CVR

Business Context and Reporting Period

Company: Chicago Rivet & Machine Co.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: The Company operates in two segments: fasteners (rivets, cold-formed fasteners) and assembly equipment (automatic rivet setting machines). The principal market is the North American automotive industry. The Company is classified as a "Smaller Reporting Company."

Key Financial Metrics

Profitability:

• Net Loss (2009): $1,282,751 ($1.33 per share).
• Fastener Segment Gross Margin: $1,891,870 (down from $2,585,306 in 2008).
• Assembly Equipment Segment Gross Margin: $788,778 (down from $1,101,401 in 2008).
• Fourth Quarter 2009: Returned to profitability with earnings of $0.03 per share.

• Working Capital: $14.1 million (decreased by $1.3 million from the beginning of the year).
• Cash and Equivalents: $7.0 million (decreased from $7.6 million).
• Capital Expenditures: $448,177 (primarily used equipment for the fastener segment).
• Dividends: Total distribution of $0.48 per share for the year; quarterly dividend reduced from $0.18 to $0.10 in Q2 2009.

• The filing text does not provide specific long-term debt figures, noting only that the sole financing activity in 2009 was the payment of $0.5 million in dividends.

Material Changes vs. Prior Period

Revenue Decline: Consolidated sales declined by $7,127,928 (25%) compared to 2008, driven by a 32% drop in North American auto and truck production.

• Fastener Segment: Revenue fell 25.9% to $18,286,342. Sales dropped 46.2% in the first half of 2009 but improved 36.4% in the second half compared to the first half.
• Assembly Equipment Segment: Revenue fell 19.1% to $3,104,661 due to reduced capital spending by customers.

• Selling and Administrative Expenses: Decreased 8.2% to $4,762,284. Savings were achieved through reduced headcount, lower commissions, reduced director fees, and lower bad debt expense.
• Payroll: Fastener segment payroll was reduced by over 20% via headcount reductions and reduced hours.

• Inventories were aggressively reduced by $1.3 million.
• Accounts receivable increased by $0.5 million due to improved sales in the fourth quarter.

Outlook, Risks, and Management Commentary

Outlook for 2010: Management believes the worst of the economic crisis is behind them but remains cautious. Demand is expected to remain restrained due to high unemployment and low consumer confidence. The Company aims to grow revenues by adding to its customer base and emphasizing value over price.

• Customer Concentration: Sales to two customers (Fisher & Company and TI Group Automotive Systems Corporation) accounted for approximately 34% of consolidated revenues in 2009.
• Automotive Dependence: The business is highly cyclical and dependent on the domestic automotive industry, which faces overcapacity and financial distress among suppliers.
• Raw Materials: Fluctuations in steel prices and availability pose a risk to margins.
• Competition: Intense competition from global suppliers with lower labor and regulatory costs.

• The Company experienced increased accounts receivable write-offs in prior years due to customer bankruptcies, though bad debt expense declined in 2009.

Investor Verification Checklist

• Customer Concentration: Verify the financial stability of Fisher & Company and TI Group Automotive Systems Corporation, which represent over one-third of revenue.
• Automotive Production Trends: Monitor North American auto production volumes, as they directly correlate with the Company's demand.
• Dividend Sustainability: Assess whether the reduced dividend of $0.10 per share is sustainable given the net loss in 2009 and the cautious 2010 outlook.
• Raw Material Costs: Track steel prices to evaluate potential margin compression.
• Stock Liquidity: Note that the stock is thinly traded (average daily volume < 2,000 shares), which may impact exit strategies.