ITEM 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This discussion contains
certain “forward-looking statements” which are inherently subject to risks and uncertainties that may cause actual events to differ materially from those discussed herein. Factors which may cause such differences in events include those
disclosed above under “Risk Factors” and elsewhere in this Form 10-K. As stated elsewhere in this filing, such factors include, among other things: risk related to the
COVID-19 pandemic and its related adverse effects, conditions in the domestic automotive industry, upon which we rely for sales revenue, the intense competition in our markets, the concentration of our sales
with major customers, risks related to export sales, the price and availability of raw materials, supply chain disruptions, labor relations issues, losses related to product liability, warranty and recall claims, costs relating to environmental laws
and regulations, information systems disruptions and the loss of the services of our key employees. Many of these factors are beyond our ability to control or predict. Readers are cautioned not to place undue reliance on these forward-looking
statements. We undertake no obligation to publish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
Financial results
for 2020 were adversely impacted by the COVID-19 pandemic that resulted in broad disruptions in most markets we serve. On January 30, 2020, the World Health Organization declared a Public Health Emergency
of International Concern regarding the outbreak of the novel coronavirus COVID-19. In response to the resulting pandemic, governments around the world took various preventative measures in order to control the
spread of the virus, including restricting travel, full or partial business shutdowns and implementing social distancing policies. As a result,
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we experienced a significant drop in orders, especially during the second quarter, and the global economy was plunged into a recession. Although business conditions had improved by late in the
third quarter, the effects of the pandemic continued to impact our operations and those of our customers and suppliers. We saw further improvement in the markets we serve in the fourth quarter and recorded sales of $8,265,419 for the quarter
compared to $7,645,259 in the previous quarter and $7,186,968 in the fourth quarter of 2019. The increase in sales resulted in an improvement in net income to $464,263, or $0.48 per share, in the fourth quarter of 2020 compared to a net loss of
$293,884, or $0.30 per share, in the fourth quarter of 2019. Full year net sales were $27,590,653 in 2020 compared to $32,873,002 in 2019, a decline of $5,282,349, or 16.1%. Full year net income in 2020 was $50,450, or $0.05 per share, compared to
$538,314, or $0.56 per share, in 2019.
2020 Compared to 2019
Fastener segment revenues were $7,332,308 in the fourth quarter of 2020 compared to $6,286,948 reported in the relatively weak fourth quarter
of 2019, an increase of $1,045,360, or 16.6%. Fastener segment revenues for the full year were $24,607,863 in 2020 compared to $28,989,667 in 2019, a decline of $4,381,804, or 15.1%. The drop in sales in 2020 was primarily related to the COVID-19 pandemic that resulted in shutdowns of business in many parts of the world starting late in the first quarter. Those shutdowns became widespread in the second quarter as different governments struggled to
contain the spread of the virus. The automotive sector is the primary market for our fastener segment products and much of that sector was idled for an extended period of time during the second quarter when government-imposed restrictions were the
most severe. While sales to automotive customers improved in the fourth quarter of 2020 compared to the prior quarter and the year earlier quarter, such sales declined $2,906,738, or 15.7% for the year. Similarly, sales to non-automotive customers improved in the fourth quarter, but declined $1,475,066, or 14.1%, for the year. The rebound in sales in the fourth quarter, combined with the reduction in certain overhead expenses in the
wake of pandemic-related shutdowns, resulted in fastener segment gross margin of $1,638,836 compared to $794,076 in the year earlier quarter, an increase of $844,760. The reduction in sales for the full year was the primary factor impacting gross
margins for 2020. For the full year 2020, fastener segment gross margins were $4,170,276 compared to $4,652,353 in 2019, a decline of $482,077.
Assembly equipment segment revenues were $933,111 in the fourth quarter of 2020, compared to $900,020 in the fourth quarter of 2019, an
increase of $33,091, or 3.7%. The increase was due to improved machine sales which offset declines in parts and tool sales during the quarter. For the full year 2020, assembly equipment segment revenues were $2,982,790, compared to $3,883,335
reported in 2019, a decline of $900,545, or 23.2%. The year to date decline was primarily due to the broad impact of the COVID-19 pandemic that dramatically reduced demand in the second and third quarters.
Gross margins improved in the fourth quarter of 2020 to $255,296 from $90,954 in the fourth quarter of 2019, due in part to 2020 revenue being more heavily weighted toward higher margin machine sales and due to the disposal of certain excess
inventory items in 2019. For the full year, assembly equipment segment gross margins declined, along with sales, to $744,926 from $1,092,177.
Selling and administrative expenses were $4,998,216 in 2020 compared to $5,252,946 in 2019, a decline of $254,730, or 4.8%. The decline was
primarily due to a $214,000 reduction in salaries and benefits necessitated by the pandemic and a commission expense reduction of $117,000 related to lower sales in 2020. These reductions were partially offset by consulting expenses of $124,000
related to an ERP system conversion that was completed at one of our locations during the year. As a percentage of net sales, selling and administrative expenses were 18.1% in 2020 compared to 16.0% in 2019.
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Other income was $148,464 in 2020 compared to $191,730 in 2019. Other income is primarily
comprised of interest income which declined during the year due to lower interest rates.
The Company’s effective income tax rates
were 22.9% and 21.2% in 2020 and 2019, respectively.
DIVIDENDS
In determining to pay dividends, the Board considers current profitability, the outlook for longer-term profitability, known and potential cash
requirements and the overall financial condition of the Company. At the onset of the COVID-19 pandemic, the Company reduced the regular quarterly dividend from $0.22 per share to $0.10 per share. The Company
paid four regular quarterly dividends totaling $0.52 per share during 2020. On February 22, 2021, the Board of Directors declared a regular quarterly dividend of $0.22 per share, restoring the dividend to the
pre-pandemic amount. This dividend will be payable March 19, 2021 to shareholders of record on March 5, 2021. This continues the uninterrupted record of consecutive quarterly dividends paid by the
Company to its shareholders that extends over 87 years.
PROPERTY, PLANT AND EQUIPMENT
Total capital expenditures in 2020 were $824,136. Fastener segment additions accounted for $614,835 of the total, including $410,114 for cold
heading and screw machine equipment, $97,908 for inspection equipment and $40,000 for equipment to perform secondary operations on parts. The remaining $66,813 fastener segment additions consisted of parts cleaning and loading equipment. Assembly
equipment segment additions in 2020 were $13,924 for production equipment. Investments for the benefit of both operating segments, primarily for building improvements, totaled $195,377 during 2020.
Capital expenditures during 2019 totaled $1,802,914. The fastener segment accounted for $1,522,541 of the total, including cold heading and
screw machine equipment additions of $567,963, secondary processing equipment of $631,089, quality control equipment additions of $268,468 and $46,066 for general plant equipment. The remainder of the fastener segment additions relate to technology
equipment. Assembly equipment segment additions totaled $233,697, primarily for production equipment. Additional investments of $46,676 were made in 2019 for building improvements and office equipment that benefit both operating segments.
Depreciation expense amounted to $1,347,305 in 2020 and $1,382,235 in 2019.
LIQUIDITY AND CAPITAL RESOURCES
Working
capital at December 31, 2020 was approximately $16.6 million, an increase of $0.1 million from the beginning of the year. The net change was primarily due to increases in accounts receivable and inventory of $0.6 million and
$0.2 million, respectively, which were only partially offset by a reduction in cash, cash equivalents and certificates of deposit of $0.7 million. The Company’s investing activities in 2020 included the net maturities of certificates
of deposit of $1.8 million, due to the near-zero interest rates brought on in response to the COVID-19 pandemic, and capital expenditures of $0.8 million. The only financing activity during 2020 was
the payment of approximately $0.5 million in dividends. The Company’s holdings in cash, cash equivalents and certificates of deposit amounted to $7.3 million at the end of 2020.
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Management believes that current cash, cash equivalents and operating cash flow will be
sufficient to provide adequate working capital for the next twelve months.
Off-Balance Sheet Arrangements
The Company has not entered into, and has no current plans to enter into, any off-balance
sheet financing arrangements.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of revenue and expenses during the reporting period. A summary
of critical accounting policies can be found in Note 1 of the financial statements.
NEW ACCOUNTING STANDARDS
The Company’s financial statements and financial condition were not, and are not expected to be, materially impacted by new, or proposed,
accounting standards. A summary of recent accounting pronouncements can be found in Note 1 of the financial statements.
OUTLOOK FOR 2021
After overcoming the worst period of the pandemic in the second quarter, the second half of 2020 results were more positive than those of the
year earlier period which were negatively impacted by protracted trade disputes and slowing automotive sales. While the overall results in 2020 were heavily impacted by the global pandemic, the recent introduction of vaccines to guard against the
worst effects of the virus offer hope of a return to more normal activities throughout the economy that could spur a broader economic recovery.
As we begin 2021, both our fastener segment and our assembly equipment segment have recently seen improved demand. However, both segments face
challenges in the form of higher prices for raw materials, increased wages related to a tight labor market and sporadic supply chain disruptions that started during the pandemic. These factors, as well as the uncertainties that COVID-19 still presents, are expected to continue to provide challenges in the near-term. As we face the challenges ahead, we will continue our efforts to improve operational efficiency and pursue opportunities to
develop new customer relationships and build on existing ones in all the markets we serve by emphasizing our experience, quality and customer service in a very competitive global marketplace.
While 2020 will likely be remembered for the COVID-19 pandemic and its impact on everyday life, it
also marked Chicago Rivet’s 100th year in existence. Such longevity is the result of the dedicated efforts of many people over the years, who consistently worked to exceed customer
expectations related to quality, service and price. We are grateful for their contributions as well as for the loyalty of our customers and the support of our shareholders.
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ITEM7A Quantitative and Qualitative Disclosures About
Market Risk
As a Smaller Reporting Company as defined in Rule 12b-2 of the Exchange Act
and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations with respect to this item and therefore are not required to provide the information requested by this Item 7A.
ITEM8 – Financial Statements and Supplementary Data
See the section entitled “Consolidated Financial Statements” which appears on page 19 of this report.
ITEM 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM9A – Controls and Procedures
Disclosure Controls and Procedures.
The
Company’s management, with the participation of the Company’s Chief Executive Officer and President, Chief Operating Officer and Treasurer (the Company’s principal financial officer), has evaluated the effectiveness of the
Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s
disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.
Management’s Report on Internal Control Over Financial Reporting.
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term
is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s management, with the participation of the Company’s Chief Executive Officer and
President, Chief Operating Officer and Treasurer (the Company’s principal financial officer), assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, based on the 2013 criteria
established in Internal Control—Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, the Company’s management has concluded that the
Company’s internal controls over financial reporting are effective as of December 31, 2020.
Management’s assessment of
internal control has not been audited, as the attestation report requirement for non-accelerated filers was permanently removed from the Sarbanes-Oxley Act by Section 989C of the Dodd-Frank Act as adopted
by the SEC.
Changes in Internal Control Over Financial Reporting.
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There have not been any changes in the Company’s internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2020 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM9B – Other Information
None.
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PART III
ITEM10 – Directors, Executive Officers and Corporate Governance
The information in the Company’s 2021 Proxy Statement (i) with respect to the Board of Directors’ nominees for directors that is
not related to security ownership in “Security Ownership of Management” and (ii) in the third paragraph in “Additional Information Concerning the Board of Directors and Committees” is incorporated herein by reference. The
2021 Proxy Statement is to be filed with the Securities and Exchange Commission in connection with the Company’s 2021 Annual Meeting of Shareholders. The information called for with respect to executive officers of the Company is included in
Part I of this Report on Form 10-K under the caption “Information about our Executive Officers.”
The Company has adopted a code of ethics for its principal executive officer, chief operating officer and senior financial officers. A copy of
this code of ethics was filed as Exhibit 14 to the Company’s Annual Report on Form 10-K dated March 29, 2005.
ITEM11 – Executive Compensation
The information set forth in the Company’s 2021 Proxy Statement in “Compensation of Directors and Executive Officers” is
incorporated herein by reference.
The Compensation Committee of the Board of Directors currently consists of Directors Kent H. Cooney and
Kurt Moders.
ITEM 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information set forth in the Company’s 2021 Proxy Statement in “Principal Shareholders” and the
information with respect to security ownership of the Company’s directors and officers set forth in “Security Ownership of Management” is incorporated herein by reference.
The Company does not have any equity compensation plans or arrangements.
ITEM13 – Certain Relationships and Related Transactions, and Director Independence
The information set forth in the Company’s 2021 Proxy Statement in (i) “Additional Information Concerning the Board of Directors and
Committees – Policy Regarding Related Person Transactions” and (ii) the first paragraph under “Additional Information Concerning the Board of Directors and Committees” is incorporated herein by reference.
ITEM14 – Principal Accountant Fees and Services
The information set forth in the Company’s 2021 Proxy Statement in “Ratification of Selection of Independent Auditor – Audit and
Non-Audit Fees” is incorporated herein by reference.
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PART IV
ITEM15 – Exhibits and Financial Statement Schedules
(a) The following documents are filed as a part of this report:
1. Financial Statements:
See the section entitled “Consolidated Financial Statements” which appears on page 19 of this report.
2. Financial Statement Schedules:
Financial statement schedules and supplementary information has been omitted because they are not applicable or the required information is
shown in the consolidated financial statements or notes thereto.
3. Exhibits:
See the section entitled “Exhibits” which appears on page 17 of this report.
ITEM16 – Form 10-K Summary
None.
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CHICAGO RIVET & MACHINE CO.
EXHIBITS
ExhibitNumber
13* Annual Report to Shareholders for the year ended December 31, 2020.
21 Subsidiaries of the Registrant.
* Only the portions of this exhibit which are specifically incorporated herein by reference shall be
deemed to be filed herewith.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Chicago Rivet & Machine Co. has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Chicago Rivet & Machine Co.
By /s/ Michael J. Bourg
Michael J. Bourg President and Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
/s/ Patricia M. Miller Patricia M. Miller Director March 19, 2021
/s/ Kurt Moders Kurt Moders Director March 19, 2020
/s/ John L. Showel John L. Showel Director March 19, 2021
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CHICAGO RIVET & MACHINE CO.
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements, together with the notes thereto and the report thereon of Crowe LLP dated March 19, 2021,
appearing on pages 4 to 12 of the accompanying 2020 Annual Report, are incorporated herein by reference. With the exception of the aforementioned information and the information incorporated in Items 1, 5 and 8 herein, the 2020 Annual Report is not
to be deemed filed as part of this Form 10-K Annual Report.
Consolidated Financial Statements from 2020 Annual
Report (Exhibit 13 hereto):
Consolidated Balance Sheets (page 4 of 2020 Annual Report)
Consolidated Statements of Income (page 5 of 2020 Annual Report)
Consolidated Statements of Shareholders’ Equity (page 5 of 2020 Annual Report)
Consolidated Statements of Cash Flows (page 6 of 2020 Annual Report)
Notes to Consolidated Financial Statements (pages 7 – 11 of 2020 Annual Report)
Report of Independent Registered Public Accounting Firm (page 12 of 2020 Annual Report)
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