Chicago Rivet & Machine Co. — 2021 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2021, including fourth-quarter results. Chicago Rivet operates two segments: fasteners, including rivets, cold-formed parts and screw-machine products; and assembly equipment, including automatic rivet-setting and assembly machinery. The North American automotive industry is the principal market. The Company had 201 employees, no foreign operations, and approximately 16% of sales to foreign customers.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $33.975 million | $27.591 million | +23.1% |
| Gross profit | $6.465 million | $4.915 million | +31.5% |
| Gross margin | 19.0% | 17.8% | +1.2 percentage points |
| Operating profit | $1.359 million | $(0.083) million | Improved |
| Operating margin | 4.0% | (0.3)% | Improved |
| Net income | $1.113 million | $0.050 million | Significant increase |
| Diluted net income per share | $1.15 | $0.05 | Significant increase |
| Net cash from operating activities | $(1.009) million | $0.624 million | Declined |
| Capital expenditures | $0.671 million | $0.824 million | Declined |
Fourth-quarter sales were $7.749 million, down 6.2% from $8.265 million in the 2020 fourth quarter. Fourth-quarter net income was $81,178, or $0.08 per share, versus $464,263, or $0.48 per share, in the prior-year quarter.
Fastener segment sales increased 21.2% for the full year to $29.831 million, while assembly equipment sales increased 38.9% to $4.143 million. Full-year segment gross margins increased to $5.186 million for fasteners and $1.279 million for assembly equipment.
At December 31, 2021, cash, cash equivalents and certificates of deposit totaled $4.778 million. Working capital was $17.422 million, compared with $16.566 million at the beginning of the year. Accounts receivable were $5.648 million and inventories were $8.520 million, with inventory up $3.366 million as the Company purchased materials ahead of anticipated price increases and to mitigate supply-chain risks. Total liabilities were $2.797 million and shareholders’ equity was $28.969 million. The filing does not disclose outstanding debt or borrowings; reported liabilities consist principally of operating liabilities and deferred taxes.
Operating cash flow was negatively affected primarily by the inventory build. Investing cash flow was $1.329 million, including certificate-of-deposit maturities and capital expenditures. Financing cash flow was $(0.850) million from dividends. The Company paid $0.88 per share in 2021 and declared a $0.22-per-share quarterly dividend payable March 18, 2022.
Material changes versus the prior comparable period
- Sales recovered substantially from the pandemic-affected 2020 period and exceeded 2019 sales by 3.4%.
- Profitability improved materially: operating profit rose from an $83,014 loss to $1.359 million, and net income increased from $50,450 to $1.113 million.
- Selling and administrative expense increased only 2.2% to $5.106 million, causing the expense ratio to decline from 18.1% to 15.0% of sales.
- Fourth-quarter performance reversed the full-year recovery trend because automotive customers experienced production constraints from semiconductor shortages and transportation bottlenecks.
- Inventory increased 65.3% year over year, while cash and certificates of deposit declined by approximately $2.523 million in aggregate.
- The regular quarterly dividend was restored to $0.22 per share in February 2021 after being reduced to $0.10 per share during the pandemic.
Guidance, outlook, risks and unusual items
Management did not provide quantitative earnings or revenue guidance. It reported stable demand entering 2022 in both segments, but expects near-term automotive demand to remain constrained by semiconductor shortages. Inflation in raw materials, labor, energy and transportation, supply-chain disruptions, labor shortages and continuing COVID-19 uncertainty are expected to remain obstacles. Management has had some success passing cost increases to customers but continues to face challenges.
Management expects to make additional equipment investments in 2022 and intends to develop new customer relationships while emphasizing quality, price and service. Management believes existing cash, cash equivalents and operating cash flow will provide adequate working capital for the next twelve months.
- Customer concentration is material: three customers represented approximately 36% of 2021 consolidated revenue.
- The Company is highly exposed to cyclical automotive demand, vehicle production levels and the transition toward electric vehicles.
- Steel and other raw-material price and availability fluctuations, supply-chain interruptions and transportation bottlenecks may pressure margins and production.
- Competition is intense, including from larger and lower-cost international suppliers.
- Export sales, tariffs, trade policy and foreign-exchange movements create additional risks.
- Product liability, warranty, recall, environmental, labor and cybersecurity risks could adversely affect results.
- Routine litigation and environmental claims exist, but management believes unprovided liabilities will not materially affect financial position.
- The Company has no current off-balance-sheet financing arrangements, and no critical audit matters were identified.
Investor verification points
- Verify whether the large 2021 inventory build converts into sales and operating cash flow, particularly if automotive production remains constrained.
- Monitor gross-margin recovery against inflation in steel, labor, energy and transportation and the Company’s ability to pass through cost increases.
- Assess revenue and receivables concentration among the three major customers and the impact of any automotive production interruptions.
- Review the sustainability of the restored $0.22 quarterly dividend relative to operating cash generation and planned capital expenditures.
- Track semiconductor shortages, supply-chain conditions, labor availability and COVID-19 effects on 2022 demand.
- Consider the limited liquidity of the Company’s common stock: average 2021 daily trading volume was fewer than 4,000 shares.