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
Operating results for 2022 did not meet our expectations. Net sales grew in the first half of the year, but stalled in the third quarter and declined in the fourth quarter as overall demand softened amid recessionary fears and rising interest rates. At the same time, we had difficulties meeting the requirements of certain customers due to staffing shortages. In addition, higher raw material prices and inflationary pressures also negatively impacted our margins. Fourth quarter sales were $6,857,154 compared to $7,749,488 in the fourth quarter of 2021, a decline of $892,334, or 11.5%. The decline in sales, combined with high raw material prices, record-high inflation and the tight labor market contributed to reporting a net loss in the fourth quarter of $1,312,648, or $1.36 per share, compared to net income of $81,178, or $0.08 per share, in the fourth quarter of 2021. For the full year, net sales were $33,646,033 compared to $33,974,558 in 2021, a decline of $328,525, or 1.0%. Net income for the full year was $2,867,629, or $2.97 per share, compared to $1,113,472, or $1.15 per share in 2021. The positive figure for 2022 includes a pre-tax gain on the sale of our Naperville, Illinois property of $4,738,394 that was reported in the third quarter.
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2022 Compared to 2021
Fastener segment revenues were $6,272,480 in the fourth quarter of 2022 compared to $6,988,047 in the fourth quarter of 2021, a decline of $715,567, or 10.2%. We experienced a general slow-down in demand in the fourth quarter compared to earlier in the year, but at the same time, were unable to meet the requirements of certain automotive customers, where demand remained steady, due to insufficient production staff. During the quarter, sales to automotive customers increased fractionally to $4,185,600 from $4,163,004 in the year earlier quarter. That increase was more than offset by a decline in sales to non-automotive customers, which were $2,086,880 in the fourth quarter of 2022 compared to $2,825,043 a year earlier, a decline of $738,163, or 26.1%. The abrupt decline in sales and production challenges due to staffing shortages resulted in reporting a gross loss in the fourth quarter of $555,641 compared to gross profit of $1,072,310 in the year earlier quarter. Fastener segment revenues for the full year 2022 were $30,291,547 compared to $29,831,388 in 2021, an increase of $460,159, or 1.5%. For the full year 2022, sales to automotive customers were $18,454,238 compared to $17,573,104 in 2021, an increase of $881,134, or 5.0%. Sales to non-automotive customers in 2022 were $11,837,309 compared to $12,258,284 in 2021, a decline of $420,975, or 3.4%. The modest increase in fastener segment sales was more than offset by higher costs as raw material prices remained elevated and general inflation reached record levels. Difficulty achieving proper staffing further negatively impacted margins as operational efficiency suffered. As a result, gross margin for the fastener segment was $3,167,104 in 2022 compared to $5,185,956 in 2021.
Assembly equipment segment revenues were $584,674 in the fourth quarter of 2022, compared to $761,441 in the fourth quarter of 2021, a decline of $176,767, or 23.2%. For the full year 2022, assembly equipment segment revenues were $3,354,486, compared to $4,143,170 reported in 2021, a decline of $788,684, or 19.0%. While the decline in sales was significant, it should be noted that 2021 assembly equipment sales were the highest annual total since 2007. The decline in sales, combined with high inflation and some delivery delays for machine parts, resulted in a gross loss of $51,543 for the fourth quarter of 2022 compared to a gross profit of $195,237 in the fourth quarter of 2021. For the full year 2022, assembly equipment segment gross margins declined to $648,220 from $1,279,136 in 2021.
Selling and administrative expenses were $4,992,521 in 2022 compared to $5,106,177 in 2021, a decrease of $113,656, or 2.2%. We incurred an increase in outside consulting of $42,498, primarily related to hiring fees to fill certain positions, and rent expense of approximately $33,387, primarily related to the lease agreement entered into upon the sale of the Naperville facility. These, and other smaller increases, were offset by a reduction in salaries of $135,714, related to positions that remained unfilled for an extended period of time during the year, and reductions in commissions and director fees of $44,126 and $43,739, respectively. The remaining net change relates to various smaller items. As a percentage of net sales, selling and administrative expenses were 14.8% in 2022 compared to 15.0% in 2021.
As previously disclosed in a Current Report on Form 8-K filed on September 30, 2022, we sold our Naperville, Illinois facility in which the Company’s headquarters and warehouse space is located for a selling price of $5,350,000 in cash, less customary closing costs. Concurrently with the completion of the sale, the Company entered into a lease agreement with the purchaser pursuant to which the Company leased the warehouse portion of the Naperville facility from the purchaser until December 31, 2022 and will lease the office portion until June 30, 2023. The monthly rent payable by the Company under the Lease was $12,500 for the period from the closing until December 31, 2022 and is $8,500 for the period from January 1, 2023 to June 30, 2023. The sale was undertaken in order to take advantage of favorable market conditions and to reduce the occupancy space devoted to administrative functions.
Other income was $91,433 in 2022 compared to $55,557 in 2021. Other income is primarily comprised of interest income which increased during the year due to higher interest rates and greater invested balances.
The Company’s effective income tax rates were 21.5% and 21.3% in 2022 and 2021, 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. The Company paid four regular quarterly dividends in 2022 totaling $0.88 per share. On February 20, 2023, the Board of Directors declared a regular quarterly dividend of $0.22 per share, payable March 20, 2023 to shareholders of record on March 3, 2023. This continues the uninterrupted record of consecutive quarterly dividends paid by the Company to its shareholders that extends over 89 years.
PROPERTY, PLANT AND EQUIPMENT
Total capital expenditures in 2022 were $969,943. Fastener segment additions accounted for $868,654 of the total, including $92,880 for cold heading and screw machine equipment, $208,028 for equipment to perform secondary operations and inspection of parts and $215,540 for general plant equipment. The remaining $352,206 of fastener segment additions related to building improvements. Assembly equipment segment additions in 2022 were $3,207 for IT equipment. Investments for the benefit of both operating segments, primarily for building improvements, totaled $98,082 during 2022.
Capital expenditures during 2021 were $670,898. Of the total, $493,564 related to fastener segment activities, including cold heading equipment additions of $62,600, secondary processing equipment of $360,588 and general plant equipment additions of $70,376. Additional investments of $177,334 were made in 2021 for facilities improvements that benefit both the assembly equipment segment and the fastener segment.
Depreciation expense was $1,279,870 in 2022 and $1,318,554 in 2021.
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LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 2022 was $20,073,089, an increase of $2,651,504 from the beginning of the year. The improvement was primarily due to the gain realized on the sale of our Naperville property during the third quarter. While working capital also improved due to a decline in net accounts receivable during the year of $672,847, an increase in inventory of $601,450, due to higher material prices and elevated quantities on hand to minimize supply disruptions, and a $585,190 increase in other current assets, had a negative impact on working capital. The Company’s investing activities in 2022 included the proceeds from the sale of property and equipment of $5,043,240 and the net maturities of certificates of deposit of $50,000 less capital expenditures of $969,943. The only financing activity during 2022 was the payment of $850,196 in dividends. These changes and other cash flow activity resulted in a balance of cash, cash equivalents and certificates of deposit of $6,736,101 at the end of 2022 compared to $4,777,954 as of the beginning of the year.
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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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. We base our estimates and assumptions on historical experience, current trends and on various other assumptions that are believed to be reasonable under the circumstances. We evaluate our estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions. A summary of critical accounting policies can be found in Note 1 of the financial statements.
Critical accounting estimates are those that require application of management’s most difficult, subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. We have reviewed our accounting estimates, and none were deemed to be considered critical for the accounting periods presented. While we apply our judgment based on assumptions believed to be reasonable under the circumstances, actual results could vary from these assumptions. Additionally, future facts and circumstances could change and impact our estimates and assumptions.
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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 2023
Operating results for 2022 were negatively impacted by numerous factors. Although demand early in the year was steady for both the fastener segment and the assembly equipment segment, as the year progressed, we experienced a softening in demand which led to a significant drop in sales in the fourth quarter. The tight labor market made maintaining an optimal workforce difficult and those challenges intensified as the year progressed. We endured extended periods where important positions remained unfilled, resulting in inefficiencies and higher costs. We are committed to overcoming these challenges as part of an overall strategic review that is underway and have made investments in the new year in an effort to address the challenges of maintaining efficient operations with a smaller, less experienced workforce. We are also reviewing, and seeking to adjust, our pricing in light of higher operating costs related to the current economic and labor market environment. As always, we will continue to look for additional areas for improvement while pursuing opportunities to increase sales by emphasizing value over price and focusing on our abilities to make more complex parts for which our experience, quality and service are important factors in purchasing decisions.
We were saddened to report the passing of Walter W. Morrissey in December 2022. Mr. Morrissey had served as a Director of the Company since 1972 and as Chairman of the Board and Chief Executive Officer since May 2020. His contributions to the success of the Company over the years will be missed. Director James W. Morrissey was named non-executive Chairman of the Board until the Annual Meeting of Shareholders on May 9, 2023. The search for a new Chief Executive Officer is currently underway.
Notwithstanding the difficult environment we are operating in, we believe that our sound financial condition and long history of success in a variety of challenging circumstances will provide the basis for improved operating activities in the future. We increased our capital expenditures in 2022 over the previous year and expect to make further investments in 2023. We will also continue our efforts 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. We are grateful for the contributions of our dedicated employees in what was a uniquely challenging year as well as for the loyalty of our customers and the support of our shareholders.
ITEM 7A - Quantitative and Qualitative Disclosures About Market Risk
As a Smaller Reporting Company as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (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.
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ITEM 8 - Financial Statements and Supplementary Data
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID: 173)
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
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Report of Independent Registered Public Accounting Firm
Shareholders and the Board of Directors of Chicago Rivet & Machine Co.
Naperville, Illinois
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Chicago Rivet & Machine Co. (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/Crowe LLP/
We have served as the Company's auditor since 2014.
Oak Brook, Illinois
March 29, 2023
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CHICAGO RIVET & MACHINE CO.
Consolidated Balance Sheets
Assets
Current Assets
Liabilities and Shareholders' Equity
Current Liabilities
Commitments and Contingencies (Note 8)
Shareholders' Equity
Preferred Stock, No Par Value, 500,000 Shares Authorized: None Outstanding - -
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CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Income
Operating (Income) Expenses:
Per Share Data:
Basic net income per share $ 2.97 $ 1.15
Diluted net income per share $ 2.97 $ 1.15
Weighted Average Common Shares Outstanding:
Cash Dividends Declared Per Share $ 0.88 $ 0.88
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CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Shareholders’ Equity
Common Stock Treasury Stock, At Cost
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CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Cash Flows
Cash Flows from Operating Activities:
Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities:
(Gain) Loss on the Sale of Property and Equipment (4,741,096) 21,564
Changes in Operating Assets and Liabilities:
Unearned Revenue and Customer Deposits (98,707) 52,926
Cash Flows from Investing Activities:
Proceeds from the Sale of Property and Equipment 5,043,240 7,800
Cash Flows from Financing Activities:
Net Increase (Decrease) in Cash and Cash Equivalents 2,008,147 (530,777)
Cash and Cash Equivalents:
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Notes to Consolidated Financial Statements
1 - Nature of Business and Significant Accounting Policies
Nature of Business-The Company operates in the fastener industry and is in the business of producing and selling rivets, cold-formed fasteners and parts, screw machine products, automatic rivet setting machines and parts and tools for such machines.
A summary of the Company’s significant accounting policies follows:
Principles of Consolidation-The consolidated financial statements include the accounts of Chicago Rivet & Machine Co. and its wholly-owned subsidiary, H & L Tool Company, Inc. (“H & L Tool”). All significant intercompany accounts and transactions have been eliminated.
Revenue Recognition- Revenue is recognized when control of the promised goods or services is transferred to our customers, generally upon shipment of goods or completion of services, in an amount that reflects the consideration we expect to receive in exchange for those goods or services. Sales taxes we may collect concurrent with revenue producing activities are excluded from revenue. Revenue is recognized net of certain sales adjustments to arrive at net sales as reported on the statement of income. These adjustments primarily relate to customer returns and allowances, which vary over time. The Company records a liability and reduction in sales for estimated product returns based upon historical experience. If we determine that our obligation under warranty claims is probable and subject to reasonable determination, an estimate of that liability is recorded as an offset against revenue at that time. As of December 31, 2022 and 2021, reserves for warranty claims were not material. Cash received by the Company prior to shipment is recorded as unearned revenue. In 2022 and 2021 the Company recognized revenue from such payments of $302,357 and $248,799, respectively, that was included in the unearned revenue balance at the beginning of the period. Shipping and handling fees billed to customers are recognized in net sales, and related costs as cost of sales, when incurred.
Credit Risk-The Company extends credit on the basis of terms that are customary within our markets to various companies doing business primarily in the automotive industry. The Company has a concentration of credit risk primarily within the automotive industry and in the Midwestern United States. The Company has established an allowance for accounts that may become uncollectible in the future. This estimated allowance is based primarily on management's evaluation of the financial condition of the customer and historical experience. The Company monitors its accounts receivable and charges to expense an amount equal to its estimate of potential credit losses. The Company considers a number of factors in determining its estimates, including the length of time its trade accounts receivable are past due, the Company's previous loss history and the customer's current ability to pay its obligation. Accounts receivable balances are charged off against the allowance when it is determined that the receivable will not be recovered.
Cash and Cash Equivalents and Certificates of Deposit-The Company considers all highly liquid investments, including U.S. Treasury bills and certificates of deposit, with a maturity of three months or less when purchased to be cash equivalents. Certificates of deposit with an original maturity of greater than three months are separately presented at cost which approximates market value. The Company maintains cash on deposit in several financial institutions. At times, the account balances may be in excess of Federal Deposit Insurance Corporation insured limits.
Fair Value of Financial Instruments-The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, certificates of deposit, accounts receivable and accounts payable approximate fair value based on their short-term nature.
Inventories-Inventories are stated at the lower of cost or net realizable value, cost being determined by the first-in, first-out method. The value of inventories is reduced for estimated excess and obsolete inventories based on a review of on-hand inventories compared to historical and estimated future sales and usage.
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Property, Plant and Equipment-Properties are stated at cost and are depreciated over their estimated useful lives using the straight-line method for financial reporting purposes. Accelerated methods of depreciation are used for income tax purposes. Direct costs related to developing or obtaining software for internal use are capitalized as property and equipment. Capitalized software costs are amortized over the software’s useful life when the software is placed in service. The estimated useful lives by asset category are:
Asset Category Estimated Useful Life
Land improvements................. 15 to 40 years
Buildings and improvements...... 10 to 40 years
Machinery and equipment......... 5 to 18 years
Capitalized software costs......... 3 to 5 years
Other equipment..................... 3 to 10 years
The Company reviews the carrying value of property, plant and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. There were no triggering events requiring assessment of impairment as of December 31, 2022 and 2021.
When properties are retired or sold, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss on disposition is recognized in current operations. Maintenance, repairs and minor betterments that do not improve the related asset or extend its useful life are charged to operations as incurred.
Income Taxes—Deferred income taxes are determined under the asset and liability method. Deferred income taxes arise from temporary differences between the income tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred taxes are shown on the balance sheet as a net long-term asset or liability.
The Company applies a comprehensive model for the financial statement recognition, measurement, classification and disclosure of uncertain tax positions. In the first step of the two-step process, the Company evaluates the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. In the second step, the Company measures the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. As of December 31, 2022 and 2021, the Company determined that there are no uncertain tax positions with a more than 50% likelihood of being realized upon settlement.
The Company classifies interest and penalties related to unrecognized tax benefits as a component of income tax expense. There were no such expenses in 2022 or 2021.
The Company’s federal income tax returns for the 2019 through 2021 tax years are subject to examination by the Internal Revenue Service (“IRS”). While it may be possible that a reduction could occur with respect to the Company’s unrecognized tax benefits as an outcome of an IRS examination, management does not anticipate any adjustments that would result in a material change to the results of operations or financial condition of the Company.
No statutes have been extended on any of the Company’s federal income tax filings. The statute of limitations on the Company’s 2019, 2020 and 2021 federal income tax returns will expire on September 15, 2023, 2024 and 2025, respectively.
The Company’s state income tax returns for the 2019 through 2021 tax years are subject to examination by various state authorities with the latest closing period on October 31, 2025. The Company is currently not under examination by any state authority for income tax purposes and no statutes for state income tax filings have been extended.
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Segment Information-The Company reports segment information based on the internal structure and reporting of the Company’s operations.
Net Income Per Share- Net income per share of common stock is based on the weighted average number of shares outstanding of 966,132 in 2022 and 2021.
Use of Estimates-The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Significant items subject to estimates and assumptions include depreciable lives, deferred taxes and valuation allowances for accounts receivable and inventory obsolescence. Actual results could differ from those estimates.
Recent Accounting Pronouncements- In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and in November 2018 issued an amendment, ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. ASU 2016-13 amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 and ASU 2018-19 should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company adopted this ASU on January 1, 2023. The impact of the adoption on our consolidated financial statements was not material.
2 - Balance Sheet Details
Inventories:
Property, Plant and Equipment, net:
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Other Accrued Expenses:
Allowance for Doubtful Accounts:
Charges to statement of income (1,660) 0
Write-offs, net of recoveries (8,340) 0
Inventory Valuation Reserves:
3 - Income Taxes—The provision for income tax expense consists of the following:
Current:
The following is a reconciliation of the statutory federal income tax rate to the actual effective tax rate:
Amount % Amount %
22
The deferred tax assets (liabilities) consist of the following:
Valuation allowances related to deferred taxes are recorded based on the “more likely than not” realization criteria. The Company reviews the need for a valuation allowance on a quarterly basis for each of its tax jurisdictions. A deferred tax valuation allowance was not required at December 31, 2022 or 2021.
4 - Profit Sharing Plan- The Company has a noncontributory profit sharing plan covering substantially all employees. Total expenses relating to the profit sharing plan amounted to $170,000 in 2022 and $145,000 in 2021.
5 - Other Income- consists of the following:
6 - Segment Information- The Company operates in the United States in two business segments as determined by its products. The fastener segment, which comprises H & L Tool and the parent company’s fastener operations, includes rivets, cold-formed fasteners and parts and screw machine products. The assembly equipment segment includes automatic rivet setting machines and parts and tools for such machines. Information by segment is as follows:
Fastener Assembly Equipment Other Consolidated
Income before income taxes........................ 3,652,629
Segment assets:
Income before income taxes........................ 1,414,472
Segment assets:
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The Company does not allocate certain selling and administrative expenses for internal reporting, thus, no allocation was made for these expenses for segment disclosure purposes. Segment assets reported internally are limited to accounts receivable, inventory and long-lived assets. Certain long-lived assets of one plant location are allocated between the two segments based on estimated plant utilization, as this plant serves both fastener and assembly equipment activities. Other assets are not allocated to segments internally and to do so would be impracticable.
The following table presents revenue by segment, further disaggregated by end-market:
Fastener Assembly Equipment Consolidated
The following table presents revenue by segment, further disaggregated by location:
Fastener Assembly Equipment Consolidated
Sales to one customer in the fastener segment accounted for 15% of consolidated revenues during 2022 and 13% in 2021. The accounts receivable balance for this customer accounted for 19% and 16% of consolidated accounts receivable as of December 31, 2022 and 2021, respectively. Sales to a second customer in the fastener segment accounted for 14% of consolidated revenues during 2022 and 11% in 2021. The accounts receivable balance for this customer accounted for 16% and 11% of consolidated accounts receivable as of December 31, 2022 and 2021, respectively. Sales to a third customer were 12% of consolidated revenue in 2021. The accounts receivable balance for this customer accounted for 18% of consolidated accounts receivable as of December 31, 2021.
7 - Gain on Sale of Property - On August 12, 2022, the Company entered into a Purchase and Sale Agreement (the “PSA”) with Frontenac Properties LLC (the “Purchaser”) pursuant to which the Company agreed, subject to the terms and conditions of the PSA, to sell its facility in Naperville, Illinois, in which the Company’s headquarters and warehouse space are located, to the Purchaser. On September 27, 2022, the Company’s sale of the facility to the Purchaser was completed for a selling price of $5,350,000 in cash, less customary closing costs. The net gain on the transaction was $4,738,394. A portion of the net proceeds was invested in U.S. Treasury bills and is included in cash and cash equivalents as of December 31, 2022.
Concurrently with the completion of the sale of the Naperville facility, the Company and the Purchaser entered into a lease agreement pursuant to which the Company leased the warehouse portion of the Naperville facility from the Purchaser until December 31, 2022 and the office portion until June 30, 2023. The monthly rent payable by the Company under the lease was $12,500 for the period from the closing until December 31, 2022 and will be $8,500 for the period from January 1, 2023 to June 30, 2023. The Company adopted the practical expedient for short-term leases under ASC 842 which allows for leases of 12 months or less to be expensed on a straight-line basis over the lease term without reporting on the balance sheet.
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8 - Commitments and Contingencies- The Company recorded rent expense aggregating approximately $91,000 and $27,000 in 2022 and 2021, respectively. Total future minimum rentals at December 31, 2022 were $51,000.
The Company is, from time to time involved in litigation, including environmental claims, in the normal course of business. While it is not possible at this time to establish the ultimate amount of liability with respect to contingent liabilities, including those related to legal proceedings, management is of the opinion that the aggregate amount of any such liabilities, for which provision has not been made, will not have a material adverse effect on the Company's financial position.
9 - COVID-19-In March 2020, the World Health Organization characterized the novel coronavirus (“COVID-19”) a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. The rapid spread of the virus and the response domestically and internationally to combat it had a significant negative impact on the global economy, including the automotive industry upon which we rely for sales. Beginning in March 2020, most states issued executive orders which temporarily closed businesses deemed non-essential in an effort to prevent the spread of the coronavirus. Similar measures also took place in foreign markets we serve. As a result, our operations and the operations of our customers and suppliers were adversely affected. While most shutdown orders were lifted later that year, various work-related restrictions remained in place for some time resulting in widespread economic disruption. As of the beginning of 2022, our operations had not returned to pre-pandemic levels and the pandemic continues to disrupt and have unpredictable impacts on our operations and the markets we serve, most notably in terms of labor shortages, supply chain disruptions and high inflation. These factors make the timing and sustainability of any broad economic recovery uncertain and will likely remain tied to the course of the pandemic. As we cannot predict the duration or scope of the COVID-19 pandemic, or its broader impact on the global economy, including the demand for automobiles, it is unknown what the impact of COVID-19 and its related effects will be on our business, results of operations or financial condition, but the impact could be material and last for an extended period of time.
10 - Subsequent Events- On February 20, 2023, the Board of Directors declared a regular quarterly dividend of $0.22 per share, or $212,549, payable March 20, 2023 to shareholders of record on March 3, 2023.
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ITEM 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
ITEM 9A – Controls and Procedures
Disclosure Controls and Procedures.
The Company's management, with the participation of the Company's principal executive and 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 "Exchange Act") as of the end of the period covered by this report. Based on such evaluation, the Company's principal executive and principal financial officer has 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 assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, 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 control over financial reporting is effective as of December 31, 2022.
This Annual Report on form 10-K is not required to, and does not, include an attestation report of the Company’s registered public accounting firm on the Company’s internal control over financial reporting, because the Company is not an accelerated filer or a large accelerated filer as defined in Rule 12b-2 under the Exchange Act.
Changes in Internal Control Over Financial Reporting.
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, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B – Other Information
None.
ITEM 9C – Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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PART III
ITEM 10 – Directors, Executive Officers and Corporate Governance
The information in the Company’s 2023 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 2023 Proxy Statement is to be filed with the Securities and Exchange Commission in connection with the Company's 2023 Annual Meeting of Shareholders. The information called for with respect to executive officers of the Company is included in Part I of this Annual 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.
ITEM 11 - Executive Compensation
The information set forth in the Company’s 2023 Proxy Statement in “Compensation of Directors and Executive Officers” is incorporated herein by reference.
During 2022, the Compensation Committee of the Board of Directors consisted of Directors Kent H. Cooney, Kurt Moders and Patricia M. Miller.
ITEM 12 - Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters
The information set forth in the Company's 2023 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.
ITEM 13 - Certain Relationships and Related Transactions, and Director Independence
The information set forth in the Company’s 2023 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.
ITEM 14 – Principal Accountant Fees and Services
The information set forth in the Company’s 2023 Proxy Statement in “Ratification of Selection of Independent Auditor – Audit and Non-Audit Fees” is incorporated herein by reference.
27
PART IV
ITEM 15 – 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" in Item 8 of this report.
2.Financial Statement Schedules:
Financial statement schedules and supplementary information have 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 29 of this report.
ITEM 16 – Form 10-K Summary
None.
28
CHICAGO RIVET & MACHINE CO.
EXHIBITS
ExhibitNumber
21 Subsidiaries of the Registrant.
101.SCH File because its XBRL tags are embedded within the Inline XBRL document.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant 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/James W. MorrisseyChairman of the Board of Directors
James W. Morrisseyand Member of the Executive Committee
March 29, 2023
/s/Michael J. BourgPresident, Chief Operating Officer and Treasurer
Michael J. Bourg(Principal Executive and Financial Officer),
Director and Member of the Executive Committee
March 29, 2023
/s/Kent H. CooneyDirector, Member of the Audit Committee
Kent H. CooneyMarch 29, 2023
/s/Kurt ModersDirector
Kurt ModersMarch 29, 2023
/s/John L. ShowelDirector, Member of the Audit Committee
John L. ShowelMarch 29, 2023
30