Business Context and Reporting Period
Chicago Rivet & Machine Co. filed its Form 10-K for the fiscal year ended December 31, 2020. The company manufactures and sells fasteners, cold-formed parts, screw-machine products, automatic rivet-setting machines, assembly equipment, and related parts and tools. Its principal market is the North American automotive industry.
The company operates through two segments: fasteners and assembly equipment. It had 209 employees at December 31, 2020, no foreign operations, and foreign-customer sales represented approximately 15% of total sales. Three customers accounted for approximately 36% of consolidated 2020 revenue.
Financial Performance and Position
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Full-year net sales | $27.6 million | $32.9 million | Down 16.1% |
| Full-year net income | $50,450 | $538,314 | Down 90.6% |
| Earnings per share | $0.05 | $0.56 | Down $0.51 |
| Selling and administrative expenses | $5.0 million | $5.3 million | Down 4.8% |
| Selling and administrative expenses as a percentage of sales | 18.1% | 16.0% | Up 2.1 percentage points |
| Capital expenditures | $824,136 | $1.8 million | Lower than 2019 |
| Cash, cash equivalents and certificates of deposit at year-end | $7.3 million | Not clearly stated in the filing text | Down approximately $0.7 million during 2020 |
Fourth-quarter sales were $8.27 million, compared with $7.65 million in the third quarter and $7.19 million in the fourth quarter of 2019. Fourth-quarter net income was $464,263, or $0.48 per share, compared with a net loss of $293,884, or $0.30 per share, in the prior-year quarter.
Fastener segment revenue was $24.61 million for 2020, down 15.1% from 2019. Full-year fastener segment gross margin was $4.17 million, compared with $4.65 million in 2019. Fourth-quarter fastener revenue increased 16.6% year over year to $7.33 million, and segment gross margin increased to $1.64 million from $794,076.
Assembly equipment segment revenue was $2.98 million for 2020, down 23.2% from 2019. Full-year segment gross margin declined to $744,926 from $1.09 million. Fourth-quarter revenue increased 3.7% year over year to $933,111, while gross margin increased to $255,296 from $90,954.
Other income was $148,464 in 2020 versus $191,730 in 2019, primarily because of lower interest rates. The effective income tax rate was 22.9% in 2020 versus 21.2% in 2019. The filing text does not provide a clear consolidated gross margin, operating margin, or operating cash flow value.
Working capital was approximately $16.6 million at December 31, 2020, up approximately $0.1 million from the beginning of the year. Accounts receivable increased approximately $0.6 million and inventory increased approximately $0.2 million, partially offset by a $0.7 million reduction in cash, cash equivalents, and certificates of deposit. Investing activities included $1.8 million of net certificate-of-deposit maturities and $0.8 million of capital expenditures. Financing activity consisted of approximately $0.5 million of dividend payments.
The filing does not identify material debt or borrowings. Management stated that cash, cash equivalents, and operating cash flow should provide adequate working capital for the next twelve months. The company has no off-balance-sheet financing arrangements.
Material Changes Versus the Prior Comparable Period
- COVID-19 caused a significant decline in orders, particularly during the second quarter, and reduced full-year sales by $5.28 million.
- Automotive fastener sales declined $2.91 million, or 15.7%, and non-automotive fastener sales declined $1.48 million, or 14.1%.
- Full-year net income fell by approximately $488,000, despite a fourth-quarter return to profitability.
- Selling and administrative expenses decreased because of lower salaries, benefits, and commissions, partly offset by $124,000 of ERP-conversion consulting costs.
- Capital expenditures declined to $824,136 from $1.80 million in 2019.
- The regular quarterly dividend was reduced from $0.22 to $0.10 per share during the pandemic. Four 2020 dividends totaled $0.52 per share; the board restored the quarterly dividend to $0.22 per share in February 2021.
- The company repurchased no shares in 2020 and has not repurchased shares since 2002.
Guidance, Outlook, Risks and Unusual Items
Management reported improved demand in both segments entering 2021 and cited vaccines as a potential support for broader economic recovery. The company did not provide quantitative revenue, earnings, or margin guidance.
Near-term challenges include COVID-19 uncertainty, higher raw-material prices, higher wages resulting from a tight labor market, and sporadic supply-chain disruptions. Management plans to improve operational efficiency, develop new customer relationships, and expand existing relationships through quality, service, and competitive pricing.
- Dependence on the cyclical automotive industry and exposure to changes in vehicle technology, including electric vehicles.
- Customer concentration: TI Group Automotive Systems, Cooper-Standard Holdings, and Parker-Hannifin represented approximately 14%, 12%, and 10% of 2020 revenue, respectively.
- Competition from larger domestic and international suppliers, including suppliers with lower cost structures.
- Exposure to steel and other raw-material price and availability changes, supply-chain disruptions, tariffs, export-market conditions, and foreign-currency fluctuations.
- Potential product-liability, warranty, recall, environmental, labor-relations, cybersecurity, and information-system risks.
- Legal proceedings occur in the ordinary course of business; management believes unprovided liabilities will not materially affect financial position.
Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020. The internal-control assessment was not audited because the company is a non-accelerated filer.
Key Facts an Investor Should Verify
- Reconcile the incorporated annual-report financial statements to confirm complete cash-flow, debt, liquidity, and balance-sheet details, which are not fully reproduced in the filing text.
- Assess whether the fourth-quarter recovery continued into 2021 and whether COVID-19, automotive demand, and supply-chain conditions materially changed.
- Monitor customer concentration and the effect of any loss or reduction in business from the three major customers.
- Evaluate the sustainability of the restored $0.22-per-share quarterly dividend relative to profitability and operating cash flow.
- Verify the impact of steel prices, labor costs, supply disruptions, and competitive pressure on segment gross margins.
- Review the 2021 Proxy Statement for director, executive compensation, ownership, related-party, and auditor-fee information incorporated by reference.