $.8 million in accounts payable and accrued expenses since the beginning of the year. These balances are consistent with the level of activity during the quarter. Also contributing to the reduction in working capital was the $.5 million increase in capital expenditures in the first quarter of 2014 compared to the same period of 2013 and a $.4 million increase in dividends paid as a result of an extra dividend of $.40 per share paid on March 20, 2014. The net result of these changes and other cash flow items on cash and certificates of deposit was a decrease of $.5 million, to $6.2 million, as of March 31, 2014. Management believes that current cash, cash equivalents and operating cash flow will provide adequate working capital for the foreseeable future.

We are pleased to report positive results for the first quarter of 2014. While demand for fastener segment products remains positive and is supported by expected growth in domestic auto sales in 2014, our equipment segment backlog is currently lower than a year ago, which is likely to impact results in the near-term. Our sound financial condition has allowed us to make significant investments in our operations in recent years in an effort to remain competitive, as well as pursue opportunities to profitably grow our revenues and improve our bottom line. We will continue to make adjustments to our activities which we feel are necessary based on conditions in our markets, while maintaining an emphasis on quality and reliability of service our customers demand.

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, 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.

10 -------------------------------------------------------------------------------- CHICAGO RIVET & MACHINE CO.

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Source: Edgar Glimpses

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