UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended SeptemberJune 30, 20162017

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, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting 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 November 1, 2016,August 4, 2017, there were 966,132 shares of the registrant’s common stock outstanding.

CHICAGO RIVET & MACHINE CO.

INDEX

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Balance Sheets

June 30, 2017 and December 31, 2016

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Balance Sheets

SeptemberJune 30, 20162017 and December 31, 20152016

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Balance Sheets

September 30, 2016 and December 31, 2015

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Income

For the Three and NineSix Months Ended SeptemberJune 30, 20162017 and 20152016

(Unaudited)

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Retained Earnings

For the Nine Months Ended September 30, 2016 and 2015

(Unaudited)

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Cash FlowsRetained Earnings

For the NineSix Months Ended SeptemberJune 30, 20162017 and 20152016

(Unaudited)

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2017 and 2016

(Unaudited)

See Notes to the Condensed Consolidated Financial Statements

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 SeptemberJune 30, 20162017 (unaudited) and December 31, 20152016 (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 Form10-K for the year ended December 31, 2015.2016.

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 and nine-monthsix-month period ending SeptemberJune 30, 20162017 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 UpdateNo. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASU2014-09”) 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 ASU2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU2016-12”), which updated ASU2014-09. ASU2016-12 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. ASU2014-09 and ASU2016-12 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 is reviewing its revenue sources and contracts within the scope of the ASU and based on its preliminary evaluation to date, does not anticipate this standard will have a material impact on its consolidated financial statements except for the expanded disclosure requirements. 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 31.9%approximately 31.1% and 32.8%32.3% for the thirdsecond quarter of 20162017 and 2015,2016, respectively, and 32.9%32.5% and 32.5%33.2% for the ninesix months ended SeptemberJune 30, 20162017 and 2015,2016, respectively. Rates were lower than the U.S. federal statutory rate primarily due to the Domestic Production Activities Deduction allowed under Internal Revenue Code Section 199.

In November 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-17 “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”) to simplify the presentation of deferred income taxes. Under this update, all deferred income tax assets and liabilities, along with any related valuation allowance, are required to be classified as noncurrent on the balance sheet. Effective January 1, 2016, the Company early adopted ASU No. 2015-17 and retrospectively reclassified $425,191 of current deferred income tax assets to long-term deferred income tax liability on the December 31, 2015 consolidated balance sheet.

The Company’s federal income tax returns for the 2013 2014 and 2015through 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 2014 and 2015through 2016 federal income tax returns will expire on September 15, 2017 2018 and 2019,through 2020, respectively.

The Company’s state income tax returns for the 2013 through 20152016 tax years remain subject to examination by various state authorities with the latest closing period on October 31, 2019.2020. The Company is not currently not under examination by any state authority for income tax purposes and no statutes for state income tax filings have been extended.

CHICAGO RIVET & MACHINE CO.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

CHICAGO RIVET & MACHINE CO.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

CHICAGO RIVET & MACHINE CO.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CHICAGO RIVET & MACHINE CO.

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

Results of Operations

Net sales inRevenues for the third quarter were $8,854,274 this year compared to $9,018,272 in the thirdsecond quarter of 2015,2017 were $9,435,508, a decline of $163,998,$385,222, or 1.8%. As3.9%, compared to the second quarter of September 30, 2016, year to date2016. For the first half of 2017, net sales totaled $28,271,399$18,918,835 compared to $27,508,237, for$19,417,125 in the first three quartershalf of 2015, an increase2016, a decline of $763,162,$498,290, or 2.8%2.6%. Net income for the thirdsecond quarter of 20162017 was $462,329,$462,355, or $0.48 per share, compared with $422,471,to $795,059, or $0.44$0.82 per share, in the thirdsecond quarter of 2015, an improvement of 9.4%.2016. Net income for the first three quartershalf of 20162017 was $1,904,445,$973,277, or $1.97$1.01 per share, compared with $1,455,905,to $1,442,116, or $1.51$1.49 per share, reported in 2015.the first half of 2016. Overall, results for the second quarter and the first half of the year were negatively impacted by lower sales and certainnon-recurring expenses.

Fastener segment revenues were $8,089,800$8,097,344 in the thirdsecond quarter of 2016 compared to $8,153,422 in the year earlier quarter,2017, a decline of $63,622,$760,692, or 0.8%.8.6%, compared to $8,858,036 reported in the second quarter of 2016. For the first three quarterssix months of 2016,2017, fastener segment revenues were $25,395,165$16,833,532, compared to $24,830,182$17,305,365 in 2015, an increasethe first half of $564,983,2016, a decline of $471,833, or 2.3%2.7%. The decline in fastener segment sales was primarily due to reduced shipments to certain large automotive customers. The automotive sector is the primary market for our fastener segment products and the percentage increase in year to date segment sales exceeded that of domestic automotive sales. The decline in sales during the third quarter was offset by lower material costs during the period, resulting in a 10.5% increase in third quarter gross margin to $1,768,625 from $1,600,848have declined in the third quarter of 2015. For the first nine months of 2016, the increase in sales combined with favorable raw material prices resulted in improved margins compared to thecurrent year, earlier periods.which has negatively impacted demand for our products. Fastener segment gross margin forwas $1,554,670 in the second quarter of 2017 compared to $2,284,073 in the second quarter of 2016. For the first three quartershalf of 20162017, the gross margin was $6,070,222$3,587,484 compared to $5,255,390$4,301,597 in 2015,the first half of 2016. Other than the decline in sales volume, the most significant item affecting margins was an increase in tooling expense of $814,832, or 15.5%.approximately $122,000 and $174,000 in the second quarter and first half of 2017, respectively, primarily related to new parts being produced.

Assembly equipment segment revenues were $764,474$1,338,164 in the thirdsecond quarter of 2016, a decline2017, an increase of $100,376,$375,470, or 11.6%39.0%, compared to the thirdsecond quarter of 2015,2016, when revenues were $864,850.$962,694. The decreaselarge increase in thirdsales during the second quarter sales was primarily the result of fewer machines being shipped compareddue to the third quartershipment of 2015. However, toolscertain high dollar value machine orders and partsreversed most of the sales also declined duringdecline reported in the quarter, resulting in a reduction in segment gross margin of $110,136.first quarter. For the first three quartershalf of the year, assembly equipment sales were $2,876,234, an increase$2,085,303, a decline of $198,179,$26,457, or 7.4%1.3%, compared to $2,678,055from $2,111,760 reported for the first three quartershalf of 2015. Although down in the third2016. The strong second quarter on a year to date basis machine sales have increased and offset a year to date declinewas the primary factor in tools and parts sales. Due to the change in product sales mix and higher labor and health insurance expenses,improving assembly equipment segment gross margins forby $188,701 during the quarter compared to last year’s second quarter. For the first three quarters have declined $44,038, or 4.4%,half of the year, gross margins were $738,435 compared to $952,505 from $996,543$735,930 in the same period2016, an increase of 2015.$2,505.

Selling and administrative expenses for the thirdsecond quarter of 20162017 were $1,322,064, an increase$1,420,575, a decline of $27,924,$29,327, or 2.2%2%, compared towith the year earlier quarter total of $1,294,140. The largest components$1,449,902. Expenditures for a new ERP system at one of our locations resulted in a $75,000 increase in expenditures during the increase weresecond quarter. Offsetting the system conversion expenses was a $35,000 decline in salaries of $33,000, related to headcount changes,reduction and office suppliesa $61,000 decline in profit sharing expense due to lower operating profit. For the first six months of $13,000, primarily related to computer system expenditures. Partially offsetting these increases was a reduction in commissions of $17,000. Sellingthe year, selling and administrative expenses for the first three quarters of 2016 were $4,230,685$2,926,847 compared to $4,128,819 for the same period of 2015,$2,908,621 in 2016, an increase of $101,866,$18,226, or 2.5%0.6%. Profit sharing expense, which increased $76,000 due to greater operating profit, isAs in the largest componentsecond quarter, expenditures were significantly impacted by the ERP system conversion undertaken at one of our locations. This accounted for $150,000 of additional expenses during the first half of the increase. Salaries account for $57,000year, which was only partially offset by lower salaries of the increase. Partially offsetting these increases is a reduction in commissions$60,000 and lower profit sharing of $18,000. The remaining net difference is comprised of various smaller items of change.$87,000. Selling and administrative expenses as a percentage of net sales for the first nine monthshalf of 2016 remained unchanged from 2015 at2017 were 15.5% compared to 15.0%. in the first half of 2016.

Other Income

Other income in the thirdsecond quarter of 20162017 was $16,193$22,522, compared to $12,053$16,051 in the thirdsecond quarter of 2015.2016. Other income for the first three quartershalf of 20162017 was $45,403$43,205, compared to $32,791$29,210 in the same periodfirst six months of 2015.2016. Other income consists primarily of interest income on certificates of deposit.

Income Tax Expense

The Company’s effective tax rates were 31.9%approximately 31.1% and 32.8%32.3% for the thirdsecond quarter of 20162017 and 2015,2016, respectively, and 32.9%32.5% and 32.5%33.2% for the ninesix months ended SeptemberJune 30, 20162017 and 2015,2016, respectively. Rates were 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 as of Septemberat June 30, 2016 amounted to $16.1 million, an increase of approximately $0.4 million2017 was relatively unchanged from the beginning of the year. The most significant change in the individual working capital componentsyear at $16.5 million. Accounts receivable, inventory and accounts payable have increased $0.6 million, $0.5 million and $0.3 million, respectively since the beginning of the year was accounts receivable, which increased by $0.5 million due to the greater saleslevel of activity during the quarter compared to the seasonally lower fourth quarter of 2015. Partially offsetting2016. Offsetting this net change was an increasethe reduction in cash and certificates of $0.4deposit. Net cash provided by operating activities declined by $0.8 million in accounts payable, which relatesfor the first half of 2017 compared to the greater level of activitysame period in 2016, primarily due to lower net income in the quarter.current year. Capital expenditures for the first three quartershalf of 20162017 were $1.8$0.8 million, which primarily consisted of approximately $959,000 for equipment used in our fastener segment operations, $191,000 for equipment used in our assembly equipment segment, $591,000 for the building expansion at H & L Tool and the remainder for various building and computer system upgrades.production activities. Dividends paid in the first threetwo quarters of 2016 were $0.8$0.7 million, including threetwo regular quarterly payments of $0.18$0.20 per share and an extra dividend of $0.25$0.35 per share paid in the first quarter. The net result of these changes and other cash flow items on cash, cash equivalents and certificates of deposit was to increasea $0.7 million decline in such total balances by $0.3 million from the beginning of the year, to $7.7 million. Management believes that current cash, cash equivalents and operating cash flow will provide adequate coverage for working capital for the next twelve months.

Results of Operations Summary

WhileAfter several years of growth in automobile sales, many analysts had forecast that vehicle sales had reached a peak in 2016. The decline in new vehicle sales in the third quarter were modestly lower, we were ablefirst half of 2017 seems to report anconfirm that sentiment. The increase in incentives used to achieve the current level of sales is also a concern. As a result, our results for 2017 have fallen short of those reported in 2016. Based on the current economic environment, we don’t believe overall business conditions during the second half of the year will be markedly different from those of the first half. Expenses related to a computer system conversion at one of our locations should decline in the second half of the year with the project expected to be completed beforeyear-end. While our strong financial condition should enable us to pursue opportunities to profitably grow revenues and improve net income, forour results will continue to be impacted by the quarter by successfully managing our costs. The automotive sector, upon which we rely for the majorityoverall level of our fastener segment revenue, remains healthy, but domestic automotive sales in 2016 appear to have plateaued, which will make future growth for that segment more challenging. Sales of our assembly equipment segment products have increased in 2016, but that improvement was primarily due to an increaseactivity in the number of machines shipped. The current machine backlog is less than a year ago when demand was particularly strong. Net income for the first nine months of in 2016 improved 30.8% comparedautomotive market, and as such, we plan to 2015, contributingemphasize our efforts to our continued sound financial condition. That strength has allowed us to invest $1.8 million in equipmentcontrol costs and facilities improvements during the first three quarters of 2016 while also paying $0.8 million to our shareholders in dividends.improve operating efficiencies.

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 Form10-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 expected 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.

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 Rules13a-15(e) and15d-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 Rules13a-15(f) and15d-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.

PART II — OTHER INFORMATION

Item 6. Exhibits

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.

CHICAGO RIVET & MACHINE CO.

EXHIBITS

INDEX TO EXHIBITS

16