Chicago Rivet & Machine (CVR) - 2019 Q4 - Annual Report

Part I Business Chicago Rivet & Machine Co. operates in fastener and assembly equipment segments, serving the North American automotive industry - The company operates in two segments: the fastener segment (rivets, cold-formed parts) and the assembly equipment segment (automatic rivet setting machines and related parts)[7] - The primary market is the North American automotive industry Sales are made through employees and independent representatives[8] - The company has significant customer concentration In 2019, sales to three customers were at least 10% of consolidated revenues: TI Group Automotive Systems, LLC (16%), Parker-Hannifin Corporation (10%), and Cooper-Standard Holdings Inc. (10%)[10] - As of December 31, 2019, the company employed 217 people[13] - The company has no foreign operations, but sales to foreign customers represent approximately 14% of total sales[14] Risk Factors The company faces key risks from automotive industry dependence, customer concentration, raw material costs, supply chain disruptions, and cybersecurity - The company's business is directly dependent on the global automotive industry, which is highly cyclical and competitive[16] - Sales to three major customers (TI Group Automotive Systems, Parker-Hannifin, and Cooper-Standard) accounted for approximately 36% of consolidated revenues in 2019[18] - The business is subject to risks from raw material price fluctuations, particularly for steel, and potential supply chain disruptions from events like natural disasters, pandemics (coronavirus), or tariffs[20][22] - Cybersecurity threats and information system failures pose a risk of operational disruption, data loss, and financial losses[27] - The company's common stock is thinly traded, with an average daily volume of less than 2,000 shares in 2019, which may lead to price volatility and difficulty for investors selling shares[28][30] Unresolved Staff Comments The company reports no unresolved staff comments - None[31] Properties The company owns its headquarters and three manufacturing facilities in the US, utilized by both fastener and assembly equipment segments - The Company owns its headquarters in Naperville, Illinois, and three other manufacturing/warehousing facilities It also leases a small sales and engineering office in Pembroke, Massachusetts[32] - The Madison Heights, MI facility is used entirely by the fastener segment, while the Albia, IA facility is used exclusively by the assembly equipment segment The Tyrone, PA and Naperville, IL facilities are used by both segments[33] Legal Proceedings Management believes that liabilities from routine legal proceedings will not materially affect the company's financial position - Management is of the opinion that the aggregate amount of any liabilities from contingent legal proceedings will not have a material adverse effect on the Company's financial position[35] Mine Safety Disclosures This item is not applicable to the company - Not applicable[36] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NYSE American with limited activity, and a long-standing share repurchase program has seen no recent activity - The Company's common stock is traded on the NYSE American (trading privileges only, not registered)[41] - A stock repurchase authorization allows for the purchase of up to 200,000 shares To date, 162,996 shares have been repurchased, but none since 2002[42] Selected Financial Data As a Smaller Reporting Company, the company has elected scaled disclosure and is not required to provide this information - The company has elected scaled disclosure obligations as a Smaller Reporting Company and is not required to provide this information[43] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2019, net sales and income declined due to automotive weakness, with the assembly equipment segment growing, while the company maintained dividends and liquidity Results of Operations Full-year 2019 net sales decreased by 11.6% to $32.9 million, and net income fell sharply, primarily due to a 14.0% drop in Fastener segment revenues | Metric | 2019 | 2018 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $32,873,002 | $37,174,249 | -$4,301,247 | -11.6% | | Net Income | $538,314 | $2,001,185 | -$1,462,871 | -73.1% | | EPS | $0.56 | $2.07 | -$1.51 | -72.9% | | Segment | Metric | 2019 | 2018 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Fastener | Revenues | $28,989,667 | $33,712,458 | -$4,722,791 | -14.0% | | | Gross Margin | $4,652,353 | $6,829,211 | -$2,176,858 | -31.9% | | Assembly Equipment | Revenues | $3,883,335 | $3,461,791 | +$421,544 | +12.2% | | | Gross Margin | $1,092,177 | $1,076,548 | +$15,629 | +1.5% | - Selling and administrative expenses decreased by 4.5% to $5,252,946 in 2019, primarily due to lower commission and profit-sharing expenses linked to reduced sales and operating profit[49] Dividends In 2019, the company distributed total dividends of $1.18 per share, maintaining its over 86-year record of consecutive quarterly dividends - Total dividends paid in 2019 were $1.18 per share, which included four regular quarterly dividends of $0.22 each and an extra dividend of $0.30[52] - The company has an uninterrupted record of paying consecutive quarterly dividends for over 86 years, with a $0.22 per share dividend declared for Q1 2020[52] Property, Plant and Equipment Capital expenditures totaled $1.8 million in 2019, primarily for fastener segment equipment upgrades, with depreciation expense at $1.38 million | Year | Total Capital Expenditures | Fastener Segment | Assembly Equipment Segment | Shared | | :--- | :--- | :--- | :--- | :--- | | 2019 | $1,802,914 | $1,522,541 | $233,697 | $46,676 | | 2018 | $2,023,190 | $1,635,115 | $49,884 | $338,191 | - Depreciation expense was $1,382,235 in 2019, compared to $1,308,448 in 2018[56] Liquidity and Capital Resources Working capital decreased to $16.4 million in 2019, while cash increased to $8.0 million, with management confident in sufficient liquidity - Working capital decreased by $1 million to $16.4 million at December 31, 2019, primarily due to reductions in accounts receivable and inventory[57] - Cash, cash equivalents, and certificates of deposit totaled $8 million at year-end 2019, an increase of $0.2 million for the year[57] - Management believes that current cash and operating cash flow will be sufficient to provide adequate working capital for the next twelve months[58] Outlook for 2020 The company anticipates a challenging 2020 due to persistent automotive weakness, high costs, slowing growth, and pandemic risks, focusing on efficiency improvements - The outlook for the fastener segment is cautious, as weakness in the automotive market is expected to persist in the near-term[63] - The assembly equipment segment's order backlog for the start of 2020 trails the prior year in both units and dollar value[65] - Challenges in 2020 include continued high steel costs, rising labor costs, slowing economic growth, and potential exacerbation by the coronavirus pandemic[66] - The company plans to continue making significant investments in its operations in 2020 to improve efficiency and quality, following a $1.8 million investment in 2019[67] Quantitative and Qualitative Disclosures About Market Risk As a Smaller Reporting Company, the company has elected scaled disclosure and is not required to provide this information - The company has elected scaled disclosure obligations as a Smaller Reporting Company and is not required to provide this information[69] Financial Statements and Supplementary Data This section refers to the Consolidated Financial Statements, incorporated by reference from the 2019 Annual Report and appearing on page 17 - The consolidated financial statements are incorporated by reference from the 2019 Annual Report and can be found in the section starting on page 17 of this report[70][102] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[70] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019, with no material changes - Management concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the report[72] - Management concluded that the Company's internal controls over financial reporting were effective as of December 31, 2019, based on the COSO framework[74] - There were no changes in internal control over financial reporting during the fourth quarter of 2019 that materially affected, or are reasonably likely to materially affect, these controls[76] Other Information The company reports no other information for this item - None[77] Part III Directors, Executive Officers and Corporate Governance Information on directors and corporate governance is incorporated from the 2020 Proxy Statement, noting the CEO's upcoming retirement - Information regarding directors and corporate governance is incorporated by reference from the Company's 2020 Proxy Statement[80] - Information about executive officers is included in Part I of this report John A. Morrissey, Chairman and CEO, announced his intention to retire effective May 12, 2020[38][39][80] Executive Compensation All information regarding executive compensation is incorporated by reference from the company's 2020 Proxy Statement - The information for this item is incorporated by reference from the Company's 2020 Proxy Statement[81] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership is incorporated from the 2020 Proxy Statement, with no equity compensation plans - The information for this item is incorporated by reference from the Company's 2020 Proxy Statement[83] - The Company does not have any equity compensation plans or arrangements[84] Certain Relationships and Related Transactions, and Director Independence All information regarding related party transactions and director independence is incorporated by reference from the company's 2020 Proxy Statement - The information for this item is incorporated by reference from the Company's 2020 Proxy Statement[85] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2020 Proxy Statement - The information for this item is incorporated by reference from the Company's 2020 Proxy Statement[86] Part IV Exhibits and Financial Statement Schedules This section lists filed documents, including incorporated financial statements from page 17, omitted schedules, and a list of exhibits - This section lists the financial statements, financial statement schedules (omitted as not applicable), and exhibits filed as part of the report[88] - The Consolidated Financial Statements are incorporated by reference and appear on page 17 of the report[88][102] Form 10-K Summary The company reports no Form 10-K summary - None[89]