-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ULkI7HaQwN8GKSf3rPckPef7fAyu11pHNl0PCJWIeykD00PR2YjMOVYHaOaQKIoN ZBs5QrfWykQiP6zER5Y5rA== 0000950137-98-001287.txt : 19980331 0000950137-98-001287.hdr.sgml : 19980331 ACCESSION NUMBER: 0000950137-98-001287 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHICAGO RIVET & MACHINE CO CENTRAL INDEX KEY: 0000019871 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 360904920 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-01227 FILM NUMBER: 98578051 BUSINESS ADDRESS: STREET 1: 901 FRONTENAC RD STREET 2: P O BOX 3061 CITY: NAPERVILLE STATE: IL ZIP: 60566 BUSINESS PHONE: 7083578500 MAIL ADDRESS: STREET 1: 901 FRONTENAC RD STREET 2: P O BOX 3061 CITY: NAPERVILLE STATE: IL ZIP: 60566 10-K405 1 FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to . Commission File Number 0-1227 CHICAGO RIVET & MACHINE CO. (Exact Name of Registrant as Specified in Its Charter) Illinois (State or Other Jurisdiction of Incorporation or Organization) 36-0904920 (I.R.S. Employer Identification No.) 901 Frontenac Road Naperville, IL (Address of Principal Executive Offices) 60563 (Zip Code) Registrant's Telephone Number, Including Area Code: (630) 357-8500 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock--$1.00 Par Value American Stock Exchange (Trading privileges only, not registered)
Securities registered pursuant to Section 12(g) of the Act: None. - -------------------------------------------------------------------------------- (Title of Class) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS, (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ___. INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ X ] STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT. THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF FILING. $30,310,298 AS OF FEBRUARY 2, 1998 COMMON SHARES OUTSTANDING AS OF FEBRUARY 2, 1998 WERE 1,169,096 ($1 PAR VALUE) DOCUMENTS INCORPORATED BY REFERENCE (1) PORTIONS OF THE COMPANY'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1997 (THE "1997 REPORT") ARE INCORPORATED BY REFERENCE IN PARTS I, II AND IV OF THIS REPORT. (2) PORTIONS OF THE COMPANY'S DEFINITIVE PROXY STATEMENT WHICH IS TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IN CONNECTION WITH THE COMPANY'S 1998 ANNUAL MEETING OF SHAREHOLDERS ARE INCORPORATED BY REFERENCE IN PART III OF THIS REPORT. ================================================================================ PAGE 1 OF ____ EXHIBIT INDEX IS ON PAGE ____ 2 CHICAGO RIVET & MACHINE CO. PERIOD ENDING DECEMBER 31, 1997
Item Page No. No. - ---- ---- Part I 1. Business 3 2. Properties 4 3. Legal Proceedings 4 4. Submission of Matters to a Vote of Security Holders 5 Part II 5. Market for Registrant's Common Equity and Related Stockholder Matters 6 6. Selected Financial Data 6 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 8. Financial Statements and Supplementary Data 12 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 12 Part III 10. Directors and Executive Officers of the Registrant 12 11. Executive Compensation 12 12. Security Ownership of Certain Beneficial Owners and Management 13 13. Certain Relationships and Related Transactions 13 Part IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 13
3 PART I ITEM 1 - BUSINESS Chicago Rivet & Machine Co. (the Company) was incorporated under the laws of the State of Illinois in December, 1927, as successor to the business of Chicago Rivet & Specialty Co. The Company operates in the fastener industry in the United States, producing and selling rivets, cold-headed parts, screw machine products, automatic rivet setting machines, parts and tools for such machines, and the leasing of automatic rivet setting machines. For further discussion regarding the Company's operations see Note 1 which appears on page 10 of the Company's 1997 Annual Report to Shareholders, incorporated herein by reference. The 1997 Annual Report is filed as an exhibit to this report. The principal market for the fastener industry operations is the automotive and appliance industries within the United States. Sales are generally solicited by independent sales representatives. The industry in which the Company operates is characterized by active and substantial competition. No single company dominates the industry. The Company's competitors include both larger and smaller manufacturers, and segments or divisions of large, diversified companies with substantial financial resources. Principal competitive factors in the market for the Company's products are quality, service, reliability and price. The Company serves a wide variety of customers. Sales revenues are primarily derived from sales to customers involved, directly or indirectly, in the manufacture of automobiles and appliances. Information concerning backlog of orders is not considered material to the understanding of the Company's business due to relatively short delivery cycles. The level of business activity for the Company is closely related to the overall level of industrial activity of the United States. During 1997, sales to two customers exceeded 10% of the Company's consolidated revenues. Sales to Bundy Corporation accounted for approximately 15% of the Company's consolidated revenues, and sales to Fisher Dynamics Corporation accounted for approximately 11% of the Company's consolidated revenues. No single customer accounted for more than 10% of the Company's consolidated revenues in 1996 or 1995. On December 3, 1996, the Company acquired substantially all of the assets and assumed certain liabilities of H & L Tool Company, Inc. (H & L Tool) of Madison Heights, Michigan. H & L Tool manufactures specialty cold-formed parts, including fasteners, and screw machine products for sale to customers primarily in the automotive industry. The assets purchased included all of H &L Tool's production equipment, its facilities in Madison Heights, inventories, accounts receivable and other operating assets. The purchase price was approximately $19.1 million including $0.3 million of acquisition costs, and was financed through a $4.8 million credit in consideration of the seller's retention of all cash and marketable securities, an unsecured loan of $9.0 million and approximately $5.3 million of available cash. The Registrant intends to continue operations at the Madison Heights location. For further information regarding this acquisition, see Note 2 which appears on page 10 of the Company's Annual Report to Shareholders, incorporated herein by reference. The Company's business has historically been somewhat stronger during the first half of the year. 4 In conformity with industry practice, the Company generally does not provide credit terms in excess of thirty days. The Company purchases raw materials, primarily wire materials used in the manufacture of rivets, from large domestic metal product manufacturers. There are numerous sources of raw materials, and the Company does not have to rely on a single source for any of its requirements. The Company is not aware of any significant problem in the availability of raw materials used in its production. Patents, trademarks, licenses, franchises and concessions are not of significant importance to the business of the Company. The Company does not engage in basic research activities, but rather in ongoing product improvement and development. The amounts spent on product development activities in the last three years were not material. At December 31, 1997, the Company employed 380 people. The Company has no foreign operations, and sales to foreign customers represent only a minor portion of the Company's total sales. ITEM 2 - PROPERTIES The Company conducts its fastener manufacturing and warehousing operations in five plants, which are described below. All Company-owned properties are held in fee and are used for the manufacture and warehousing of the Company's products. All plants are considered suitable and adequate for their present use. The Company also currently maintains a small sales office in Norwell, Massachusetts in a leased facility. Plant Locations and Descriptions
Naperville, Illinois Brick, concrete block and partial Metal construction with metal roof. Tyrone, Pennsylvania Concrete block with small tapered Beam type warehouse. Jefferson, Iowa Steel tapered beam construction. Albia, Iowa Concrete block with prestressed Concrete roof construction. Madison Heights, Michigan Concrete, brick and partial metal Construction with metal roof.
ITEM 3 - LEGAL PROCEEDINGS The Company is, from time to time, involved in litigation, including environmental claims, in the normal course of business. With regard to environmental claims, the Company has been named by state and/or federal government agencies as a "potentially responsible party" with respect to certain waste disposal sites. As a potentially responsible party, the Company may be considered jointly and severally liable, along with other potentially responsible parties, for the cost of remediation of these waste sites. The actual cost of remediation is presently unknown; however, estimates currently 5 available suggest that the cost of remediation at these sites will be between $33 million and $49 million. Despite the joint and several nature of liability, these proceedings are frequently resolved on the basis of the quantity and type of waste disposed by the parties. The actual amount of liability for the Company is unknown due to disagreement concerning the allocation of responsibility, uncertainties regarding the amount of contribution that will be available from other parties and uncertainties related to insurance coverage. After investigation of the quantities and type of waste disposed at these sites, it is management's opinion that any liability will not be material to the Company's financial condition. At a number of waste disposal sites, the issues affecting the Company, have been favorably resolved, or are nearing resolution, and accordingly, the Company has reduced the amount of reserves recorded in connection with these sites. Nevertheless, it is likely that the Company will incur additional costs associated with the remaining proceedings and, accordingly, the Company has recorded a total liability of $85,000 related to these matters. The adequacy of this reserve will be reviewed periodically as more definitive cost information becomes available. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of the Company's shareholders during the fourth quarter of 1997. Executive Officers of the Registrant The names, ages and positions of all executive officers of the Company, as of March 27, 1998, are listed below. Officers are elected annually by the Board of Directors at the meeting of the directors immediately following the Annual Meeting of Shareholders. There are no family relationships among these officers, nor any arrangement or understanding between any officer and any other person pursuant to which the officer was selected.
Number of years Name and Age of Officer Position an Officer - ----------------------- -------- --------------- John A. Morrissey 62 Chairman, Chief 18 Executive Officer John C. Osterman 46 President, Chief 14 Operating Officer And Treasurer Donald P. Long 46 Vice-President Sales 3 Stephen D. Voss 36 Assistant Treasurer and 9 Corporate Controller Kimberly A. Kirhofer 39 Secretary 7
- - Mr. Morrissey has been Chairman of the Board of Directors of the Company since November 1979, and Chief Executive Officer since August 1981. He has been a director of the Company since 1968. - - Mr. Osterman has been President, Chief Operating Officer and Treasurer of the Company since September 1987. He was Assistant Secretary from November 1983 to May 1985 when he became Assistant Vice President- Administration. He became Vice 6 President-Administration in May 1986 and was named Executive Vice President in May 1987. He has been a director of the Company since May 1988. - - Mr. Long has been Vice President - Sales of the Company since November 1994, and was Director of Sales and Marketing of the Company from March 1993 through November 1994. Prior to that, he was employed by Townsend Engineered Products, a maker of rivets, cold-formed fasteners and rivet setting equipment in various sales management positions for more than 5 years. - - Mr. Voss has been Assistant Treasurer of the Company since May 1992 and has been Controller of the Company since November 1988. - - Mrs. Kirhofer has been Secretary of the Company since August 1991, and was Assistant Secretary of the Company from February 1991 through August 1991. She has been employed by the Company for more than five years, during which time she held various administrative positions. PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Company's common stock is traded on the American Stock Exchange (trading privileges only, not registered). As of December 5, 1997 there were 471 record holders of such stock. The information on the market price of, and dividends paid with respect to, the Company's common stock, set forth in the section entitled "Information on Company's Common Stock" which appears on page 14 of the 1997 Annual Report is incorporated herein by reference. The 1997 Annual Report is filed as an exhibit to this report. ITEM 6 - SELECTED FINANCIAL DATA The section entitled "Selected Financial Data" which appears on page 13 of the 1997 Annual Report is incorporated herein by reference. The 1997 Annual Report is filed as an exhibit to this report. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS When used in this discussion, the words "believe," "anticipated," "expected" and similar expressions are intended to identify "forward-looking statements," which statements speak only as of the date thereof. Such statements are subject to certain risks and uncertainties which could cause actual circumstances to differ materially from those mentioned in this discussion including, but not limited to: (i) the ability of the Company to maintain its relationships with its significant customers, (ii) increases in the prices of, or limitations on the availability of, the Company's primary raw materials, (iii) a downturn in the automotive industry, upon which the Company relies for sales revenue, and which is cyclical and dependent on, among other things, consumer spending, international economic conditions and regulations and policies regarding international trade, and (iv) failure of the Company or its major customers or suppliers to successfully address Year 2000 issues. 7 Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes 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. In addition to the disclosures contained herein, readers are also urged to carefully review and consider any risks and uncertainties contained in other documents filed by the Company with the Securities and Exchange Commission. RESULTS OF OPERATIONS The past year was extraordinarily successful for the Company. The largest factor contributing to increases in both revenues and profits was the inclusion, for the full year, of operations of H & L Tool Company, Inc. ("H & L Tool"), which was acquired late in 1996. In addition, the Company's ongoing efforts to increase market share, in combination with favorable economic conditions, resulted in an increase in sales of the Company's traditional products. Improvements in operating margins were realized as well, contributing to the increase in income for the year. The Company enjoyed improved results from both the fastener segment and the assembly segment of its operations as employees at all locations met the challenge of improving quality and service while successfully controlling costs. At this time, all of our fastener plants have attained certification to ISO-9002:1994. One of these facilities has attained QS-9000 certification and our other fastener facilities are expected to be certified to a QS-9000 standard early in 1998. Attaining, and maintaining, these certifications is essential to successfully competing in the automotive market today, and we are pleased that so much progress toward this goal has been achieved in a relatively short period of time. In September, your Board of Directors approved a two for one stock split of the Company's outstanding shares, and also approved a 20% increase in the regular quarterly dividend. The Company's financial condition remains strong and all indications are that the Company will continue to be successful. 1997 COMPARED TO 1996 Revenues increased in both the fastener and assembly equipment segments compared with 1996. Overall, net sales and lease revenues amounted to $44,543,404 in 1997 compared with $22,510,953 recorded in 1996. Revenues from H & L Tool are included for the full twelve months of 1997, compared with only one month in 1996, and this accounts for the largest share of the change, although revenues from the Company's historical product lines also increased compared with the prior year. The only notable exception was revenue from leasing automatic rivet setting machines. Revenues from this activity, which accounted for less than 1% of total revenues last year, have declined steadily over the past several years as our customers find leasing less attractive, and we expect revenues from this segment to continue to decline. In line with the increase in revenues, the Company's total gross profit increased substantially compared with the prior year. The addition of H & L Tool accounts for a significant portion of the absolute increase; however, it should be noted that H & L Tool's revenues are entirely related to the sale of fasteners, and similar products, and the profit margins for those products, when expressed as a percentage of sales, are below the margins historically reported by the Company. As a result, even though gross margins increased substantially, gross profit margins, when expressed as a percentage of sales, declined from historical levels. Margins for our fastener products have been constrained by the highly competitive nature of the market. Further, the automotive customer base, which accounts for the majority of our sales, continues to resolutely refuse to grant price relief, while simultaneously adding quality and service requirements that tend to increase operating costs for its suppliers. This has been the 8 case for a number of years and is expected to continue in the years ahead. Accordingly, we have continued to invest in equipment and methods designed to allow us to remain competitive and to control our manufacturing costs. This strategy has been successful in the past, and we intend to continue in a similar manner in the future. The success of this approach, coupled with increased volumes, contributed to the overall improvement in gross margins from the sale of the Company's historical products during 1997. Increases in fixed costs incurred are attributable to the acquisition and are consistent with expectations. Additional selling and administrative expenses incurred in connection with operations of H & L Tool account for the majority of the increase experienced in 1997. While the total expense increased over prior years, the proportionate amount of the increase was substantially less than the increase in revenues, and is in line with expectations. Sales commission expense decreased as a percentage of sales, as a larger portion of revenues were generated from customers serviced on a direct basis, rather than through commissioned sales representatives. A number of factors contributed to a decrease of approximately $488,000 in non-operating income compared to 1996. Interest expense increased by approximately $500,000, while interest income declined approximately $140,000. Both of these changes stem from the use of cash and debt to finance the H & L Tool purchase. Barring a sharp increase in interest rates, interest expense will decline as the debt, which was $6.8 million at year end, continues to be paid down. Gains from the sale of surplus equipment, including the sale of lease machines, and a loss due to the write off of an investment in computer software, resulted in a net gain of approximately $175,000. 1996 COMPARED TO 1995 Net sales and lease revenues for 1996 totaled $22,510,953, including $1,390,158 in revenues from H & L Tool's operations recorded in December. This was a decline of approximately 5.1% compared to 1995, which had been the best year in the Company's recent history. Sales activity across all product lines began to weaken during the latter part of 1995. This weakness continued throughout 1996 and was more pronounced in our markets for machinery and related tools and parts, especially in the area of complex, highly automated assembly equipment. The additional revenue related to H & L Tool more than offset the effects of weak market conditions with regard to fasteners and, as a result, revenues for fasteners increased relative to 1995. Gross margins declined compared to the prior year due to a number of factors. Variable costs of manufacturing were generally reduced in line with lower operating levels. However, certain costs of manufacture, including wages, utility expense and supply costs increased, on a relative basis, compared to 1995. These increases were partially offset by a reduction in workers' compensation insurance costs. Operating profits in connection with H & L Tool were offset by the recognition of a portion of the "step-up" value assigned to the purchased inventory of H & L Tool. This treatment is required under the purchase accounting provisions of APB Opinion No. 16 and is intended to reflect that portion of the profit on the sale of purchased inventory that was earned by the seller, prior to the sale of assets to the Company. The effect, in 1996, was to reduce income by approximately $192,000, before income taxes. This represented approximately one-half of the total amount that was ultimately recognized; the remaining amount was reflected in operating results for the first quarter of 1997. Fixed operating costs, as would be expected, remained relatively unchanged from 1995. In addition, a slight change in product mix contributed to the unfavorable comparison with the prior year. The automotive industry remained extremely resistant to price increases, and while cost reduction programs continue to be emphasized at Chicago Rivet, their effectiveness has diminished as the most dramatic opportunities for cost reduction have already been implemented. 9 Interest income increased in 1996, reflecting higher interest rates and larger invested balances throughout most of the year. Interest expense for 1996 amounted to $47,250, which represents one month of interest expense on borrowings associated with the acquisition of H & L Tool. Selling and administrative expenses were relatively unchanged compared to the prior year period. DIVIDENDS The Company paid four regular quarterly dividends during 1997. In September of 1997, the Board declared a two for one stock split and voted to increase the amount of the regular quarterly dividend. The Company paid two regular quarterly dividends of $.15 per share and two regular quarterly dividends of $.18 per share during 1997. In addition, an extra dividend of $.25 per share was paid during the second quarter of 1997, bringing the total dividend payout to $.91 per share, after adjustment for the effects of the stock split. On February 16, 1998, your Board of Directors declared a regular quarterly dividend of $.18 per share, payable March 20, 1998 to shareholders of record March 5, 1998. This continues the uninterrupted record of consecutive quarterly dividends paid by the Company to its shareholders that extends over 64 years. At that same meeting, the Board declared an extra dividend of $.40 per share, payable April 20, 1998 to shareholders of record, April 3, 1998. ACQUISITION On December 3, 1996, the Company acquired substantially all of the assets and assumed certain liabilities of H & L Tool Company, Inc. of Madison Heights, Michigan. The purchase price was approximately $19.1 million, including acquisition costs of $0.3 million, and was financed through a $4.8 million credit against the purchase price in consideration of the seller's retention of all cash and marketable securities, an unsecured loan of $9.0 million and approximately $5.3 million in available cash. Additional information is contained in Note 2 to the Consolidated Financial Statements. H & L Tool is a leading manufacturer of specialty screw-machine and cold-headed products serving the automotive industry. This acquisition has significantly enhanced the Company's product offerings and has strengthened our relationships with certain key customers. MACHINERY & EQUIPMENT During 1997, capital investments totaled $963,917. Significant expenditures included approximately $540,000 for equipment used in the manufacture of fasteners and assembly equipment, $117,000 for data processing and telecommunications equipment, building improvements amounting to $87,000 and approximately $58,000 which was invested in new equipment related to quality control. The balance consists of investments in material handling and other miscellaneous equipment. Capital investments during 1996, exclusive of expenditures related to the acquisition of the assets of H & L Tool, totaled $861,128. Of this total, approximately $289,000 was invested in equipment used in the manufacture of fasteners and machinery and $193,000 was expended for the purchase of a new boiler to provide heat and process steam for our Tyrone facility. Approximately $280,000 was invested in new data processing equipment and software. A total of approximately $22,000 was invested in new automatic rivet setting machines manufactured by the Company and leased to its customers. The balance was expended for the purchase of various, smaller machine tools and office equipment. 10 Capital investments during 1995 were $231,340, with the major portion of that total invested in cold-heading equipment. Of the balance, $32,531 was invested in new automatic rivet setting machines manufactured by the Company and leased to its customers. Depreciation expense amounted to $1,372,415 in 1997, $ 709,678 in 1996, and $646,456 in 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's financial condition continues to be sound. During the past year, cash and short-term investments increased by approximately $2.5 million. Investment in inventories declined approximately $.5 million, while accounts receivable balances increased approximately $.6 million. Long term debt was reduced by $2.2 million and working capital at year end amounted to approximately $13.8 million, an increase of approximately $1.7 million from one year ago. In connection with the 1996 acquisition of H & L Tool, the Company borrowed $9.0 million, on an unsecured basis, subject to certain customary covenants. Under the terms of the note, the Company is scheduled to repay the principal in 20 quarterly installments of $450,000, plus interest computed on the unpaid balance at a variable rate that is calculated under one of two methods: the London Inter Bank Offering Rate, plus 80 basis points; or the lender's reference rate, less 75 basis points. This rate is adjusted quarterly and at year end was approximately 6.7%. During 1997, in addition to the four scheduled payments, the Company paid an additional $450,000 against the principal of the note. Throughout the year, the Company was in full compliance with all terms and covenants associated with the note. Management has identified a number of specific investments in new machine tools, data processing equipment and software, and building improvements that are expected to total approximately $2.7 million during 1998 and early 1999. Management believes that this level of investment can be funded internally, nevertheless, a $1.0 million line of credit, which was obtained from the Bank of America in connection with the acquisition, remains available to the Company. There was no charge for this facility, and as of December 31, 1997, it was unused. The facility will expire on May 30, 1998. CONTINGENCIES The Company is, from time to time, involved in litigation, including environmental claims, in the normal course of business. With regard to environmental claims, the Company has been named by state and/or federal government agencies as a "potentially responsible party" with respect to certain waste disposal sites. As a potentially responsible party, the Company may be considered jointly and severally liable, along with other potentially responsible parties, for the cost of remediation of these waste sites. Certain estimates related to remediation costs were favorably adjusted during 1997 as remediation work nears completion at certain sites, while claims at other sites are nearing resolution, and, accordingly, the Company has revised the amount of reserves recorded in connection with these claims. The actual cost of remediation is presently unknown; however, estimates currently available suggest that the remaining cost of remediation at these sites will be between $33 million and $49 million. Despite the joint and several nature of liability, these proceedings are frequently resolved on the basis of the quantity and type of waste disposed by the parties. The actual amount of liability for the Company is unknown due to disagreement concerning the allocation of responsibility, uncertainties regarding the amount of contribution that will be available from other parties and uncertainties related to insurance coverage. After investigation of the quantities and type of waste disposed at these sites, it is management's opinion that any liability will not be material to the Company's financial condition. 11 Nevertheless, it is likely that the Company will incur additional costs associated with these proceedings, and, accordingly, the Company has recorded a total liability of $85,000 related to these matters. The adequacy of this reserve will be reviewed periodically as more definitive cost information becomes available. NEW ACCOUNTING STANDARDS The Company's financial statements and financial condition were not; and are not expected to be, materially impacted by any new, or proposed, accounting standards. YEAR 2000 COMPLIANCE Beginning in 1996, the Company began a study to identify and correct date-sensitve hardware, software and procedures that could adversely affect operations as we approach the year 2000 ("Year 2000" issues). The Company expects to incur internal staff costs as well as consulting and other expenses related to this issue. The majority of our Year 2000 issues will be addressed as a by-product of current efforts to select and implement a new, enterprise-wide, information management system. The Company expects to invest between $700,000 and $1,000,000 in new hardware, software, consulting and training related to this project. It should be noted that this effort, scheduled for completion in 1999, is also expected to provide significant improvements in manufacturing management, customer service and should also yield a reduction in administrative expenses. In addition to the review of its internal systems, the Company is querying its customers and suppliers as to their progress in identifying and addressing Year 2000 issues. There can be no assurance that the systems of other companies, including the systems of our customers and suppliers will be timely converted, therefore, although unlikely, it is possible that Year 2000 issues could have a material adverse effect on the Company's financial condition and results of operations. STOCK PURCHASE PROGRAM Terms of a stock repurchase authorization originally approved by the Board of Directors in February of 1990, and subsequently amended to permit the repurchase of an aggregate of 200,000 shares, provides for purchases to be made from time to time, in the open market or in private transactions, at prices deemed reasonable by management. Purchases under the current repurchase authorization have amounted to 119,396 shares at an average price of $11.69 per share. This includes the purchase of 2,200 shares during 1997 at an average price of $27.88 per share. It is management's intention to continue this program, provided market conditions are favorable and funding for repurchases is available. OUTLOOK FOR 1998 1997 was an outstanding year for Chicago Rivet. We enjoyed favorable market conditions, witnessed the successful integration of a new facility and new products into our operations, and we made significant progress toward attaining independent certification that the quality of our products truly is world-class. We recorded levels of sales and profits that far exceeded those of any year in memory. The equity markets rewarded our shareholders with a significant increase in the value of their investment in the Company while the Board of Directors approved a two for one stock split and a 20% increase in the regular dividend. It was a year that will be very hard to follow. 12 While we expect 1998 to be another successful year for the Company, we do not anticipate that the Company's revenues and earnings will increase at the same rate as last year. Much of 1997's success is the result of an acquisition, and, while we would not rule out the possibility of another similar acquisition, there is nothing definite in our immediate future. Typically, our results are closely tied to conditions in the automotive industry in particular and the overall economy in general. The U. S. economy has enjoyed an unprecedented period of expansion over the past several years, and analysts have begun to question how long the current expansion will last. Our business continues to be fairly strong, although our backlogs are not as robust as one year ago. Demand for fasteners and related products continues to meet expectations, but demand in the assembly equipment segment of our business has not been as strong as we would like. There is an ongoing consolidation in the supply base that services the automotive industry, and this has affected certain of our long-term customer relationships while simultaneously affording us new opportunities with other customers and potential customers. We plan to continue to aggressively solicit new business while maintaining our core accounts. We also recognize that price relief will continue to be elusive, especially if the economy slows. Accordingly, we will continue to focus on cost containment as we strive to produce the best possible product at the lowest possible cost. We gratefully acknowledge that the Company's past success has been dependent upon a number of factors, including the continued loyalty of our customers, which is dependent upon the diligent and conscientious efforts our employees, and the continued support of our shareholders. We are confident that those same factors will be the foundation for the Company's continued success in the future. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the sections entitled "Consolidated Financial Statements" and "Financial Statement Schedule" which appear on pages 15 through 17 of this report. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with accountants requiring disclosure herein. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information with respect to the Board of Directors' nominees for directors that is not related to security ownership, which is set forth in the section entitled "Election of Directors" on pages 4 through 8 of the Company's 1998 Proxy Statement, is incorporated herein by reference. The information with regard to compliance with Section 16 (a) of the Exchange Act, which is set forth at the end of the section entitled "Additional Information Concerning the Board of Directors and Committees" on pages 7 and 8 of the 1998 Proxy Statement, is incorporated herein by reference. The 1998 Proxy Statement is to be filed with the Securities and Exchange Commission in connection with the Company's 1998 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 "Executive Officers of the Registrant." ITEM 11 - EXECUTIVE COMPENSATION 13 The information set forth in the section entitled "Executive Compensation" which appears on pages 9 through 13 of the Company's 1998 Proxy Statement and the information relating to compensation of directors set forth in the last paragraph of the section entitled "Additional Information Concerning the Board of Directors and Committees" which appears on pages 7 and 8 of the Company's 1998 Proxy Statement is incorporated herein by reference. The 1998 Proxy Statement is to be filed with the Securities and Exchange Commission in connection with the Company's 1998 Annual Meeting of Shareholders. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth in the section entitled "Principal Shareholders" on page 3 of the Company's 1998 Proxy Statement and the information with respect to security ownership of the Company's directors and officers set forth in the section entitled "Election of Directors" on pages 4 through 8 of the Company's 1998 Proxy Statement is incorporated herein by reference. The 1998 Proxy Statement is to be filed with the Securities and Exchange Commission in connection with the Company's 1998 Annual Meeting of Shareholders. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information relating to the law firm of Morrissey & Robinson set forth in the penultimate sentence of footnote (2) on page 6 of the Company's 1998 Proxy Statement is incorporated herein by reference. The 1998 Proxy Statement is to be filed with the Securities and Exchange Commission in connection with the Company's 1998 Annual Meeting of Shareholders. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (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 15 of this report. 2. Financial statement schedule and supplementary information required to be submitted. See the section entitled "Financial Statement Schedule" which appears on pages 16 and 17 of this report. 3. Exhibits: See the section entitled "Exhibits" which appears on page 19 of this report. (b) Reports on Form 8-K 1. The Company was not required to file any Reports on Form 8-K during the quarter ended December 31, 1997. 14 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/ John C. Osterman ------------------------------ John C. Osterman, 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: John A. Morrissey Chairman of the Board of - ------------------- Directors, Chief Executive John A. Morrissey Officer and Member of the Executive Committee March 27, 1998 -------------- John C. Osterman - ------------------- John C. Osterman President, Chief Operating Officer, Treasurer (Chief Financial Officer), Member Of the Executive Committee And Director March 27, 1998 -------------- Robert K. Brown - ------------------- Robert K. Brown Director and Member of the Executive Committee March 27, 1998 -------------- Walter W. Morrissey Director, Member of Executive - ------------------- Committee and Member of Audit Walter W. Morrissey Committee March 27, 1998 -------------- Stephen D. Voss Assistant Treasurer and - ------------------- Controller (Principal Stephen D. Voss Accounting Officer) March 27, 1998 -------------- 15 CHICAGO RIVET & MACHINE CO. CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements, together with the notes thereto and the report thereon of Price Waterhouse LLP dated March 6, 1998, appearing on pages 6 to 13 of the accompanying 1997 Annual Report, and the section entitled "Quarterly Financial Data (Unaudited)" appearing on page 14 of the accompanying 1997 Annual Report are incorporated herein by reference. With the exception of the aforementioned information and the information incorporated in Items 1, 3, 5, 6 and 7 herein, the 1997 Annual Report is not to be deemed filed as part of this Form 10-K Annual Report. Consolidated Financial Statements from 1997 Annual Report (Exhibit 13 hereto): Consolidated Balance Sheets (pages 6 & 7 of 1997 Annual Report) Consolidated Statements of Operations (page 8 of 1997 Annual Report) Consolidated Statements of Retained Earnings (page 8 of 1997 Annual Report) Consolidated Statements of Cash Flows (page 9 of 1997 Annual Report) Notes to Consolidated Financial Statements (pages 10, 11 and 12 of 1997 Annual Report) Report of Independent Accountants (page 13 of 1997 Annual Report) Quarterly Financial Data (Unaudited) (page 14 of 1997 Annual Report) 16 FINANCIAL STATEMENT SCHEDULE 1997, 1996 AND 1995 The following financial statement schedule should be read in conjunction with the consolidated financial statements and the notes thereto in the 1997 Annual Report. Financial statement schedules not included herein have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. Page ---- Financial statement schedule: Valuation and Qualifying Accounts (Schedule VIII) 17 Report of Independent Accountants on Financial Statement Schedule 18 17 CHICAGO RIVET & MACHINE CO. SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Additions Balance Charged to Balance at beginning Costs and Other At end Classification of year Expenses Deductions Adjustments of year - -------------- ------- -------- ---------- ----------- ------- 1997 Allowance for doubtful accounts, returns and allowances $108,652 $48,412 $34,042 (1) $ --- $123,022 1996 Allowance for doubtful accounts, returns and allowances $166,634 $30,000 $34,042 (1) ($53,940) (2) $108,652 1995 Allowance for doubtful accounts, returns and allowances $120,000 $64,000 $17,366 (1) $ --- $166,634
(1) Accounts receivable written off, net of recoveries. (2) Reduction of allowance. 18 Report of Independent Accountants on Financial Statement Schedule To the Board of Directors of Chicago Rivet & Machine Co. Our audits of the consolidated financial statements referred to in our report dated March 6, 1998 appearing in the 1997 Annual Report to Shareholders of Chicago Rivet & Machine Co. (which report and financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PRICE WATERHOUSE LLP Chicago, Illinois March 6, 1998 19 CHICAGO RIVET & MACHINE CO. EXHIBITS INDEX TO EXHIBITS
Exhibit Number Page - ------- ---- 2.1 Purchase and Sale Agreement dated February 18, 1993. Incorporated by reference to Company's Current Report on Form 8-K, dated May 7, 1993. 2.2 Purchase and Sale Agreement dated September 18, 1996. Incorporated by reference from Company's Current Report on Form 8-K, dated December 16, 1996. 3.1 Article of Incorporation and Charter. Incorporated by reference to Company's report on Form 10, dated March 30, 1935. 3.2 Certified copy of articles of Amendment to Articles of Incorporation , dated November 4, 1959. Incorporated by reference to Company's report on Form 8-A, dated April 30, 1965. 3.3 Amendment of Articles of Incorporation creating a class of 500,000 shares of no par value preferred stock. Incorporated by reference to Company's report on Form 10-K, dated April 30, 1972. 3.4 Amended and Restated By-Laws, dated January 20, 1997. Incorporated by reference from Company's report on Form 8-K, dated January 24, 1997. 3.5 Articles of Incorporation, as amended by the Amendment to the Articles of Incorporation, dated August 18, 1997. *13 Annual Report to Shareholders for the year ended December 31, 1997. 21 Subsidiaries of the Registrant. 27.1 Financial Data Schedule.
* Only the portions of this exhibit which are specifically incorporated herein by reference shall be deemed to be filed herewith. EX-3.5 2 ARTICLES OF INCORPORATION 1 EXHIBIT 3.5 Text of Amendment to the Articles of Incorporation of Chicago Rivet & Machine Co. (dated August 18, 1997) RESOLVED, that the Articles of Incorporation of the Corporation be amended by increasing the number of shares of Common Stock which the Corporation is authorized to issue from 2,000,000 shares of Common Stock of the par value of $2.00 per share to 4,000,000 shares of Common Stock of the par value of $1.00 per share. FURTHER RESOLVED, that these Articles of Amendment do not affect the preferences, qualifications, limitations, restrictions and the special or relative rights in respect of the 500,000 authorized shares of the Preferred Stock of the Corporation. 2 ARTICLES OF INCORPORATION OF CHICAGO RIVET & MACHINE CO., as last amended (August 18, 1997) 1. The name of the corporation is Chicago Rivet & Machine Co. 2. The object for which it is formed is to manufacture, export, import, buy, sell and generally deal in metal specialties and other goods, wares, merchandise and personal property of every class and description; to acquire, hold, exercise and dispose of any right, patent or otherwise, and to do all and everything necessary or convenient for the accomplishment of any and all of the purposes above mentioned and incidental thereto. 3. The duration of the corporation is perpetual. 4. The location of the original principal office is 1830 S. 54th Ave., Cicero, County of Cook, State of Illinois. 5. The total authorized capital stock is (4,500,000) shares divided into two classes: 500,000 shares of Preferred Stock, without par value, issuable in series; and (4,000,000) shares of Common Stock of the par value of ($1.00) per share, the preferences, qualifications, limitations, restrictions, and the special or relative rights in respect of the shares of each class of stock to be as follows: (a) THE PREFERRED STOCK (i) The authorized shares of Preferred Stock may be divided into and issued in series, each such series to be so designated as to distinguish the shares thereof from the shares of all other series and classes. All shares of the Preferred Stock shall be identical except as to the following relative rights and preferences, in respect of any or all of which there may be variations between different series: (1) The rate of dividend. (2) The price at and the terms and conditions on which shares may be redeemed. 3 (3) The amount payable on shares in event of involuntary liquidation. (4) The amount payable on shares in event of voluntary liquidation. (5) Sinking fund provisions, if any, for the redemption or purchase of shares. (6) The terms and conditions on which shares may be converted, if the shares of any series are issued with the privilege of conversion. The Board of Directors of the Corporation is hereby expressly vested with authority to divide the authorized shares of the Preferred Stock into series and, within the limitations of the laws of Illinois, to fix and determine the relative rights and preferences of the shares of any series so established; provided, however, that such authority hereinabove expressly vested in the Board of Directors of the Corporation shall be subject to such further limitations, if any, as are stated in the Articles of Incorporation of the Corporation, as amended. In order for the Board of Directors of the Corporation to establish a series of the Preferred Stock pursuant to the authority hereinabove expressly vested in it, the Board of Directors shall adopt a resolution or resolutions setting forth the designation of such series and fixing and determining the relative rights and preferences thereof. All shares of the Preferred Stock of any one series shall be identical in all respects, except that shares of any one series issued at different times may differ in respect to the dates from which dividends thereon shall be cumulative. (ii) The holders of each series of the Preferred Stock shall be entitled to receive out of any funds legally available therefor, as and when declared by the Board of Directors, cumulative cash dividends at not to exceed the rate per annum fixed by the Board of Directors in the resolution or resolutions establishing such series of Preferred Stock payable quarterly on such dates as shall be fixed by the Board of Directors in such resolution or resolutions. Dividends on shares of the Preferred Stock shall be cumulative from the respective dates of issuance thereof and shall accrue from day to day whether or not earned or declared. Accumulation of dividends shall not bear interest. All cumulative dividends on the outstanding shares of the Preferred Stock for all dividend periods shall be paid or declared and set apart for payment, and all amounts required to be paid into or set aside for any sinking, purchase or redemption fund applicable to any series of the Preferred Stock, shall have been paid or set aside before any dividend or other distribution (other than a dividend or distribution consisting solely of shares of Common Stock) shall be paid or made or declared and set apart for payment on the Common Stock. No dividends shall be paid or declared and set apart for payment on 2 4 any series of the Preferred Stock in respect of any dividend period unless at the same time a like proportionate dividend for the same dividend period shall have been paid or declared and set apart for payment on all other series of Preferred Stock then issued and outstanding. (iii) Upon any liquidation, dissolution or winding-up of the Corporation (whether voluntary or involuntary), the holders of each series of the Preferred Stock shall be entitled to receive payment of such amount, in cash or in kind, as the Board of Directors in the resolution or resolutions establishing such series of the Preferred Stock shall have determined to be payable to the holders of such series of the Preferred Stock in the event of any such liquidation, dissolution or winding-up, as the case may be, plus all accumulated dividends, and no more, before any sum shall be paid or any assets distributed among the holders of the Common Stock, and after such payment to the holders of the Preferred Stock, all remaining assets and funds shall be paid or distributed pro rata to the holders of the Common Stock. If, upon any such liquidation, dissolution or winding-up of the Corporation, the assets of the Corporation available for payment and distribution to holders of all series of the Preferred Stock are insufficient to make payment in full to such holders, then the holders of the Preferred Stock of all series shall share in any payment or distribution of assets in proportion to the full amounts to which they would otherwise respectively be entitled, and in such event no payment or distribution shall be made to the holders of the Common Stock. Neither the consolidation or merger of the Corporation, nor the sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of its assets nor the purchase or redemption of shares of any class, nor a reduction of its capital, nor a dividend or distribution to shareholders from net profits or surplus earned, in pursuance of applicable provisions of law providing therefor, shall be deemed to be a liquidation, dissolution or winding-up of the affairs of the Corporation within the meaning of the foregoing provisions of this paragraph. (iv) Any series of the Preferred Stock may be redeemed in whole or in part, at the option of the Corporation, by resolution of its Board of Directors, or by the operation of the sinking, redemption or purchase fund, if any, provided for such series, at any time, or from time to time, at such price as may be fixed and determined by the Board of Directors in any resolution providing for the issue of any particular series of the Preferred Stock. If less than all the outstanding shares of any series are to be redeemed, the shares to be redeemed shall be 3 5 determined by lot or pro rata in such manner as the Board of Directors may provide. (v) The series of Preferred Stock of each series shall be convertible into or exchangeable for shares of Common Stock or shares of any other series of Preferred Stock, upon such terms and conditions, as shall be fixed and determined by the Board of Directors in any resolution providing for the issuance of such series of Preferred Stock. (vi) In the event that any shares of Preferred Stock which have been issued or reacquired by the Corporation, in any manner, including such shares as may be redeemed or purchased or converted into Common Stock or any other series of Preferred Stock, then such shares shall have the status of authorized and unissued Preferred Stock and may be reissued as shares of the series of which they were originally a part or may be issued as shares of a new series or as shares of any other series, all subject to the conditions and restrictions of any series of Preferred Stock as fixed and determined by resolution of the Board of Directors. (b) COMMON STOCK (i) The holders of the Common Stock shall be entitled to such dividends as may from time to time be declared by the Board of Directors, but only when and as declared by the Board of Directors out of any funds legally available for declaration of dividends, subject to the provisions and conditions set forth in section (a) hereof in favor of the Preferred Stock. (ii) In the event of any liquidation, dissolution or winding-up of the affairs of the Corporation, the holders of the Common Stock shall be entitled to share pro rata in the net assets available for distribution to holders of the Common Stock after payment to the holders of Preferred Stock of the amounts to which they are entitled pursuant to the resolution or resolutions of the Board of Directors providing for the issue of a series of Preferred Stock. (c) OTHER PROVISIONS APPLICABLE TO PREFERRED STOCK AND COMMON STOCK (i) In the exercise of voting powers, each holder of a share of Preferred Stock and each holder of a share of Common Stock shall be entitled to one vote for each of the shares held by him of record on the books of the Corporation at the time for determining holders thereof entitled to vote. The holders of Common Stock shall vote together, share for share, with the holders of Preferred Stock as one class except as to 4 6 those matters which, by express statutory provision, are required to be determined by class voting. (ii) No holder of stock of any class of the Corporation, whether now or hereafter authorized, shall have any pre-emptive or preferential right to subscribe to any share of stock of the Corporation of any class, now or hereafter authorized, or to any obligations convertible into stock of the Corporation, issued or sold, or any right to subscribe to any thereof, and the Board of Directors may issue stock of the Corporation, or obligations convertible into stock, without offering such issue of stock or such obligations, either in whole or in part, to the shareholders of the Corporation. 6. The names and addresses of the original stockholders of the consolidated corporation and the amount of stock held and paid in by each are as follows:
- ------------------------------------------------------------------------------ NAME ADDRESS NUMBER OF AMOUNT AMOUNT SHARES HELD PAID IN - ------------------------------------------------------------------------------ John A. Morrissey 801 S. Euclid Ave. 879 $87,900 $87,900 Oak Park, Ill. .............................................................................. Edward J. Morrissey 4520 N. Whipple St. 1 100 100 Chicago, Ill. .............................................................................. Edward P. O'Malley 1849 Waveland Ave. 120 12,000 12,000 Chicago, Ill. .............................................................................. Edward P. O'Malley 1924 Grace St. 10 1,000 1,000 Chicago, Ill. .............................................................................. Francis E. O'Malley Tyrone, New Mexico 20 2,000 2,000 .............................................................................. Herman J. Tonn 1737 N. Francisco Ave. 287 28,700 28,700 Chicago, Ill. .............................................................................. Edward G. Goergen 7831 White Ave. 200 20,000 20,000 Lyons, Ill. .............................................................................. Vincent A. Scully Cedarhurst 50 5,000 5,000 Long Island, N.Y. .............................................................................. M. P. McManus General Motors Bldg. 25 2,500 2,500 Detroit, Mich. .............................................................................. Stephen Rechtoris 4208 N. Drake Ave. 158 15,800 15,800 Chicago, Ill. - ------------------------------------------------------------------------------
5 7 7. The location and a general description of the original property in which capital stock was paid is as follows: All of the property, real, personal and mixed consisting of machinery, tools, dies, desks, office equipment, finished and raw materials, accounts receivable and real estate, located in Cicero, Illinois. 8. The management of the corporation shall be vested in seven directors. 9. The names and addresses of the first board of directors, at least one of whom is a resident of Illinois, and the respective terms for which elected are as follows:
- ------------------------------------------------------------------------------ NAME ADDRESS TERM FOR WHICH ELECTED - ------------------------------------------------------------------------------ John A. Morrissey 801 S. Euclid Ave., Oak Park, Ill. Until next annual directors meeting. .............................................................................. Edward J. Morrissey 105 S. LaSalle St., Chicago, Ill. " .............................................................................. Herman J. Tonn 1737 N. Francisco Ave., Chicago, Ill. " .............................................................................. Edward G. Goergen 7831 White Ave., Lyons, Illinois " .............................................................................. Edward P. O'Malley 1849 Waveland Ave., Chicago, Ill. " - ------------------------------------------------------------------------------
10. No shareholder of this corporation shall have any preemptive right to subscribe for or acquire additional shares of the corporation, whether now authorized or to be authorized hereafter. 6 EX-13 3 1997 ANNUAL REPORT 1 EXHIBIT 13 2 CHICAGO RIVET LOGO Chicago Rivet & Machine Co. 1997 Annual Report 3 CHIGAGO RIVET LOGO - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE NO. -------- Highlights.................................................. 1 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 2 Consolidated Balance Sheets................................. 6 Consolidated Statements of Operations....................... 8 Consolidated Statements of Retained Earnings................ 8 Consolidated Statements of Cash Flows....................... 9 Notes to Consolidated Financial Statements.................. 10 Report of Independent Accountants........................... 13 Selected Financial Data..................................... 13 Quarterly Financial Data.................................... 14
Chicago Rivet & Machine Co. - 901 Frontenac Road - PO Box 3061 - Naperville, Illinois 60566 - Telephone: (630) 357-8500 - -------------------------------------------------------------------------------- 4 CHIGAGO RIVET LOGO - -------------------------------------------------------------------------------- HIGHLIGHTS
- ------------------------------------------------------------------------------------------ 1997 1996 1995 - ------------------------------------------------------------------------------------------ NET SALES AND LEASE REVENUE.................... $44,543,404 $22,510,953 $23,717,410 NET INCOME..................................... 3,861,510 1,948,001 2,235,215 NET INCOME PER SHARE........................... 3.30 1.66 1.91 DIVIDENDS DECLARED PER SHARE................... .91 .90 .88 EXPENDITURES FOR PROPERTY, PLANT AND EQUIPMENT, NET OF ACQUISITION........................... 963,917 861,128 231,340 DEPRECIATION FOR PROPERTY, PLANT AND EQUIPMENT.................................... 1,372,415 709,678 646,456 NET WORKING CAPITAL............................ 13,766,681 12,040,579 12,710,825 TOTAL SHAREHOLDERS' EQUITY..................... 20,511,102 17,776,760 16,883,109 COMMON SHARES OUTSTANDING AT YEAR END.......... 1,169,296 1,171,496 1,171,496 SHAREHOLDERS' EQUITY PER COMMON SHARE.......... 17.54 15.17 14.41 APPROXIMATE NUMBER OF SHAREHOLDERS OF RECORD... 471 505 550
REGISTRAR First Chicago Trust Company of New York TRANSFER AGENT First Chicago Trust Company of New York STOCK EXCHANGE The Company's stock is traded on the American Stock Exchange (Ticker symbol CVR). ANNUAL MEETING The annual meeting of shareholders will be held on May 12, 1998 at 10:00 a.m. at 901 Frontenac Road Naperville, Illinois 60566 - -------------------------------------------------------------------------------- 1 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- TO OUR SHAREHOLDERS: RESULTS OF OPERATIONS The past year was extraordinarily successful for the Company. The largest factor contributing to increases in both revenues and profits was the inclusion, for the full year, of operations of H & L Tool Company, Inc. ("H & L Tool"), which was acquired late in 1996. In addition, the Company's ongoing efforts to increase market share, in combination with favorable economic conditions, resulted in an increase in sales of the Company's traditional products. Improvements in operating margins were realized as well, contributing to the increase in income for the year. The Company enjoyed improved results from both the fastener segment and the assembly segment of its operations as employees at all locations met the challenge of improving quality and service while successfully controlling costs. At this time, all of our fastener plants have attained certification to ISO-9002:1994. One of these facilities has attained QS-9000 certification and our other fastener facilities are expected to be certified to a QS-9000 standard early in 1998. Attaining, and maintaining, these certifications is essential to successfully competing in the automotive market today, and we are pleased that so much progress toward this goal has been achieved in a relatively short period of time. In September, your Board of Directors approved a two for one stock split of the Company's outstanding shares, and also approved a 20% increase in the regular quarterly dividend. The Company's financial condition remains strong and all indications are that the Company will continue to be successful. 1997 COMPARED TO 1996 Revenues increased in both the fastener and assembly equipment segments compared with 1996. Overall, net sales and lease revenues amounted to $44,543,404 in 1997 compared with $22,510,953 recorded in 1996. Revenues from H & L Tool are included for the full twelve months of 1997, compared with only one month in 1996, and this accounts for the largest share of the change, although revenues from the Company's historical product lines also increased compared with the prior year. The only notable exception was revenue from leasing automatic rivet setting machines. Revenues from this activity, which accounted for less than 1% of total revenues last year, have declined steadily over the past several years as our customers find leasing less attractive, and we expect revenues from this segment to continue to decline. In line with the increase in revenues, the Company's total gross profit increased substantially compared with the prior year. The addition of H & L Tool accounts for a significant portion of the absolute increase; however, it should be noted that H & L Tool's revenues are entirely related to the sale of fasteners, and similar products, and the profit margins for those products, when expressed as a percentage of sales, are below the margins historically reported by the Company. As a result, even though gross margins increased substantially, gross profit margins, when expressed as a percentage of sales, declined from historical levels. Margins for our fastener products have been constrained by the highly competitive nature of the market. Further, the automotive customer base, which accounts for the majority of our sales, continues to resolutely refuse to grant price relief, while simultaneously adding quality and service requirements that tend to increase operating costs for its suppliers. This has been the case for a number of years and is expected to continue in the years ahead. Accordingly, we have continued to invest in equipment and methods designed to allow us to remain competitive and to control our manufacturing costs. This strategy has been successful in the past, and we intend to continue in a similar manner in the future. The success of this approach, coupled with increased volumes, contributed to the overall improvement in gross margins from the sale of the Company's historical products during 1997. Increases in fixed costs incurred are attributable to the acquisition and are consistent with expectations. Additional selling and administrative expenses incurred in connection with operations of H & L Tool account for the majority of the increase experienced in 1997. While the total expense increased over prior years, the proportionate amount of the increase was substantially less than the increase in revenues, and is in line with expectations. Sales commission expense decreased as a percentage of sales, as a larger portion of revenues were generated from customers serviced on a direct basis, rather than through commissioned sales representatives. A number of factors contributed to a decrease of approximately $488,000 in non-operating income compared to 1996. Interest expense increased by approximately $500,000, while interest income declined approximately $140,000. Both of these changes stem from the use of cash and debt to finance the H & L Tool purchase. Barring a sharp increase in interest rates, interest expense will decline as the debt, which was $6.8 million at year end, continues to be paid down. Gains from the sale of surplus equipment, including the sale of lease machines, and a loss due to the write off of an investment in computer software, resulted in a net gain of approximately $175,000. 1996 COMPARED TO 1995 Net sales and lease revenues for 1996 totaled $22,510,953, including $1,390,158 in revenues from H & L Tool's operations recorded in December. This was a decline of approximately 5.1% compared to 1995, which had been the best year in the Company's recent history. Sales activity - -------------------------------------------------------------------------------- 2 6 MANAGEMENT'S DISCUSSION (Continued) CHIGAGO RIVET LOGO - -------------------------------------------------------------------------------- across all product lines began to weaken during the latter part of 1995. This weakness continued throughout 1996 and was more pronounced in our markets for machinery and related tools and parts, especially in the area of complex, highly automated assembly equipment. The additional revenue related to H & L Tool more than offset the effects of weak market conditions with regard to fasteners and, as a result, revenues for fasteners increased relative to 1995. Gross margins declined compared to the prior year due to a number of factors. Variable costs of manufacturing were generally reduced in line with lower operating levels. However, certain costs of manufacture, including wages, utility expense and supply costs increased, on a relative basis, compared to 1995. These increases were partially offset by a reduction in workers' compensation insurance costs. Operating profits in connection with H & L Tool were offset by the recognition of a portion of the "step-up" value assigned to the purchased inventory of H & L Tool. This treatment is required under the purchase accounting provisions of APB Opinion No. 16 and is intended to reflect that portion of the profit on the sale of purchased inventory that was earned by the seller, prior to the sale of assets to the Company. The effect, in 1996, was to reduce income by approximately $192,000, before income taxes. This represented approximately one-half of the total amount that was ultimately recognized; the remaining amount was reflected in operating results for the first quarter of 1997. Fixed operating costs, as would be expected, remained relatively unchanged from 1995. In addition, a slight change in product mix contributed to the unfavorable comparison with the prior year. The automotive industry remained extremely resistant to price increases, and while cost reduction programs continue to be emphasized at Chicago Rivet, their effectiveness has diminished as the most dramatic opportunities for cost reduction have already been implemented. Interest income increased in 1996, reflecting higher interest rates and larger invested balances throughout most of the year. Interest expense for 1996 amounted to $47,250, which represents one month of interest expense on borrowings associated with the acquisition of H & L Tool. Selling and administrative expenses were relatively unchanged compared to the prior year period. DIVIDENDS The Company paid four regular quarterly dividends during 1997. In September of 1997, the Board declared a two for one stock split and voted to increase the amount of the regular quarterly dividend. The Company paid two regular quarterly dividends of $.15 per share and two regular quarterly dividends of $.18 per share during 1997. In addition, an extra dividend of $.25 per share was paid during the second quarter of 1997, bringing the total dividend payout to $.91 per share, after adjustment for the effects of the stock split. On February 16, 1998, your Board of Directors declared a regular quarterly dividend of $.18 per share, payable March 20, 1998 to shareholders of record March 5, 1998. This continues the uninterrupted record of consecutive quarterly dividends paid by the Company to its shareholders that extends over 64 years. At that same meeting, the Board declared an extra dividend of $.40 per share, payable April 20, 1998 to shareholders of record, April 3, 1998. ACQUISITION On December 3, 1996, the Company acquired substantially all of the assets and assumed certain liabilities of H & L Tool Company, Inc. of Madison Heights, Michigan. The purchase price was approximately $19.1 million, including acquisition costs of $0.3 million, and was financed through a $4.8 million credit against the purchase price in consideration of the seller's retention of all cash and marketable securities, an unsecured loan of $9.0 million and approximately $5.3 million in available cash. Additional information is contained in Note 2 to the Consolidated Financial Statements. H & L Tool is a leading manufacturer of specialty screw-machine and cold-headed products serving the automotive industry. This acquisition has significantly enhanced the Company's product offerings and strengthened our relationships with certain key customers. MACHINERY & EQUIPMENT During 1997, capital investments totaled $963,917. Significant expenditures included approximately $540,000 for equipment used in the manufacture of fasteners and assembly equipment, $117,000 for data processing and telecommunications equipment, building improvements amounting to $87,000 and approximately $58,000 which was invested in new equipment related to quality control. The balance consists of investments in material handling and other miscellaneous equipment. Capital investments during 1996, exclusive of expenditures related to the acquisition of the assets of H & L Tool, totaled $861,128. Of this total, approximately $289,000 was invested in equipment used in the manufacture of fasteners and machinery and $193,000 was expended for the purchase of a new boiler to provide heat and process steam for our Tyrone facility. Approximately $280,000 was invested in new data processing equipment and software. A total of approximately $22,000 was invested in new automatic rivet setting machines manufactured by the Company and leased to its customers. The balance was expended for the purchase of various, smaller machine tools and office equipment. Capital investments during 1995 were $231,340, with the major portion of that total invested in cold-heading equipment. Of the balance, $32,531 was invested in new automatic rivet setting machines manufactured by the Company and leased to its customers. Depreciation expense amounted to $1,372,415 in 1997, $709,678 in 1996, and $646,456 in 1995. - -------------------------------------------------------------------------------- 3 7 MANAGEMENT'S DISCUSSION (Continued) - -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES The Company's financial condition continues to be sound. During the past year, cash and short-term investments increased by approximately $2.5 million. Investment in inventories declined approximately $.5 million, while accounts receivable balances increased approximately $.6 million. Long term debt was reduced by $2.2 million and working capital at year end amounted to approximately $13.8 million, an increase of approximately $1.7 million from one year ago. In connection with the 1996 acquisition of H & L Tool, the Company borrowed $9.0 million, on an unsecured basis, subject to certain customary covenants. Under the terms of the note, the Company is scheduled to repay the principal in 20 quarterly installments of $450,000, plus interest computed on the unpaid balance at a variable rate that is calculated under one of two methods: the London Inter Bank Offering Rate, plus 80 basis points; or the lender's reference rate, less 75 basis points. This rate is adjusted quarterly and at year end was approximately 6.7%. During 1997, in addition to the four scheduled payments, the Company paid an additional $450,000 against the principal of the note. Throughout the year, the Company was in full compliance with all terms and covenants associated with the note. Management has identified a number of specific investments in new machine tools, data processing equipment and software, and building improvements that are expected to total approximately $2.7 million during 1998 and early 1999. Management believes that this level of investment can be funded internally, nevertheless, a $1.0 million line of credit, which was obtained from the Bank of America in connection with the acquisition, remains available to the Company. There was no charge for this facility, and as of December 31, 1997, it was unused. The facility will expire on May 30, 1998. NEW ACCOUNTING STANDARDS The Company's financial statements and financial condition were not, and are not expected to be, materially impacted by any new, or proposed, accounting standards. YEAR 2000 COMPLIANCE Beginning in 1996, the Company began a study to identify and correct date-sensitive hardware, software and procedures that could adversely affect operations as we approach the year 2000 ("Year 2000" issues). The Company expects to incur internal staff costs as well as consulting and other expenses related to this issue. The majority of our Year 2000 issues will be addressed as a by-product of current efforts to select and implement a new, enterprise-wide, information management system. The Company expects to invest between $700,000 and $1,000,000 in new hardware, software, consulting and training related to these issues. It should be noted that this effort, scheduled for completion in 1999, is also expected to provide significant improvements in manufacturing management, customer service and should also yield a reduction in administrative expenses. In addition to the review of its internal systems, the Company is querying its customers and suppliers as to their progress in identifying and addressing Year 2000 issues. There can be no assurance that the systems of other companies, including the systems of our customers and suppliers will be timely converted, therefore, although unlikely, it is possible that Year 2000 issues could have a material adverse effect on the Company's financial condition and results of operations. STOCK PURCHASE PROGRAM Terms of a stock repurchase authorization originally approved by the Board of Directors in February of 1990, and subsequently amended to permit the repurchase of an aggregate of 200,000 shares, provides for purchases to be made from time to time, in the open market or in private transactions, at prices deemed reasonable by management. Purchases under the current repurchase authorization have amounted to 119,396 shares at an average price of $11.69 per share. This includes the purchase of 2,200 shares during 1997 at an average price of $27.88 per share. It is management's intention to continue this program, provided market conditions are favorable and funding for repurchases is available. OUTLOOK FOR 1998 1997 was an outstanding year for Chicago Rivet. We enjoyed favorable market conditions, witnessed the successful integration of a new facility and new products into our operations, and we made significant progress toward attaining independent certification that the quality of our products truly is world-class. We recorded levels of sales and profits that far exceeded those of any year in memory. The equity markets rewarded our shareholders with a significant increase in the value of their investment in the Company while the Board of Directors approved a two for one stock split and a 20% increase in the regular dividend. It was a year that will be very hard to follow. While we expect 1998 to be another successful year for the Company, we do not anticipate that the Company's revenues and earnings will increase at the same rate as last year. Much of 1997's success is the result of an acquisition, and, while we would not rule out the possibility of another similar acquisition, there is nothing definite in our immediate future. Typically, our results are closely tied to conditions in the automotive industry in particular and the overall economy in general. The U. S. economy has enjoyed an unprecedented period of expansion over the past several years, and analysts have begun to question how long the current expansion will last. Our business continues to be fairly strong, although our backlogs are not as robust as one year ago. Demand for fasteners and related products continues to meet expectations, but demand in the assembly equipment segment of our business has not been as strong as we would like. There is an - -------------------------------------------------------------------------------- 4 8 MANAGEMENT'S DISCUSSION (Continued) CHIGAGO RIVET LOGO - -------------------------------------------------------------------------------- ongoing consolidation in the supply base that services the automotive industry, and this has affected certain of our long-term customer relationships while simultaneously affording us new opportunities with other customers and potential customers. We plan to continue to aggressively solicit new business while maintaining our core accounts. We also recognize that price relief will continue to be elusive, especially if the economy slows. Accordingly, we will continue to focus on cost containment as we strive to produce the best possible product at the lowest possible cost. We gratefully acknowledge that the Company's past success has been dependent upon a number of factors, including the continued loyalty of our customers, which is dependent upon the diligent and conscientious efforts of our employees, and the continued support of our shareholders. We are confident that those same factors will be the foundation for the Company's continued success in the future. Respectfully, J. A. Morrissey John C. Osterman John A. Morrissey John C. Osterman Chairman President
March 6, 1998 FORWARD-LOOKING STATEMENTS When used in this discussion, the words "believe," "anticipated," "expected" and similar expressions are intended to identify "forward-looking statements," which statements speak only as of the date hereof. Such statements are subject to certain risks and uncertainties which could cause actual circumstances to differ materially from those mentioned in this discussion including, but not limited to: (i) the ability of the Company to maintain its relationships with its significant customers, (ii) increases in the prices of, or limitations on the availability of, the Company's primary raw materials, (iii) a downturn in the automotive industry, upon which the Company relies for sales revenue, and which is cyclical and dependent on, among other things, consumer spending, international economic conditions and regulations and policies regarding international trade, and (iv) failure of the Company or its major customers or suppliers to successfully address year 2000 issues. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes 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. In addition to the disclosures contained herein, readers are also urged to carefully review and consider any risks and uncertainties contained in other documents filed by the Company with the Securities and Exchange Commission. - -------------------------------------------------------------------------------- 5 9 CHIGAGO RIVET LOGO - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS ASSETS
- ----------------------------------------------------------------------------------------------- DECEMBER 31 1997 1996 - ----------------------------------------------------------------------------------------------- Current Assets Cash and Cash Equivalents (Note 1)........................ $ 3,983,471 $ 3,215,688 Certificate of Deposit.................................... 2,867,715 705,407 U.S. Government Securities (Note 1)....................... -- 396,815 Accounts Receivable--Less allowances of $123,022 and $108,652, respectively (Note 1)........................ 5,662,538 5,028,885 Inventories (Notes 1 and 4)............................... 6,354,607 6,898,603 Deferred Income Taxes (Notes 1 and 5)..................... 764,588 813,000 Other Current Assets...................................... 360,448 271,973 ----------- ----------- Total Current Assets...................................... 19,993,367 17,330,371 ----------- ----------- Goodwill, net of amortization............................... -- 8,348 ----------- ----------- Property, Plant and Equipment (Notes 1 and 9) Land and Improvements..................................... 1,008,901 982,635 Buildings and Improvements................................ 5,501,189 5,464,355 Production Equipment, Leased Machines and Other........... 21,404,751 21,221,316 ----------- ----------- 27,914,841 27,668,306 Less Accumulated Depreciation............................. 14,960,748 13,680,473 ----------- ----------- Net Property, Plant and Equipment......................... 12,954,093 13,987,833 ----------- ----------- Total Assets................................................ $32,947,460 $31,326,552 =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 6 10 CHIGAGO RIVET LOGO - -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------- DECEMBER 31 1997 1996 - --------------------------------------------------------------------------------------------- Current Liabilities Accounts Payable.......................................... $ 1,700,296 $ 1,257,704 Contributions Due Profit Sharing and Pension Plans (Note 6)..................................................... 707,747 522,278 Wages and Salaries........................................ 772,247 754,791 Other Accrued Expenses (Note 7)........................... 329,708 435,019 Unearned Lease Revenue (Note 1)........................... 68,711 53,411 Accrued Interest Expense (Note 3)......................... 108,634 47,250 Current Portion of Note Payable (Note 3).................. 1,800,000 1,800,000 Federal and State Income Taxes (Notes 1 and 5)............ 739,343 419,339 ----------- ----------- Total Current Liabilities................................. 6,226,686 5,289,792 Note Payable (Note 3)....................................... 4,950,000 7,200,000 Deferred Income Taxes (Notes 1 and 5)....................... 1,259,672 1,060,000 ----------- ----------- Total Liabilities......................................... 12,436,358 13,549,792 ----------- ----------- Shareholders' Equity Preferred Stock, No Par Value--Authorized 500,000 Shares--None Outstanding............................... -- -- Common Stock, $1.00 Par Value: Authorized 4,000,000 Shares Issued and Outstanding 1,169,296 and 1,171,496, respectively (Note 8)......... 1,169,296 1,171,496 Additional Paid-in Capital................................ 459,388 460,252 Retained Earnings, Per Accompanying Statement............. 18,882,418 16,145,012 ----------- ----------- Total Shareholders' Equity................................ 20,511,102 17,776,760 ----------- ----------- Commitments and Contingencies (Note 11) Total Liabilities and Shareholders' Equity.................. $32,947,460 $31,326,552 =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 7 11 CHIGAGO RIVET LOGO - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS - ----------------------------------------------------------------------------------------------- For the Years Ended December 31 1997 1996 1995 - ----------------------------------------------------------------------------------------------- Net Sales and Lease Revenue (Notes 1 and 9)....... $44,543,404 $22,510,953 $23,717,410 Cost of Goods Sold and Costs Related to Lease Revenue......................................... 30,797,023 14,938,997 15,036,303 ----------- ----------- ----------- Gross Profit...................................... 13,746,381 7,571,956 8,681,107 Selling and Administrative Expenses............... 7,573,074 4,757,440 5,347,049 Other Income (Expenses), Net (Note 10)............ (128,797) 359,485 311,157 ----------- ----------- ----------- Income Before Income Taxes........................ 6,044,510 3,174,001 3,645,215 Provision for Income Taxes (Notes 1 and 5)........ 2,183,000 1,226,000 1,410,000 ----------- ----------- ----------- Net Income........................................ $ 3,861,510 $ 1,948,001 $ 2,235,215 =========== =========== =========== Net Income Per Share.............................. $ 3.30 $ 1.66 $ 1.91 =========== =========== ===========
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Retained Earnings at Beginning of Year............ $16,145,012 $15,251,361 $14,067,745 Net Income for the Year........................... 3,861,510 1,948,001 2,235,215 Cancellation of Treasury Stock (Note 8)........... (58,259) -- (25,175) Cash Dividends Declared, $.91 Per Share in 1997, $.90 Per Share in 1996 and $.88 Per Share in 1995...................... (1,065,845) (1,054,350) (1,026,424) ----------- ----------- ----------- Retained Earnings at End of Year.................. $18,882,418 $16,145,012 $15,251,361 =========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 8 12 CHIGAGO RIVET LOGO - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31 1997 1996 1995 --------------------------------------------------------------------------------------------------- Cash Flow from Operating Activities: Net Income................................................ $ 3,861,510 $ 1,948,001 $ 2,235,215 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization........................... 1,380,763 734,674 671,452 Net Gain on the Sale of Properties...................... (175,059) (54,376) (8,599) Deferred Income Taxes................................... 248,084 11,297 (77,000) Changes in Current Assets and Current Liabilities, net of the effects of the acquisition of H&L Tool: Accounts Receivable, Net.............................. (633,653) 770,288 493,065 Inventories........................................... 543,996 (10,553) 242,130 Accounts Payable...................................... 442,592 168,876 (266,658) Accrued Interest...................................... 61,384 47,250 -- Other Accrued Expenses................................ (105,311) (349,391) 142,216 Accrued Wages and Salaries............................ 17,456 (301,362) (14,775) Taxes Payable......................................... 320,004 (121,706) 128,676 Other, Net............................................ 112,305 (50,383) 293,469 ----------- ----------- ----------- Net Cash Provided by Operating Activities........ 6,074,071 2,792,615 3,839,191 ----------- ----------- ----------- Cash Flows from Investing Activities: Acquisition of H&L Tool, net of cash acquired of $4.8 million............................................... -- (14,294,470) -- Capital Expenditures.................................... (963,917) (861,128) (231,340) Net Proceeds from the Sale of Properties................ 800,302 114,403 83,434 Proceeds from Held-to-Maturity Securities............... 4,316,492 7,921,447 8,394,335 Proceeds from Available-for-Sale Securities............. -- 2,209,513 -- Purchases of Held-to-Maturity Securities................ (6,081,987) (3,766,410) (9,924,908) Purchases of Available-for-Sale Securities.............. -- (195,025) (1,982,957) ----------- ----------- ----------- Net Cash Used by Investing Activities............ (1,929,110) (8,871,670) (3,661,436) ----------- ----------- ----------- Cash Flows from Financing Activities: Borrowings under Term Loan Agreement.................... -- 9,000,000 -- Payments under Term Loan Agreement...................... (2,250,000) -- -- Purchase of Treasury Stock.............................. (61,333) -- (27,683) Cash Dividends.......................................... (1,065,845) (1,054,350) (1,026,424) ----------- ----------- ----------- Net Cash Provided (Used) by Financing Activities..................................... (3,377,178) 7,945,650 (1,054,107) ----------- ----------- ----------- Net Increase(Decrease) in Cash and Cash Equivalents....... 767,783 1,866,595 (876,352) Cash and Cash Equivalents at Beginning of Year............ 3,215,688 1,349,093 2,225,445 ----------- ----------- ----------- Cash and Cash Equivalents at End of Year.................. $ 3,983,471 $ 3,215,688 $ 1,349,093 =========== =========== =========== Cash Paid During the Year for: Income Taxes.......................................... $ 1,614,913 $ 1,337,427 $ 1,358,324 Interest.............................................. $ 485,282 -- --
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 9 13 CHIGAGO RIVET LOGO - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION--The Consolidated Financial Statements include the accounts of Chicago Rivet & Machine Co. and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated. OPERATIONS--The Company operates in the fastener industry and is in the business of producing and selling rivets, cold-formed fasteners, screw machine products, automatic rivet setting machines, parts and tools for such machines, and the leasing of automatic rivet setting machines. Rivets, cold-formed fasteners, and screw machine product sales represented the following percentage of net sales and lease revenue from operations: 73% in 1997, 50% in 1996 and 44.9% in 1995. INCOME PER SHARE--Income per share of common stock is based on the weighted average number of shares outstanding of 1,170,988 in 1997, 1,171,496 in 1996 and 1,172,944 in 1995, after giving effect to a two for one stock split that occurred on September 19, 1997. CASH AND CASH EQUIVALENTS--The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, certificates of deposit and U.S. government securities approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount reported for the note payable approximates fair market value because the underlying instrument is at a rate similar to current rates offered to the Company for notes with the same remaining maturities. GOVERNMENT SECURITIES--Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities". In accordance with SFAS 115, securities classified as held-to-maturity are reported at amortized cost, and available-for-sale securities are reported at fair market value with unrealized gains and losses, where material, included in Shareholders' Equity. At December 31, 1996 the Company recorded all U.S. Government securities as held-to-maturity. INVENTORIES--Inventories are stated at the lower of cost or net realizable value, cost being determined principally by the first-in, first-out (FIFO) method. LEASE INCOME--Automatic rivet setting machines are available to customers on either a sale or lease basis. The leases, generally for a one-year term, are cancelable at the option of the Company or the customer and are accounted for under the operating method which recognizes lease revenue over the term of the lease. Rentals are billed in advance, and revenues attributable to future periods are shown as Unearned Lease Revenue in the consolidated balance sheets. Costs related to lease revenue, other than the cost of the machines, are expensed as incurred. PURCHASE OF COMPANY COMMON STOCK--The Company is required by its state of incorporation to retire any common stock it purchases. The excess of cost over par value is charged proportionately to Additional Paid-in Capital and Retained Earnings. CREDIT RISK--The Company extends credit primarily on the basis of 30 day terms to various companies doing business primarily in the automotive and appliance industries.The Company has a concentration of credit risk primarily within the automotive industry and in the Midwestern United States. PROPERTY, PLANT AND EQUIPMENT--Properties are stated at cost and, for additions prior to 1981, are depreciated over their estimated useful lives using either the straight-line or accelerated methods for financial reporting purposes. Beginning in 1981, property additions are depreciated using the straight-line method. Accelerated methods of depreciation are used for income tax purposes, and deferred taxes are provided on the difference between financial and tax depreciation. The estimated useful lives by asset category are: Asset category Estimated useful life - ------------------------------------------------------------ Land improvements........................... 15 to 25 years Buildings and improvements.................. 10 to 35 years Machinery and equipment..................... 9 to 12 years Automatic rivet setting machines on lease... 10 years Other equipment............................. 3 to 15 years
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 currently. Maintenance, repairs and minor betterments which 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 in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Deferred income taxes arise from temporary differences between the income tax basis of assets and liabilities and their reported amounts in the financial statements. ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2--ACQUISITIONS--On December 3, 1996, the Company acquired substantially all of the assets and assumed certain liabilities of H & L Tool Company, Inc. (H & L Tool) of Madison Heights, Michigan in a transaction accounted for as a purchase. The purchase price was approximately $19.1 million, including $0.3 million of acquisition costs, and was financed through a $4.8 million credit in consideration of the seller's retention of all cash and marketable securities, an unsecured loan of $9.0 million and approximately $5.3 million of available cash. The purchase price was allocated to the fair market value of the assets acquired, including all of H & L Tool's production equipment and its facilities in Madison Heights, inventories, accounts receivable, and other operating assets. The consolidated financial statements for the year ended December 31, 1996, reflect the operations of H & L Tool since the date of acquisition. The following represents the unaudited pro forma results of operations, as if the acquisition occurred on January 1, 1995 (in thousands, except per share data).
1996 1995 ----------- ----------- Net sales and lease revenue....... $ 42,957 $ 46,003 Net Income........................ 1,856 2,921 Net Income per share.............. 1.58 2.49
The unaudited pro forma financial information is not necessarily indicative of, and does not include all adjustments management considers necessary to reflect, the results of operations that would have been obtained if the acquisition had taken place at the beginning of the period presented or of future results of operation. - -------------------------------------------------------------------------------- 10 14 CHIGAGO RIVET LOGO - -------------------------------------------------------------------------------- 3--NOTE PAYABLE--On November 25, 1996, in connection with the acquisition of H & L Tool, the Company entered into (i) a five-year unsecured term loan agreement (the Term Loan) in the principal amount of $9 million, and (ii) a $1 million line of credit agreement (the Line of Credit) available through May 30, 1997. The Term Loan bears interest, payable quarterly, at the Company's option, at (i) the reference rate of the financial institution less 75 basis points, or (ii) the LIBOR rate plus 80 basis points. Repayments of principal are made quarterly in the amount of $450,000 through July 1, 2001. The Line of Credit was extended through May 31, 1998 and remains unused at December 31, 1997. 4--INVENTORIES--Inventories at December 31, 1997 and 1996 consisted of the following:
1997 1996 ----------- ----------- Raw materials..................... $1,901,419 $1,715,685 Work in process................... 1,427,764 2,318,535 Finished goods.................... 3,025,424 2,864,383 ---------- ---------- Total............................. $6,354,607 $6,898,603 ========== ==========
5--INCOME TAXES--The provision for income tax expense consists of the following:
1997 1996 1995 ----------- ----------- ----------- Current Federal............... $ 1,729,916 $ 993,703 $ 1,232,000 State................. 205,000 221,000 255,000 Deferred................ 248,084 11,297 (77,000) ----------- ----------- ----------- $ 2,183,000 $ 1,226,000 $ 1,410,000 =========== =========== ===========
The deferred tax liabilities and assets are comprised of the following:
1997 1996 ------------ ------------ Depreciation.................... $(1,287,412) $(1,087,073) ----------- ----------- Inventory valuations............ 427,166 343,194 Environmental accruals.......... 47,600 113,606 Accrued vacation................ 183,477 182,413 Unearned rental revenue......... 27,484 21,364 Doubtful accounts............... 44,827 69,687 Other, net...................... 61,774 109,809 ----------- ----------- 792,328 840,073 ----------- ----------- $ (495,084) $ (247,000) =========== ===========
The following is a reconciliation of the statutory federal income tax rate to the actual effective tax rate:
1997 1996 1995 ---------------- ---------------- ---------------- AMOUNT % Amount % Amount % ---------------- ---------------- ---------------- Expected tax at U.S. statutory rate....... $2,055,133 34.0 $1,079,160 34.0 $1,239,373 34.0 State taxes, net of federal benefit...... 135,300 2.2 145,860 4.6 168,300 4.6 Other, net............ (7,433) -- 980 -- 2,327 .1 ---------- ---- ---------- ---- ---------- ---- Income tax expense.... $2,183,000 36.2 $1,226,000 38.6 $1,410,000 38.7 ========== ==== ========== ==== ========== ====
6--PENSIONS--The Company has a noncontributory profit sharing plan and insurance annuity plans covering substantially all employees. Total expenses relating to the profit sharing plan amounted to approximately $627,000 in 1997, $327,000 in 1996 and $373,000 in 1995. During 1997, the Company's defined benefit pension plans were terminated and all plan liabilities were satisfied. 7--OTHER ACCRUED EXPENSES--Accrued expenses consist of the following:
1997 1996 --------- --------- Environmental costs................... $ 85,000 $250,015 Property taxes........................ 95,620 95,037 Payroll taxes......................... 68,951 35,543 All other items....................... 80,137 54,424 -------- -------- $329,708 $435,019 ======== ========
8--TREASURY STOCK TRANSACTIONS--In 1997, the Company purchased 2,200 shares of its common stock for $61,333. In 1995, the Company purchased 900 shares of its common stock for $27,683. All stock purchased was retired, the excess of cost over par value was charged proportionately to Additional Paid-in Capital and Retained Earnings. 9--LEASED MACHINES--Lease revenue amounted to $330,312 in 1997, $414,129 in 1996 and $502,847 in 1995. Future minimum rentals on leases beyond one year are not significant. The cost and carrying value of leased automatic rivet setting machines at December 31 were:
1997 1996 --------- ----------- Cost................................ $742,491 $ 828,545 Accumulated depreciation............ 649,939 664,468 -------- ---------- Carrying value...................... $ 92,552 $ 164,077 ======== ==========
10--OTHER INCOME (EXPENSE), NET--Other income (expense) consists of the following:
1997 1996 1995 ----------- ----------- ----------- Gain on sale of properties and equipment............. $ 175,059 $ 54,376 $ 8,599 Interest income......... 221,975 362,158 324,563 Interest expense........ (546,666) (47,250) -- Amortization expense.... (8,348) (24,996) (24,996) Other................... 29,183 15,197 2,991 ----------- ----------- ----------- $ (128,797) $ 359,485 $ 311,157 =========== =========== ===========
11--COMMITMENTS AND CONTINGENCIES--The Company recorded rent expense aggregating approximately $27,229, $8,547 and $52,233 for 1997, 1996 and 1995, respectively. Total future minimum rentals at December 31, 1997 are not significant. The Company is, from time to time involved in litigation, including environmental claims, in the normal course of business. With regard to environmental claims the Company has been named by state and/or federal government agencies as a "potentially responsible party" with respect to certain waste disposal sites. As a potentially responsible party, the Company may be considered jointly and severally liable, along with other potentially responsible parties, for the cost of remediation of these waste sites. Certain estimates related to remediation costs were favorably adjusted during 1997 as remediation work nears completion at certain sites, while claims at other sites are nearing resolution, and, accordingly, the Company has revised the amount of reserves recorded in connection with these claims. The actual cost of remediation is presently unknown; however, estimates currently available suggest that the cost of remediation at these sites will be between $33 million and $49 million. Despite the joint and several nature of the liability, these proceedings are frequently resolved on the basis of the quantity and type of waste disposed by the parties. The actual amount of liability for the Company is unknown due to disagreement concerning the allocation of responsibility, uncertainties regarding the amount of contribution that will be available from other parties and uncertainties related to insurance coverage. After investigation of the quantities and type of waste disposed at these sites, it is management's opinion that any liability will not be material to the Company's financial condition. - -------------------------------------------------------------------------------- 11 15 CHIGAGO RIVET LOGO - -------------------------------------------------------------------------------- Nevertheless, it is likely that the Company will incur additional costs associated with these proceedings and accordingly the Company has recorded a total liability of $85,000 related to these matters. The adequacy of this reserve will be reviewed periodically as more definitive cost information becomes available. 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. 12--OTHER UNUSUAL ITEMS OF INCOME AND EXPENSE--Fourth quarter net income includes the net favorable effect of certain adjustments related to inventory, accruals and allowances of $.16, $.36 and $.15 per share, for 1997, 1996 and 1995, respectively. The 1997 adjustment includes $.08 per share related to the reduction in environmental reserves recorded in connection with favorable resolution of certain environmental claims and revised liability estimates in connection with certain other environmental claims. - -------------------------------------------------------------------------------- 12 16 CHIGAGO RIVET LOGO - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Chicago Rivet & Machine Co. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of retained earnings, and of cash flows present fairly, in all material respects, the financial position of Chicago Rivet & Machine Co. at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Price Waterhouse LLP Chicago, Illinois March 6, 1998 SELECTED FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------- Net Sales and Lease Revenue $44,543,404 $22,510,953 $23,717,410 $23,012,730 $20,390,304 - ------------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 6,044,510 3,174,001 3,645,215 3,239,881 2,291,845 - ------------------------------------------------------------------------------------------------------------------------------- Net Income 3,861,510 1,948,001 2,235,215 1,908,881 1,402,845 - ------------------------------------------------------------------------------------------------------------------------------- Net Income Per Share 3.30 1.66 1.91 1.63 1.19 - ------------------------------------------------------------------------------------------------------------------------------- Dividends Declared Per Share .91 .90 .88 .78 .65 - ------------------------------------------------------------------------------------------------------------------------------- Average Common Shares Outstanding 1,170,988 1,171,496 1,172,944 1,174,122 1,174,696 - ------------------------------------------------------------------------------------------------------------------------------- Net Working Capital 13,766,681 12,040,579 12,710,825 10,968,607 9,434,565 - ------------------------------------------------------------------------------------------------------------------------------- Total Assets 32,947,460 31,326,552 21,355,139 19,923,085 18,597,383 - ------------------------------------------------------------------------------------------------------------------------------- Shareholders' Equity 20,511,102 17,776,760 16,883,109 15,702,000 14,716,949 - -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 13 17 CHIGAGO RIVET LOGO - -------------------------------------------------------------------------------- QUARTERLY FINANCIAL DATA (UNAUDITED):
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ----------- ----------- ----------- ----------- 1997 Net Sales and Lease Revenue............. $11,898,645 $11,564,802 $10,122,352 $10,957,605 Gross Profit......... 3,108,504 3,750,335 3,196,822 3,690,720 Net Income........... 731,983 1,070,424 704,495 1,354,608 Per Share Data: Net Income Per Share............. .62 .91 .60 1.17 Average Common Shares Outstanding....... 1,171,496 1,171,444 1,170,896 1,170,134 1996 Net Sales and Lease Revenue............. $ 5,323,632 $ 6,162,712 $ 4,807,028 $ 6,217,581 Gross Profit......... 1,718,656 1,908,693 1,594,397 2,350,210 Net Income........... 350,629 433,227 381,773 782,372 Per Share Data: Net Income Per Share............. .30 .37 .33 .67 Average Common Shares Outstanding....... 1,171,496 1,171,496 1,171,496 1,171,496 1995 Net Sales and Lease Revenue............. $ 6,458,657 $ 6,982,747 $ 4,991,360 $ 5,284,646 Gross Profit......... 2,242,434 2,460,751 1,600,927 2,376,995 Net Income........... 589,243 668,908 334,831 642,233 Per Share Data: Net Income Per Share............. .50 .57 .29 .55 Average Common Shares Outstanding....... 1,173,296 1,173,290 1,173,096 1,172,104
INFORMATION ON COMPANY'S COMMON STOCK The Company's common stock is traded on the American Stock Exchange. The following chart shows the dividends declared and the quarterly high and low prices of the common stock for the last two years.
Dividends --Declared----------------------------------Market-Range---------------------------- QUARTER 1997 1996 1997 1996 ------- ---- ---- -------------------------------- -------------------------------- First................ $.40* $.45* $18 3/4 $15 1/2 $17 15/16 $14 5/8 Second............... .15 .15 $24 15/16 $18 $18 1/4 $15 1/2 Third................ .18 .15 $39 15/16 $23 $17 3/4 $15 13/16 Fourth............... .18 .15 $36 $23 1/2 $16 1/8 $15 3/8
- --------------- * Includes an extra dividend of $.25 and $.30 per share for 1997 and 1996, respectively. - -------------------------------------------------------------------------------- 14 18 CHIGAGO RIVET LOGO - -------------------------------------------------------------------------------- BOARD OF DIRECTORS ROBERT K. BROWN(e) Retired President of the Company STEPHEN L. LEVY(a)(c) Senior Advisor to the Chief Executive Office Motorola Inc. Schaumburg, Illinois JOHN R. MADDEN(a)(c) Chairman of the Board of Directors of The First National Bank of La Grange La Grange, Illinois JOHN A. MORRISSEY(e) Chairman of the Board of the Company President & Director Algonquin State Bank Algonquin, Illinois WALTER W. MORRISSEY(a)(c)(e) Attorney at Law Morrissey & Robinson Oak Brook, Illinois JOHN C. OSTERMAN(e) President of the Company CORPORATE OFFICERS JOHN A. MORRISSEY Chairman, Chief Executive Officer JOHN C. OSTERMAN President, Chief Operating Officer and Treasurer DONALD P. LONG Vice President--Sales STEPHEN D. VOSS Assistant Treasurer and Controller KIMBERLY A. KIRHOFER Secretary CHICAGO RIVET & MACHINE CO. ADMINISTRATIVE & SALES OFFICES Naperville, Illinois Norwell, Massachusetts MANUFACTURING FACILITIES Albia Division Albia, Iowa H & L Tool Company, Inc. Madison Heights, Michigan Jefferson Division Jefferson, Iowa Tyrone Division Tyrone, Pennsylvania (a) Member of Audit Committee (c) Member of Compensation Committee (e) Member of Executive Committee Chicago Rivet & Machine Co. - 901 Frontenac Road - P.O. Box 3061 - Naperville, Illinois 60566 - Telephone: (630) 357-8500 - -------------------------------------------------------------------------------- 19 LOGO Chicago Rivet & Machine Co. - 901 Frontenac Road - P.O. Box 3061 - Naperville, Illinois 60566 - Telephone: (630) 357-8500 EX-21 4 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 CHICAGO RIVET & MACHINE CO. SUBSIDIARIES OF THE REGISTRANT The Company's only subsidiary is H & L Tool Company, Inc., which is wholly-owned and is organized in the State of Illinois. EX-27.1 5 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1997 DEC-31-1997 3,983,471 2,867,715 5,785,560 123,022 6,354,607 19,993,367 27,914,841 14,960,748 32,947,460 6,226,686 4,950,000 0 0 1,169,296 19,341,806 32,947,460 44,213,092 44,543,404 30,797,023 30,797,023 7,573,074 52,208 546,666 6,044,510 2,183,000 3,861,510 0 0 0 3,861,510 3.30 3.30
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