Chicago Rivet & Machine Co. 2022 Form 10-K Summary
Business context and reporting period
Chicago Rivet & Machine Co. manufactures and sells fasteners, rivets, cold-formed parts, screw machine products, automatic rivet-setting machines, assembly equipment, and related parts and tools. Operations are reported in two segments: fasteners and assembly equipment. The company primarily serves the North American automotive industry and had 208 employees at December 31, 2022.
This filing covers the fiscal year ended December 31, 2022, including fourth-quarter results. The company has no foreign operations, although foreign customers represented approximately 16% of total sales.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net sales | $33.646 million | $33.975 million | Down 1.0% |
| Gross profit | $3.815 million | $6.465 million | Down $2.650 million |
| Gross margin | 11.3% | 19.0% | Down 7.7 percentage points |
| Operating profit | $3.561 million | $1.359 million | Up $2.202 million |
| Net income | $2.868 million | $1.113 million | Up 157.5% |
| Basic and diluted EPS | $2.97 | $1.15 | Up $1.82 |
| Net cash used in operating activities | $(1.265) million | $(1.009) million | More cash used |
| Cash, cash equivalents and certificates of deposit | $6.736 million | $4.778 million | Up $1.958 million |
| Working capital | $20.073 million | $17.422 million | Up $2.652 million |
Fourth-quarter sales were $6.857 million, down 11.5% from $7.749 million in the prior-year quarter. The company reported a fourth-quarter net loss of $1.313 million, or $1.36 per share, compared with net income of $81,000, or $0.08 per share, in the fourth quarter of 2021.
Full-year 2022 net income includes a $4.738 million pretax gain from the sale of the Naperville, Illinois property. Excluding this unusual gain, reported profitability was substantially weaker than the headline net income figure suggests.
Capital expenditures were $969,943 in 2022, compared with $670,898 in 2021. Depreciation expense was $1.280 million. The balance sheet reported total liabilities of $2.639 million and shareholders’ equity of $30.987 million. The filing does not report borrowings or debt financing; current liabilities were $1.691 million.
Material changes versus the prior comparable period
- Fastener segment sales increased 1.5% to $30.292 million. Automotive fastener sales increased 5.0%, while non-automotive fastener sales declined 3.4%.
- Assembly equipment sales declined 19.0% to $3.354 million after an unusually strong 2021.
- Full-year fastener segment gross margin declined to $3.167 million from $5.186 million, while assembly equipment gross margin declined to $648,220 from $1.279 million.
- Consolidated cost of goods sold increased to $29.831 million from $27.509 million despite the slight sales decline, reflecting elevated raw material prices, inflation, staffing shortages, and operating inefficiencies.
- Selling and administrative expenses decreased 2.2% to $4.993 million, partly because certain positions remained unfilled. Rent and consulting costs increased following the Naperville property sale and related lease.
- The company sold its Naperville facility on September 27, 2022, for $5.350 million in cash, less customary closing costs, and recognized a $4.738 million net gain. The company leased warehouse space through December 31, 2022, and office space through June 30, 2023.
- Operating cash flow remained negative, primarily because the property-sale gain is noncash for operating cash flow purposes and inventory increased $601,450 to support operations and mitigate supply disruptions.
Guidance, outlook, risks, contingencies, and unusual items
Management stated that demand was steady early in 2022 but softened during the year, with a significant fourth-quarter decline. Management is undertaking a strategic review, investing in 2023 to improve operating efficiency with a smaller and less experienced workforce, reviewing pricing to address higher costs, and seeking growth through complex parts, quality, service, and new customer relationships. Further capital investments are expected in 2023, but the filing does not provide specific revenue or earnings guidance.
- Labor shortages impaired production capacity, customer fulfillment, productivity, and margins. Management expects labor-market challenges to remain important.
- Raw material inflation, particularly for steel, and broader inflation reduced profitability. The company may not be able to fully pass through cost increases.
- The business is highly dependent on the cyclical automotive industry. Two customers represented approximately 29% of 2022 consolidated revenue, with individual customers representing approximately 15% and 14%.
- COVID-19-related effects, supply-chain disruptions, customer work stoppages, tariffs, trade policies, foreign exchange movements, and demand for automobiles remain potential sources of material volatility.
- The company faces intense domestic and international competition based primarily on price, quality, and service, including competition from lower-cost foreign suppliers.
- Product liability, warranty, recall, environmental, litigation, cybersecurity, information-system, and key-employee risks could adversely affect results. Management stated that unprovided litigation and environmental contingencies are not expected to have a material adverse effect on financial position.
- The company believes existing cash, cash equivalents, and operating cash flow will provide adequate working capital for the next twelve months. It has no off-balance-sheet financing arrangements.
- The Board declared a quarterly dividend of $0.22 per share payable March 20, 2023. The company paid $0.88 per share in regular dividends during 2022 and reported an uninterrupted quarterly dividend record exceeding 89 years.
- Walter W. Morrissey, Chairman and Chief Executive Officer, died in December 2022. James W. Morrissey became interim non-executive Chairman, and the search for a new Chief Executive Officer was underway as of the filing.
Important facts for investors to verify
- Assess normalized 2022 earnings and cash generation excluding the $4.738 million property-sale gain.
- Monitor whether labor shortages, staffing investments, and pricing actions restore gross margins and production capacity.
- Track fourth-quarter demand weakness and assembly equipment sales, particularly in relation to automotive-cycle conditions.
- Evaluate customer concentration, including the two customers representing approximately 29% of revenue and their accounts receivable exposure.
- Reconcile reported cash growth with negative operating cash flow and determine the sustainability of liquidity after the property-sale proceeds are absorbed.
- Review inventory levels, raw material pricing, supply-chain conditions, and potential obsolescence or working-capital pressure.
- Follow the CEO search and its potential effects on strategy and governance.
- Confirm the continuation of the $0.22 quarterly dividend against future profitability, capital expenditures, and operating cash flow.