Chicago Rivet & Machine Co. 2019 Form 10-K Summary
Business Context and Reporting Period
The filing covers the fiscal year ended December 31, 2019, including fourth-quarter results. Chicago Rivet operates in two segments: fasteners and assembly equipment. Its principal market is the North American automotive industry, with additional non-automotive and export sales. The Company had 217 employees and no foreign operations at year-end; foreign customers represented approximately 14% of sales.
Financial Performance and Liquidity
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Full-year net sales | $32.9 million | $37.2 million | Down 11.6% |
| Full-year net income | $538,314 | $2.0 million | Down 73.1% |
| Diluted earnings per share | $0.56 | $2.07 | Down $1.51 |
| Capital expenditures | $1.8 million | $2.0 million | Down approximately $0.2 million |
| Depreciation expense | $1.4 million | $1.3 million | Increased |
| Cash, cash equivalents and certificates of deposit at year-end | $8.0 million | Approximately $7.8 million | Up approximately $0.2 million |
Fourth-quarter sales were $7.19 million, down 15.6% from $8.51 million in the prior-year quarter. The Company reported a fourth-quarter net loss of $293,884, or $0.30 per share, compared with net income of $302,556, or $0.31 per share, in the fourth quarter of 2018.
Fastener segment revenue declined 14.0% for the year to $29.0 million, while assembly equipment revenue increased 12.2% to $3.9 million. Full-year fastener segment gross margin declined to $4.65 million from $6.83 million. Assembly equipment gross margin increased 1.5% to $1.09 million. Consolidated gross margin and operating cash flow amounts are not clearly provided in the filing text.
Selling and administrative expense declined 4.5% to $5.25 million, but increased to 16.0% of sales from 14.8% in 2018. The effective income tax rate was 21.2%, compared with 21.7% in 2018. The filing does not provide a clear year-end debt balance; it reports no off-balance-sheet financing arrangements.
Working capital was approximately $16.4 million at December 31, 2019, down approximately $1.0 million from the beginning of the year. Accounts receivable declined approximately $0.9 million and inventory declined approximately $1.1 million, partly offset by a $0.6 million reduction in accounts payable. The Company spent $1.8 million on capital expenditures and paid approximately $1.1 million in dividends. Management believes cash, cash equivalents and operating cash flow will fund working-capital needs for the next twelve months.
Material Changes Versus the Prior Comparable Period
- Demand weakened throughout 2019, particularly among automotive customers, with additional deterioration among non-automotive customers in the fourth quarter.
- Automotive sales declined 16.6% for the year and 15.4% in the fourth quarter. Non-automotive sales declined 8.9% for the year and 26.9% in the fourth quarter.
- Fastener segment revenue and gross margin fell substantially, primarily because of lower sales volumes.
- Assembly equipment revenue improved because of increased machine shipments and stronger parts and tool sales, although fourth-quarter gross margin was reduced by disposal of excess inventory.
- Steel costs remained elevated following tariffs instituted in 2018. Labor costs also increased more than expected because of a tight labor market.
- The Company paid total 2019 dividends of $1.18 per share, consisting of regular quarterly dividends totaling $0.88 per share and an additional $0.30 per share dividend.
- Capital investment remained significant, with approximately $17.3 million invested in facilities and equipment over the preceding nine years.
Guidance, Outlook, Risks and Unusual Items
Management provided a cautious outlook for 2020. Automotive-market weakness, slowing domestic economic growth, elevated steel and labor costs, and a machine backlog below the prior year's level were expected to pressure results. Management planned to pursue operational-efficiency initiatives, develop customer relationships, and continue capital investment.
Management specifically identified coronavirus-related risks and financial-market disruption as factors that could worsen the operating environment. Other significant risks include dependence on the cyclical automotive industry, intense global competition, concentration in major customers, tariffs and export-market exposure, raw-material price and supply volatility, supply-chain disruptions, labor stoppages affecting customers, product liability and warranty claims, environmental liabilities, cybersecurity and information-system failures, and difficulty retaining key personnel.
Three customers represented approximately 36% of 2019 consolidated revenue: TI Group Automotive Systems, LLC at approximately 16%, and Parker-Hannifin Corporation and Cooper-Standard Holdings Inc. at approximately 10% each. John A. Morrissey announced his planned retirement as Chairman and Chief Executive Officer effective May 12, 2020.
The Company declared a regular quarterly dividend of $0.22 per share on February 17, 2020. Legal proceedings arise in the ordinary course of business, but management stated that unprovided liabilities were not expected to materially affect financial position.
Investor Verification Checklist
- Verify the consolidated financial statements and cash-flow statement incorporated from the 2019 Annual Report, including actual operating cash flow and debt balances.
- Assess the sustainability of the dividend policy relative to reduced earnings and automotive-sector demand.
- Monitor customer concentration, particularly the three customers contributing approximately 36% of revenue.
- Evaluate the effect of tariffs, steel prices, labor costs and supply-chain conditions on future margins.
- Track automotive production, export demand and the assembly-equipment backlog during 2020.
- Review the implications of the planned CEO retirement and related management succession.
- Consider the potential financial effects of coronavirus disruption, product claims, environmental matters and other contingencies.