Business Context and Reporting Period
Company: Chicago Rivet & Machine Co.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2010
Business Overview: The Company operates in two segments: fasteners (rivets, cold-formed fasteners, screw machine products) and assembly equipment (automatic rivet setting machines). The principal market is the North American automotive industry. As of December 31, 2010, the Company employed 219 people and operates facilities in Illinois, Pennsylvania, Iowa, and Michigan.
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Total Revenue | $28,520,510 | $21,391,003 |
| Net Profit (Loss) | $606,025 | ($1,282,751) |
| Earnings Per Share | $0.63 | ($1.33) |
| Working Capital | $14.6 million | $14.1 million |
| Cash and Equivalents | $7.1 million | $7.0 million |
| Capital Expenditures | $687,108 | $448,177 |
| Dividends Paid | $0.42 per share | Not specified |
Segment Performance:
- Fasteners: Revenue increased 38.1% to $25,252,093. Gross margins increased by $2,642,000.
- Assembly Equipment: Revenue increased 5.3% to $3,268,417. Gross margins improved by approximately $311,000.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenues rebounded 33.3% in 2010 compared to 2009, driven by a 38% rebound in domestic auto and truck production.
- Profitability Turnaround: The Company returned to profitability with a net profit of $606,025, reversing a net loss of $1,282,751 in 2009.
- Expense Management: Selling and administrative expenses increased only slightly ($46,008) despite higher sales, declining from 22.3% of net sales in 2009 to 16.9% in 2010 due to cost control and better resource utilization.
- Inventory Levels: Inventories increased by $0.6 million in 2010 due to improved demand and rising raw material prices, reversing a $1.3 million reduction in 2009.
Outlook, Risks, and Management Commentary
Outlook for 2011: Management believes the Company is well-positioned to take advantage of new opportunities. However, the recovery in the assembly equipment segment remains muted. The primary strategy for 2011 is to grow revenues by emphasizing value over price and pursuing new customer relationships while continuing operational improvements.
Key Risks:
- Customer Concentration: Sales to two customers (Fisher & Company and TI Group Automotive Systems Corporation) accounted for approximately 36% of consolidated revenues in 2010.
- Industry Dependence: The business is highly dependent on the cyclical domestic automotive industry.
- Raw Material Costs: The Company faces risks from price fluctuations in steel and other raw materials, which have recently increased.
- Competition: Intense competition from domestic and international suppliers, particularly those with lower labor and regulatory costs.
Unusual Items: The filing notes that director fees were restored in 2010 after being voluntarily suspended in 2009, contributing to a $69,000 increase in selling and administrative expenses.
Investor Verification Checklist
- Verify the sustainability of the 38% rebound in domestic auto production and its direct correlation to the Company's fastener segment growth.
- Assess the risk exposure related to the top two customers, which collectively represent over one-third of total revenue.
- Monitor raw material (steel) price trends and the Company's ability to pass these costs on to customers given the competitive landscape.
- Review the "thinly traded" status of the common stock (average daily volume < 2,000 shares) and its impact on liquidity.
- Confirm the continued uninterrupted payment of quarterly dividends, which has been maintained for over 77 years.