CHICAGO RIVET & MACHINE CO

Previous wording

Net sales for the first quarter of 2024 were $7,853,181 compared to $8,729,725 in the first quarter of 2023, a decline of $876,544, or 10.0%. The fastener segment drove the decline in sales, which was only partially offset by the increase in sales in the assembly equipment segment for the current year quarter. The lower sales combined with higher operating costs in the current quarter resulted in a net loss of $(698,004), or $(0.72) per share, compared to a net loss of $(583,137), or $(0.60) per share, in the first quarter of 2023. During the first quarter of 2024, a regular quarterly dividend of $0.10 per share was paid on March 20, 2024 to shareholders of record on March 5, 2024.

Current wording

Net sales for the second quarter of 2024 were $8,059,477 compared to $8,050,931 in the second quarter of 2023, an increase of $8,546. Assembly equipment segment sales increased $460,109 which slightly offset the $451,563 decline in fastener segment sales for the current year quarter. While overall net sales were essentially flat, operating profit for both the fastener and assembly equipment segments improved in the current quarter. As a result, the Company recorded net income of $142,141, or $0.15 per share, compared to a net loss of $(1,311,506), or $(1.36) per share, in the second quarter of 2023. During the second quarter of 2024, a regular quarterly dividend of $0.10 per share was paid on June 20, 2024, to shareholders of record on June 5, 2024.

Previous wording

Fastener segment revenues were $6,723,854 in the first quarter of 2024 compared to $7,856,813 in the first quarter of 2023, a decline of $1,132,959, or 14.4%. The automotive sector is the primary market for our fastener segment products, and sales to automotive customers were $4,629,190 in the first quarter this year compared to $5,006,190 in the first quarter of 2023, a decrease of $377,000, or 7.5%. Additionally, fastener segment sales to non-automotive customers, including those in the construction and electronics industries, were $2,094,564 in the first quarter of this year compared to $2,850,623 in the first quarter of 2023, a decline of $756,059 or 26.5%. Fastener segment gross margins were $368,688 in the first quarter of 2024 compared to $251,624 in the first quarter of 2023, an increase of $117,064, or 46.5%. Lower volumes were partially offset by price increases, improved production efficiencies, and reduced expediting expenses which improved gross margins in this segment during the quarter.

Current wording

Fastener segment revenues were $6,909,550 in the second quarter of 2024 compared to $7,361,113 in the second quarter of 2023, a decline of $451,563 or 6.1%. The automotive sector is the primary market for our fastener segment products, and sales to automotive customers were $4,842,415 in the second quarter this year compared to $4,959,381 in the second quarter of 2023, a decrease of $116,966, or 2.4%. Additionally, fastener segment sales to non-automotive customers, including those in the construction and electronics industries, were $2,067,135 in the second quarter of this year compared to $2,401,732 in the second quarter of 2023, a decline of $334,597 or 13.9%. Fastener segment gross margins were $1,033,755 in the second quarter of 2024 compared to $(442,951) in the second quarter of 2023, an increase of $1,476,706, or 333.4%. Lower volumes were offset by price increases, improved production efficiencies, and reduced expediting expenses which improved gross margins in this segment during the quarter.

Previous wording

Assembly equipment segment revenues were $1,129,327 in the first quarter of 2024 compared to $872,912 in the first quarter of 2023, an increase of $256,415, or 29.4%. Non-automotive assembly equipment revenue accounted for nearly all the increase in revenue in this segment, improving $252,628 over the same period last year. The increase in sales contributed to a $113,109, or 50.0%, improvement in segment gross margin, from $225,879 in 2023 to $338,988 in 2024.

Current wording

Assembly equipment segment revenues were $1,149,927 in the second quarter of 2024 compared to $689,818 in the second quarter of 2023, an increase of $460,109, or 66.7%. Both non-automotive and automotive assembly equipment revenue increased revenue in this segment by $390,289 and $69,820 respectively over the same period last year. The increase in sales contributed to a $267,226, or 234.6%, improvement in segment gross margin, from $113,915 in 2023 to $381,141 in 2024.

Previous wording

Selling and administrative expenses during the first quarter of 2024 were $1,647,865 compared to $1,257,695 recorded in the first quarter of 2023, an increase of $390,170, or 31.0%. Included in this increase is a $243,000 expense that represents an estimate for a contingent liability that is described in the paragraphs below. The amount of the estimate is also included as part of other accrued expenses on the consolidated balance sheet. While we had reduced commissions in the current year, these reductions were offset by higher professional fees and employee compensation. Selling and administrative expenses were 21.0% of net sales in the first quarter of 2024 compared to 14.4% in the first quarter of 2023.

Current wording

Selling and administrative expenses during the second quarter of 2024 were $1,307,887 compared to $1,359,465 recorded in the second quarter of 2023, a decrease of $51,578, or 3.8%. Reduced commissions of $62,909 were partially offset by higher professional fees for the period. Selling and administrative expenses were 16.2% of net sales in the second quarter of 2024 compared to 16.9% in the second quarter of 2023. For the first six months of 2024, selling and administrative expenses were $2,955,752 compared to $2,617,160 in the first half of 2023, an increase of $338,592.

Previous wording

The Company was recently notified by one of its customers that certain fasteners manufactured by the Company’s wholly-owned subsidiary, H&L Tool Company Inc., may not conform to customer specifications. These fasteners become part of an assembly that is ultimately used in the braking system of certain vehicles. Based on information provided to the Company by the customer and the Company’s internal review, which is ongoing, we understand that it was necessary for the customer to identify and sort the non-conforming parts in its inventory and take certain other related actions as a result of the alleged non-conforming parts. The customer has also indicated that its end customer has incurred costs relating to the alleged defective part, including costs to repair certain of the vehicles that included these non-conforming fasteners. Based on discussions with our customer as to the scope of the actions taken by the customer to date and the Company’s own internal analysis to date, we determined an estimate of $243,000 as a contingent liability in our financial statements during the three months ended March 31, 2024, in anticipation of potential reimbursement of certain expenses that the customer may have incurred as a result of the non-conforming parts. Our discussions with the customer and our internal review process are ongoing, and the ultimate amount of such liability, if any, may be more or less than the amount reflected in the financial statements for the first quarter of 2024.

Current wording

As previously disclosed, the Company was recently notified by one of its customers that certain fasteners manufactured by the Company’s wholly-owned subsidiary, H&L Tool Company Inc., may not conform to customer specifications. These fasteners become part of an assembly that is ultimately used in the braking system of certain vehicles. Based on information provided to the Company by the customer and the Company’s internal review, we understand that it was necessary for the customer to identify and sort the non-conforming parts in its inventory and take certain other related actions as a result of the alleged non-conforming parts. The customer has also indicated that its end customer has incurred costs relating to the alleged defective part, including costs to repair certain of the vehicles that included these non-conforming fasteners. Based on discussions with our customer as to the scope of the actions taken by the customer to date and the Company’s own internal analysis to date, we determined an estimate of $243,000 as a contingent liability in our financial statements during the three months ended March 31, 2024, in anticipation of potential reimbursement of certain expenses that the customer may have incurred as a result of the non-conforming parts. Our discussions with the customer and our internal review process are ongoing, and the ultimate amount of such liability, if any, may be more or less than the amount reflected in our financial statements for the second quarter of 2024.

Previous wording

The Company may also incur additional potentially significant costs related to this issue, which could materially and adversely affect our results of operations and financial condition. At this time, the Company is continuing its investigation and cannot quantify potential additional financial liability, if any, due to the ultimate costs that may or may not be incurred by the parties involved in this matter, and the allocation of those costs among the parties involved. It is not possible at this time to establish the ultimate amount of any such contingent liabilities, including those related to any legal proceedings that may result related to this matter. Accordingly, no additional amount has been accrued in our financial statements at March 31, 2024.

Current wording

The Company may also incur additional potentially significant costs related to this issue, which could materially and adversely affect our results of operations and financial condition. At this time, the Company cannot quantify potential additional financial liability, if any, due to the ultimate costs that may or may not be incurred by the parties involved in this matter, and the allocation of those costs among the parties involved. It is not possible at this time to establish the ultimate amount of any such contingent liabilities, including those related to any legal proceedings that may result related to this matter. Accordingly, no additional amount has been accrued in our financial statements at June 30, 2024.

Previous wording

Other income in the first quarter of 2024 was $28,469 compared to $43,055 in the first quarter of 2023. Other income is primarily comprised of interest income, which decreased during the current year due to lower invested balances notwithstanding higher interest rates earned on such balances.

Current wording

Other income in the second quarter of 2024 was $45,955 compared to $22,995 in the second quarter of 2023. Other income for the first six months of 2024 was $74,424, compared to $66,050 in the first six months of 2023. Other income is primarily comprised of interest income, which increased during the current year due to higher interest rates earned on such balances.

Previous wording

The Company’s effective tax rates were approximately 22.9% and 20.9% for the first quarter of 2024 and 2023, respectively.

Current wording

The Company’s effective tax rates were approximately 7.4% and 21.3% for the second quarter of 2024 and 2023, respectively, and 22.9% and 21.1% for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

Working capital was $13,295,201 as of March 31, 2024, compared to $13,976,864 at the beginning of the year, a decline of $631,045. The decline was primarily due to an increase in accounts payable of $599,625 as a result of greater sales of $1,072,287 and production activity during the quarter compared to the fourth quarter of 2023. The net result of these changes and other cash flow activity was to leave cash, cash equivalents and short-term investments at $2,666,088 as of March 31, 2024 compared to $3,158,195 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.

Current wording

Working capital was $13,368,281 as of June 30, 2024, compared to $13,976,864 at the beginning of the year, a decline of $608,583. Contributing to that decline were capital expenditures during the first six months of $398,683, which primarily consisted of equipment used in production activities, and dividends paid of $193,226. The net result of these changes and other cash flow activity was to leave cash, cash equivalents and short-term investments at $2,627,438 as of June 30, 2024, compared to $3,158,195 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.