EX-13 3 c61217ex13.txt ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 13 39 2 [CHICAGO RIVET LOGO] CHICAGO RIVET & MACHINE CO. 2000 ANNUAL REPORT 40 3 [CHICAGO RIVET LOGO] -------------------------------------------------------------------------------- HIGHLIGHTS
------------------------------------------------------------------------------------------ 2000 1999 1998 ------------------------------------------------------------------------------------------ NET SALES AND LEASE REVENUE.................... $45,423,263 $49,080,257 $44,938,184 NET INCOME..................................... 2,656,161 3,454,291 3,360,480 NET INCOME PER SHARE........................... 2.60 3.00 2.90 DIVIDENDS PER SHARE............................ 1.07 1.07 1.12 EXPENDITURES FOR PROPERTY, PLANT AND EQUIPMENT.................................... 2,125,189 1,709,527 2,696,701 DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT.. 1,889,849 1,711,721 1,498,302 WORKING CAPITAL................................ 12,001,291 12,447,590 12,302,179 TOTAL SHAREHOLDERS' EQUITY..................... 21,518,773 23,887,278 22,012,659 COMMON SHARES OUTSTANDING AT YEAR-END.......... 967,132 1,138,096 1,153,496 SHAREHOLDERS' EQUITY PER COMMON SHARE.......... 22.25 20.99 19.08 APPROXIMATE NUMBER OF SHAREHOLDERS OF RECORD... 374 425 451
REGISTRAR First Chicago Trust Company, a division of EquiServe TRANSFER AGENT First Chicago Trust Company, a division of EquiServe 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 8, 2001 at 10:00 a.m. at 901 Frontenac Road Naperville, Illinois 60566 Chicago Rivet & Machine Co.-901 Frontenac Road-P.O. Box 3061-Naperville, Illinois 60566-Telephone: (630) 357-8500 -------------------------------------------------------------------------------- 41 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS [CHIGAGO RIVET LOGO] -------------------------------------------------------------------------------- TO OUR SHAREHOLDERS: RESULTS OF OPERATIONS The long running economic expansion that the U.S. economy has enjoyed appears to have run its course. Though there may be some debate as to the extent of the slowdown in the overall economy, there is little doubt that the manufacturing sector slowed dramatically during 2000. Despite record automobile sales, companies operating within that segment of the economy generally posted weaker results than in the prior year. This was the case for Chicago Rivet. The softness in new orders that we reported early in 2000 continued to characterize our markets throughout the year, and the softening accelerated during the second half. In view of these conditions, which contributed to both lower revenues and reduced income compared to the record performance in 1999, our results for the year were respectable. 2000 COMPARED TO 1999 As previously indicated, conditions in our major markets tended to weaken as the year progressed. As a result, net sales and lease revenues declined to $45,423,263 in 2000. On an overall basis, this represents a decline of 7.5% compared to the record level of $49,080,257 recorded in 1999. Revenues within the fastener segment, which began 2000 at a slightly stronger pace than in the prior year, ended the year at $35,735,699, a decline of 4.7% compared to 1999, as the second half of the year was characterized by business levels that were sharply lower than the preceding six months. This downturn is attributable to a decline in the level of activity within the motor vehicle and automotive parts sector of the economy upon which we depend for the majority of our fastener revenues. Within the assembly equipment segment, demand was comparatively soft early in the year, and became weaker as the year progressed. As a result, revenues for the full year declined approximately 16% compared to 1999, totaling $9,687,564 during 2000. Given the reduced operating levels, gross margins within the fastener segment declined compared to the prior year. However, there were other significant factors that impacted gross margins. Among them were increases in wage levels necessary to retain skilled labor in the face of very tight labor markets, increases in the cost of tooling and supplies used in manufacturing, significantly higher costs for health insurance and higher depreciation expense associated with recent investments in new manufacturing equipment. While competitive situations continued to hamper our ability to recover the higher costs outlined above, favorable conditions in the market for raw materials enabled us to negotiate modest reductions in the prices paid for certain raw materials. Overall, however, the combination of lower volume and generally higher manufacturing costs caused gross margins within the fastener segment to fall to 22.3% compared to 23.9% in the prior year. During 2000, revenues within the assembly segment declined approximately 16% compared to 1999. Most of this decline was a function of reduced unit sales, as demand was comparatively weak throughout the year. Gross margins declined from approximately 45% in 1999 to 42% in 2000, due in part to a continued shift toward lower priced and lower margin equipment, and also reflects the impact of higher health insurance costs. Most other costs of manufacturing were reduced to levels consistent with the lower operating rates. Selling and administrative expenses declined 3.6% compared with 1999. Costs incurred in connection with the implementation of new data processing systems declined substantially compared with 1999, but still remained at higher than normal levels for most of the current year. Both commission expense and profit sharing expense declined in proportion with the decline in sales and profits, respectively. Offsetting these changes were professional fees incurred in connection with the Company's "Dutch auction" tender offer, higher health insurance costs, and increases in salary expense. Interest expense increased approximately $123,000 due primarily to additional borrowing in connection with the tender offer and, to a lesser extent, higher interest rates. 1999 COMPARED TO 1998 The Company's net sales and lease revenues increased approximately 9%, totaling $49,080,257 in 1999, compared with $44,938,184 recorded in 1998. Revenues within the fastener segment improved 10.5%, reflecting the strength of the automotive industry, which represents the Company's largest market. While revenue from sales within the assembly equipment segment improved 6.4%, lease revenues in that segment declined compared to the prior year, which resulted in a net increase in sales and lease revenues within the assembly equipment segment of 5.3%. Overall, gross margins improved to $13,361,375, an increase of approximately 5%, despite a charge of $910,000 associated with a product recall. Selling and administrative expenses increased significantly, primarily due to expenditures for information technology, and net income increased to $3,454,291. The fastener segment produced the most dramatic changes compared with 1998. Revenues within this segment increased 10.5% to $37,486,536. This increase was largely a reflection of very strong growth in the economy in general and record levels of production within the automotive industry. The increased volume levels contributed to generally higher margins as fixed costs, with the exception of depreciation, -------------------------------------------------------------------------------- 1 42 5 MANAGEMENT'S DISCUSSION (Continued) -------------------------------------------------------------------------------- remained relatively constant compared with 1998. The strength of the employment market contributed to increases in wage levels that slightly exceeded the overall inflation level, and the limited availability of skilled labor necessitated an increase in overtime expense in order to meet increased demand within this segment of our operations. Despite the strong market conditions prevalent throughout the year, our markets remained extremely price competitive, and our ability to obtain price relief continued to be limited. Fortunately, efforts to control manufacturing costs in other areas continued to be successful, and the Company also benefited from negotiated reductions in the costs of certain raw materials. While the fundamental performance within this segment of our business was very successful, that success was tarnished by a charge incurred in connection with a recall of vehicles that contained certain non-conforming parts which were manufactured by the Company. As previously reported, a settlement was successfully negotiated, but total costs incurred in connection with this incident amounted to $944,000 before taxes, of which $910,000 was charged to cost of goods sold, offsetting a portion of the positive improvements recognized in operations. Revenues within the assembly equipment segment, as a whole, also improved compared with 1998. However, competitive conditions caused the Company to occasionally accept margins below those that were enjoyed in the past, and, as a result, the increase in revenues was slightly biased toward products with lower margins. In addition, increases in costs of raw materials and other manufacturing expenses nearly offset the increase in revenues. As a result, the margin increase within this segment was minimal. Selling and administrative expenses increased approximately 8% compared to the prior year. Costs incurred in connection with implementation of new data processing systems, including efforts related to mitigating the impact of any potential Y2K issues, amounted to nearly $500,000 during the year and represent the primary factor contributing to the increased level of selling and administrative expense. Increases in data communications expense and depreciation related to the new information system added an additional $103,000 to administrative expenses, and profit sharing expense increased by $123,000. Bad debt expense was reduced by $94,000 and travel expense declined by $50,000. Increases in salary expense were partially offset by a reduction in commission expense as a larger percentage of sales was handled by Company employees. Interest expense during 1999 decreased approximately $120,000 compared with 1998 as the effect of higher interest rates was offset by a lower outstanding balance on the loan. Interest income was approximately $51,000 lower than that recorded in the prior year due to a reduction in the level of funds available for investment in interest-bearing accounts. DIVIDENDS The Company paid four regular quarterly dividends of $.18 per share during 2000. In addition, an extra dividend of $.35 per share was paid during the second quarter of 2000, bringing the total dividend payout to $1.07 per share. On February 19, 2001 your Board of Directors declared a regular quarterly dividend of $.18 per share, payable March 20, 2001 to shareholders of record March 5, 2001. This continues the uninterrupted record of consecutive quarterly dividends paid by the Company to its shareholders that extends over 67 years. At that same meeting, the Board declared an extra dividend of $.25 per share, payable April 20, 2001 to shareholders of record, April 5, 2001. MACHINERY AND EQUIPMENT Capital investments totaled approximately $2.1 million during 2000. Slightly over $1.9 million of this total was invested in new equipment related to the production of fasteners. Of the amount expended within the fastener segment, $1.5 million was invested in new cold heading and thread-forming equipment and certain support equipment. This equipment will be utilized to expand our capacity to manufacture certain specialty products for which demand has exceeded our capacity. Certain obsolete heat treating equipment was replaced at a cost of $276,000. The balance was expended for various smaller projects, including new quality control equipment and building improvements. Within the assembly equipment segment, capital expenditures totaled $150,372, primarily for the replacement of machine tools used in the manufacture of perishable tooling that is sold to our customers. The balance was expended for data processing equipment and various office equipment. Investments in machinery and equipment totaled $1,709,527 during 1999. Once again, investments in new equipment related to the manufacture of fasteners accounted for the majority of these investments and amounted to $994,000 during the year. Investments in hardware and software related to improved information management technology totaled $267,000. A total of $181,000 was expended for the purchase of a variety of test and inspection equipment related to quality control initiatives. Investments in new machine tools used in the manufacture of assembly equipment totaled $108,000. Approximately $41,000 was invested in new telephone equipment and the balance was expended for the purchase, or repair, of various, smaller machine tools and building repairs. The Company made a number of significant investments in both equipment and building improvements during 1998. Capital expenditures totaled nearly $2,700,000. Expenditures related to new data processing systems, including computer hardware and software, amounted to approximately $542,000. Expenditures for the purchase of new equipment -------------------------------------------------------------------------------- 2 43 6 MANAGEMENT'S DISCUSSION (Continued) [CHIGAGO RIVET LOGO] -------------------------------------------------------------------------------- used in the manufacture of fasteners amounted to $1,430,000. The Company also purchased a variety of new machine tools, material handling equipment and inspection equipment valued at approximately $313,000. Building improvements, which included the installation of new air compressors at one facility and a new roof at another facility, amounted to approximately $252,000. Investment in both new equipment and rebuilding of existing equipment used to plate and heat treat fasteners amounted to $63,000. A total of $51,000 was expended for the construction of new automatic rivet setting equipment that is leased to customers. The balance was expended for a variety of smaller office equipment and for the construction of new rivet setting machines that will be used for demonstration purposes. Depreciation expense amounted to $1,889,849 in 2000, $1,711,721 in 1999 and $1,498,302 in 1998. LIQUIDITY AND CAPITAL RESOURCES Working capital at year-end amounted to $12.0 million. Although this is a slight decline from the prior year-end, the change is not unexpected given the significant expenditures for new equipment made during the year. The decline in accounts receivable balance at year-end reflects the fact that sales during the latter portion of 2000 were substantially lower than during the same period in the prior year. This sudden change in demand resulted in an opposite change in inventory levels, which increased $280,000 compared to the end of 1999. Production activity has been adjusted to compensate for the lower sales activity, and we expect that inventories will be reduced to a level consistent with current sales. In connection with a "Dutch auction" tender offer in April 2000, the Company obtained, on an unsecured basis, a financing commitment that provided borrowing capacity of up to $9.0 million plus a $1.0 million line of credit. The new borrowing was used to finance the unpaid balance of a 1996 loan related to the acquisition of H & L Tool Company, Inc. ($2.7 million) and to fund the purchase of stock under the terms of the "Dutch auction". At year-end, the indebtedness under the term loan was approximately $5.2 million. Under the terms of the note, the Company is scheduled to repay the principal in quarterly installments of $450,000, plus interest computed on the unpaid balance at a variable rate that is calculated under one of two methods, selected at the option of the Company: the London Inter-Bank Offering Rate (LIBOR) plus an applicable margin; or the lender's prime rate, less an applicable margin. The applicable margin is based upon the funded debt ratio and, for any portion of the loan that bears interest at the prime rate, this margin is up to 50 basis points, and for any portion that bears interest at the LIBOR rate, it is up to 130 basis points. This rate is adjusted quarterly. At year-end 2000, the rate was approximately 7.5%. Management believes that current cash, cash equivalents and the available line of credit will be sufficient to provide adequate working capital for the foreseeable future. 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. 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, provide for purchases of the Company's common stock 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 161,996 shares at an average price of $15.58 per share. This includes the purchase of 11,400 shares during 2000 at an average price of $19.75 per share. It is management's intention to continue this program, provided market conditions are favorable and funding for repurchases is available. In addition to the purchases described above, the Company purchased 159,564 shares at a price of $23.00 per share pursuant to a "Dutch auction" tender offer completed in April 2000. Funding for the purchases was provided through additional borrowing described above. OUTLOOK FOR 2001 As this is written, the economic outlook for the balance of 2001 is uncertain. While experts continue to debate whether the economy is headed for a recession, there is mounting evidence that the so-called old economy has been in recession for the past several months. Certainly, we have seen demand in our markets soften dramatically over that time period. While in many years our first quarter is often our strongest quarter, bookings for the first quarter of 2001 are well below the levels that we would consider satisfactory. Anecdotal evidence suggests that our situation is far from unique -- especially in the segment of the economy in which we operate. While we anticipate that conditions will improve, when that improvement will be manifested is uncertain, and depends in large measure upon factors over which we have little or no control. In the interim, we have taken appropriate actions to adjust operating levels to match the reduced level of demand that is prevalent in our markets. Spending will be closely controlled and every opportunity to reduce costs will be evaluated. During 2000, we began a program to expand our capacity in certain products where demand outpaced our capacity. We anticipate that program, which should be com- -------------------------------------------------------------------------------- 3 44 7 MANAGEMENT'S DISCUSSION (Continued) -------------------------------------------------------------------------------- in the second quarter of 2001, will have a positive impact on both revenues and profits. However, the timing and magnitude of its contribution to revenues and profits will depend, in part, upon a recovery in the manufacturing sector of the economy. The rapidly changing nature of the competitive arena will continue to present new challenges and new opportunities. We believe that the Company can continue to meet the challenges presented and take advantage of opportunities as they arise. We recognize that success depends upon many factors and take this opportunity to express our gratitude for the loyalty of our customers and for the continued support of our shareholders. We also take this opportunity to acknowledge the efforts of our dedicated and skilled workforce. Their contributions are essential to the Company's success -- both past and future. Respectfully, J. A. MORRISSEY JOHN C. OSTERMAN John A. Morrissey John C. Osterman Chairman President
March 2, 2001 FORWARD-LOOKING STATEMENTS This discussion contains certain "forward-looking statements" which are inherently subject to risks and uncertainties that may cause actual events to differ materially from those discussed herein. Factors which may cause such differences in events include, among other things, our ability to maintain our relationships with our significant customers; increases in the prices of, or limitations on the availability of, our primary raw materials; or a downturn in the automotive industry, upon which we rely 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. Many of these factors are beyond our ability to control or predict. Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to publish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. -------------------------------------------------------------------------------- 4 45 8 [CHICAGO RIVET LOGO] -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------------- DECEMBER 31 2000 1999 -------------------------------------------------------------------------------------- ASSETS Current Assets Cash and Cash Equivalents........................ $ 2,265,442 $ 3,414,460 Certificates of Deposit.......................... 1,429,886 552,594 Accounts Receivable--Less allowances of $90,000 and $80,000, respectively..................... 5,037,231 6,681,659 Inventories...................................... 7,204,184 6,923,721 Deferred Income Taxes............................ 705,191 695,191 Other Current Assets............................. 191,668 245,997 ----------- ----------- Total Current Assets............................. 16,833,602 18,513,622 Net Property, Plant and Equipment.................. 14,323,517 14,107,963 ----------- ----------- Total Assets....................................... $31,157,119 $32,621,585 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current Portion of Note Payable.................. $ 1,800,000 $ 1,800,000 Accounts Payable................................. 1,065,561 1,438,147 Accrued Wages and Salaries....................... 753,577 792,606 Contributions Due Profit Sharing Plan............ 437,076 669,053 Other Accrued Expenses........................... 774,974 600,573 Federal and State Income Taxes Payable........... 1,123 765,653 ----------- ----------- Total Current Liabilities........................ 4,832,311 6,066,032 Note Payable....................................... 3,432,760 1,350,000 Deferred Income Taxes.............................. 1,373,275 1,318,275 ----------- ----------- Total Liabilities................................ 9,638,346 8,734,307 ----------- ----------- Commitments and Contingencies (Note 12) Shareholders' Equity Preferred Stock, No Par Value, 500,000 Shares Authorized: None Outstanding.................. -- -- Common Stock, $1.00 Par Value, 4,000,000 Shares Authorized: 1,138,096 Shares Issued........... 1,138,096 1,138,096 Additional Paid-in Capital....................... 447,134 447,134 Retained Earnings................................ 23,828,665 22,302,048 Treasury Stock, 170,964 Shares at cost........... (3,895,122) -- ----------- ----------- Total Shareholders' Equity....................... 21,518,773 23,887,278 ----------- ----------- Total Liabilities and Shareholders' Equity......... $31,157,119 $32,621,585 =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- 5 46 9 [CHIGAGO RIVET LOGO] -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME --------------------------------------------------------------------------------------- For the Years Ended December 31 2000 1999 1998 --------------------------------------------------------------------------------------- Net Sales and Lease Revenue............... $45,423,263 $49,080,257 $44,938,184 Cost of Goods Sold and Costs Related to Lease Revenue................................. 33,480,233 35,718,882 32,256,849 ----------- ----------- ----------- Gross Profit.............................. 11,943,030 13,361,375 12,681,335 Selling and Administrative Expenses....... 7,801,089 8,094,719 7,506,339 Other Expense, net........................ 155,780 37,365 97,516 ----------- ----------- ----------- Income Before Income Taxes................ 3,986,161 5,229,291 5,077,480 Provision for Income Taxes................ 1,330,000 1,775,000 1,717,000 ----------- ----------- ----------- Net Income................................ $ 2,656,161 $ 3,454,291 $ 3,360,480 =========== =========== =========== Net Income Per Share...................... $ 2.60 $ 3.00 $ 2.90 =========== =========== ===========
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Retained Earnings at Beginning of Year.... $22,302,048 $20,405,979 $18,882,418 Net Income................................ 2,656,161 3,454,291 3,360,480 Treasury Stock Retired.................... -- (325,793) (535,058) Cash Dividends Paid, $1.07 Per Share in 2000, $1.07 Per Share in 1999 and $1.12 Per Share in 1998....................... (1,129,544) (1,232,429) (1,301,861) ----------- ----------- ----------- Retained Earnings at End of Year.......... $23,828,665 $22,302,048 $20,405,979 =========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- 6 47 10 [CHIGAGO RIVET LOGO] -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31 2000 1999 1998 ------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net Income........................................ $ 2,656,161 $ 3,454,291 $ 3,360,480 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization................... 1,889,849 1,711,721 1,498,302 Net Gain on the Sale of Properties.............. (2,439) (6,690) (14,787) Deferred Income Taxes........................... 45,000 30,000 98,000 Changes in Working Capital Components: Accounts Receivable........................... 1,644,428 (198,445) (820,676) Inventories................................... (280,463) (393,974) (175,140) Other Current Assets.......................... 54,329 (10,848) 125,299 Accounts Payable.............................. (372,586) 165,685 (427,834) Accrued Wages and Salaries.................... (39,029) 47,448 (27,089) Accrued Benefit Plan Contributions............ (231,977) 122,975 (161,669) Other Accrued Expenses........................ 174,401 11,238 82,282 Income Taxes Payable.......................... (764,530) 349,839 (323,529) ----------- ----------- ----------- Net Cash Provided by Operating Activities............................. 4,773,144 5,283,240 3,213,639 ----------- ----------- ----------- Cash Flows from Investing Activities: Capital Expenditures............................ (2,125,189) (1,709,527) (2,696,701) Proceeds from the Sale of Properties............ 22,225 41,288 22,524 Proceeds from Held-to-Maturity Securities....... 2,506,327 6,151,774 5,831,753 Purchases of Held-to-Maturity Securities........ (3,383,619) (6,154,114) (3,514,292) ----------- ----------- ----------- Net Cash Used in Investing Activities.... (2,980,256) (1,670,579) (356,716) ----------- ----------- ----------- Cash Flows from Financing Activities: Borrowings under Term Loan Agreement............ 3,882,760 -- -- Payments under Term Loan Agreement.............. (1,800,000) (1,800,000) (1,800,000) Purchases of Treasury Stock..................... (3,895,122) (347,243) (557,062) Cash Dividends Paid............................. (1,129,544) (1,232,429) (1,301,861) ----------- ----------- ----------- Net Cash Used in Financing Activities.... (2,941,906) (3,379,672) (3,658,923) ----------- ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents..................................... (1,149,018) 232,989 (802,000) Cash and Cash Equivalents: Beginning of Year............................... 3,414,460 3,181,471 3,983,471 ----------- ----------- ----------- End of Year..................................... $ 2,265,442 $ 3,414,460 $ 3,181,471 =========== =========== =========== Cash Paid During the Year for: Income Taxes.................................. $ 2,049,530 $ 1,395,161 $ 1,942,529 Interest...................................... $ 288,769 $ 264,684 $ 458,080
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- 7 48 11 [CHIGAGO RIVET LOGO] -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1--NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS--The Company operates in the fastener industry and is in the business of producing and selling rivets, cold-formed fasteners, screw machine products, automatic rivet setting machines, parts and tools for such machines, and the leasing of automatic rivet setting machines. A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES FOLLOWS: PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the accounts of Chicago Rivet & Machine Co. and its wholly-owned subsidiary, H & L Tool Company, Inc. (H & L Tool). All significant intercompany accounts and transactions have been eliminated. REVENUE RECOGNITION--Revenues from product sales are recognized upon shipment and an allowance is provided for estimated returns and discounts based on experience. 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 included in unearned revenue in the consolidated balance sheets. Costs related to lease revenue, other than the cost of the machines, are expensed as incurred. 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. 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 and certificates of deposit approximate fair value. The carrying amount reported for the note payable approximates fair market value. INVENTORIES--Inventories are stated at the lower of cost or net realizable value, cost being determined principally by the first-in, first-out method. PROPERTY, PLANT AND EQUIPMENT--Properties are stated at cost and are depreciated over their estimated useful lives using the straight-line method for financial reporting purposes. Accelerated methods of depreciation are used for income tax purposes. Direct costs related to developing or obtaining software for internal use are capitalized as property and equipment. Capitalized software costs are amortized over the software's useful life when the software is ready for its intended use. 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..................... 7 to 15 years Automatic rivet setting machines on lease... 10 years Capitalized software costs.................. 3 to 5 years Other equipment............................. 3 to 15 years
The Company reviews the carrying value of property, plant and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. 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 that do not improve the related asset or extend its useful life are charged to operations as incurred. INCOME TAXES--Deferred income taxes are determined under the asset and liability method 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. SEGMENT INFORMATION--In 1998, the Company adopted Statement of Financial Accounting Standards No. 131 ("FAS 131"), "Disclosures about Segments of an Enterprise and Related Information." FAS 131 established new standards for defining a Company's segments and disclosing information about them. It requires that segments be based on the internal structure and reporting of the Company's operations. The adoption of FAS 131 did not affect results of operations or financial position but did affect the disclosure of segment information. NET INCOME PER SHARE--Net income per share of common stock is based on the weighted average number of shares outstanding of 1,022,627 in 2000, 1,151,333 in 1999 and 1,159,360 in 1998. ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. RECLASSIFICATIONS--Certain items in 1999 and 1998 have been reclassified to conform to the presentation in 2000. These changes have no effect on the financial position of the Company. -------------------------------------------------------------------------------- 8 49 12 [CHIGAGO RIVET LOGO] -------------------------------------------------------------------------------- 2--BALANCE SHEET DETAILS
2000 1999 ----------- ----------- Inventories: Raw materials..................... $ 2,010,984 $ 2,002,490 Work in process................... 2,156,092 1,782,944 Finished goods.................... 3,037,108 3,138,287 ----------- ----------- $ 7,204,184 $ 6,923,721 =========== =========== Net Property, Plant and Equipment: Land and improvements............. $ 1,010,595 $ 1,010,595 Buildings and improvements........ 5,677,680 5,646,956 Production equipment, leased machines and other.............. 26,686,705 25,239,969 ----------- ----------- 33,374,980 31,897,520 Less accumulated depreciation..... 19,051,463 17,789,557 ----------- ----------- $14,323,517 $14,107,963 =========== =========== Other Accrued Expenses: Property taxes.................... $ 114,490 $ 122,436 Interest.......................... 105,497 17,876 Unearned revenue and customer deposits........................ 355,874 85,970 All other items................... 199,113 374,291 ----------- ----------- $ 774,974 $ 600,573 =========== ===========
3--LEASED MACHINES--Lease revenue amounted to $246,940 in 2000, $283,269 in 1999 and $376,644 in 1998. 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:
2000 1999 -------- -------- Cost................................... $531,509 $577,932 Accumulated depreciation............... 484,956 512,125 -------- -------- Carrying value......................... $ 46,553 $ 65,807 ======== ========
4--INCOME TAXES--The provision for income tax expense consists of the following:
2000 1999 1998 ---------- ---------- ---------- Current: Federal.................. $1,271,000 $1,639,000 $1,492,000 State.................... 14,000 106,000 127,000 Deferred................... 45,000 30,000 98,000 ---------- ---------- ---------- $1,330,000 $1,775,000 $1,717,000 ========== ========== ==========
The deferred tax liabilities and assets are comprised of the following:
2000 1999 ----------- ----------- Depreciation...................... $(1,392,656) $(1,338,597) ----------- ----------- Inventory......................... 475,255 457,501 Accrued vacation.................. 176,033 177,595 Allowance for doubtful accounts... 31,300 27,800 Other, net........................ 41,984 52,617 ----------- ----------- 724,572 715,513 ----------- ----------- $ (668,084) $ (623,084) =========== ===========
The following is a reconciliation of the statutory federal income tax rate to the actual effective tax rate:
2000 1999 1998 ------------------ ------------------ ----------------- AMOUNT % AMOUNT % AMOUNT % ------------------ ------------------ ----------------- Expected tax at U.S. Statutory rate.............. $1,355,000 34.0 $1,778,000 34.0 $1,726,000 34.0 State taxes, net of federal benefit..................... 9,000 .2 73,000 1.4 84,000 1.7 Other, net................... 5,000 .1 5,000 -- 7,000 .1 Adjustment to prior year accrual..................... (39,000) (.9) (81,000) (1.5) (100,000) (2.0) ----------- ---- ----------- ---- ----------- ---- Income tax expense........... $1,330,000 33.4 $1,775,000 33.9 $1,717,000 33.8 =========== ==== =========== ==== =========== ====
5--NOTE PAYABLE-- In connection with the tender offer completed in April 2000, the Company obtained, on an unsecured basis, a financing commitment that provided borrowing capacity of up to $9.0 million plus a $1.0 million line of credit. The new borrowing was used to repay an existing loan ($2.7 million) and to fund purchases of stock under the terms of the "Dutch auction". As of December 31, 2000, total indebtedness under the term loan was $5,232,760. Under the terms of the note evidencing such debt, the Company will repay the principal in quarterly installments of $450,000, plus interest computed on the unpaid balance at a variable rate that is based upon, at the election of the Company, the Bank of America's prime rate less an applicable margin or the London Inter-Bank Offering Rate (LIBOR) plus an applicable margin. The applicable margin is based upon the funded debt ratio. For any portion of the loan that bears interest at the prime rate, this margin is up to 50 basis points, for any portion of the loan that bears interest at the LIBOR rate, the margin is up to 130 basis points. The interest rate is adjusted quarterly and was approximately 7.5% at December 31, 2000. This note is subject to the maintenance of certain financial covenants. The line of credit was extended through May 31, 2002 and remained unused at December 31, 2000. The loan agreement expires on March 1, 2005, at which time any unpaid principal and interest is due. 6--TREASURY STOCK TRANSACTIONS--In 2000, the Company purchased 170,964 shares of its common stock for $3,895,122. These shares are being held in treasury. In 1999 and 1998, the Company purchased 15,400 common shares for $347,243 and 15,800 common shares for $557,062, respectively. The stock purchased in 1999 and 1998 was retired and the excess of cost over par value was charged proportionately to additional paid-in capital and retained earnings. 7--SHAREHOLDER RIGHTS AGREEMENT--On November 22, 1999, the Company adopted a shareholder rights agreement and declared a dividend distribution of one right for each outstanding share of Company common stock to shareholders of record at the close of business on December 3, 1999. Each right entitles the holder, upon occurrence of certain events, to buy one one-hundredth of a share of Series A Junior Participating Preferred Stock at a price of $90, subject to adjustment. The rights may only become exercisable under certain circumstances involving acquisition of the Company's common stock, including the purchase of 10 percent or more by any person or group. The rights will expire on December 2, 2009 unless they are extended, redeemed or exchanged. 8--PENSIONS--The Company has a noncontributory profit sharing plan covering substantially all employees. Total expenses relating to the profit sharing plan amounted to approximately $437,000 in 2000, $669,000 in 1999 and $546,000 in 1998. -------------------------------------------------------------------------------- 9 50 13 [CHIGAGO RIVET LOGO] -------------------------------------------------------------------------------- 9--OTHER EXPENSE, NET--Other expense, net consists of the following:
2000 1999 1998 --------- --------- --------- Interest income.............. $ 202,915 $ 196,769 $ 247,889 Interest expense............. (378,640) (255,908) (376,098) Gain on sale of property and equipment.................. 2,439 6,690 14,787 Other........................ 17,506 15,084 15,906 --------- --------- --------- $(155,780) $ (37,365) $ (97,516) ========= ========= =========
10--SEGMENT INFORMATION--The Company operates, primarily in the United States, in two business segments as determined by its products. The fastener segment, which comprises H & L Tool and the parent company's fastener operations, includes rivets, cold-formed fasteners and screw machine products. The assembly equipment segment includes automatic rivet setting machines, parts and tools for such machines and the leasing of automatic rivet setting machines. Information by segment is as follows:
ASSEMBLY FASTENER EQUIPMENT OTHER CONSOLIDATED ----------- ------------- ----------- ------------ YEAR ENDED DECEMBER 31, 2000: Net sales and lease revenue.................... $35,735,699 $ 9,687,564 $ -- $45,423,263 Depreciation................ 1,399,029 254,398 236,422 1,889,849 Segment profit.............. 4,878,808 3,070,744 -- 7,949,552 Selling and administrative expenses................... 3,787,666 3,787,666 Interest expense............ 378,640 378,640 Interest income............. (202,915) (202,915) ----------- Income before income taxes...................... 3,986,161 ----------- Capital expenditures........ 1,933,638 150,372 41,179 2,125,189 ----------- Segment assets: Inventory.................. 4,401,873 2,802,311 -- 7,204,184 Property, plant and equipment................ 10,898,517 1,965,616 1,459,384 14,323,517 Other assets............... -- -- 9,629,418 9,629,418 ----------- 31,157,119 ----------- YEAR ENDED DECEMBER 31, 1999: Net sales and lease revenue.................... $37,486,536 $11,593,721 $ -- $49,080,257 Depreciation................ 1,255,975 252,772 202,974 1,711,721 Segment profit.............. 4,882,568 4,232,296 -- 9,114,864 Selling and administrative expenses................... 3,826,434 3,826,434 Interest expense............ 255,908 255,908 Interest income............. (196,769) (196,769) ----------- Income before income taxes...................... 5,229,291 ----------- Capital expenditures........ 1,464,857 150,387 94,283 1,709,527 Segment assets: Inventory.................. 4,269,533 2,654,188 -- 6,923,721 Property, plant and equipment................ 10,778,383 1,672,189 1,657,391 14,107,963 Other assets............... -- -- 11,589,901 11,589,901 ----------- 32,621,585 ----------- YEAR ENDED DECEMBER 31, 1998: Net sales and lease revenue.................... $33,931,740 $11,006,444 $ -- $44,938,184 Depreciation................ 1,148,343 213,294 136,665 1,498,302 Segment profit.............. 4,121,130 4,293,452 -- 8,414,582 Selling and administrative expenses................... 3,208,893 3,208,893 Interest expense............ 376,098 376,098 Interest income............. (247,889) (247,889) ----------- Income before income taxes...................... 5,077,480 ----------- Capital expenditures........ 1,992,015 229,553 475,133 2,696,701 Segment assets: Inventory.................. 3,761,580 2,768,167 -- 6,529,747 Property, plant and equipment................ 10,588,483 1,790,190 1,766,082 14,144,755 Other assets............... -- -- 11,141,279 11,141,279 ----------- 31,815,781 -----------
The Company does not allocate certain selling and administrative expenses for internal reporting, thus, no allocation was made for these expenses for segment disclosure purposes. Segment assets reported internally are limited to inventory and long-lived assets. Long-lived assets of one plant location are allocated between the two segments based on estimated plant utilization, as this plant serves both fastener and assembly equipment activities. Other assets are not allocated to segments internally and to do so would be impracticable. Sales to two customers in the fastener segment accounted for 19, 17 and 15 percent and 11, 11 and 10 percent of consolidated revenues during 2000, 1999 and 1998, respectively. 11--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 $.10, $.09 and $.05 per share, for 2000, 1999 and 1998, respectively. The 1998 adjustment includes $.09 per share related to the reduction of accrued income taxes. 12--COMMITMENTS AND CONTINGENCIES--The Company recorded rent expense aggregating approximately $36,000, $29,000 and $26,000 for 2000, 1999 and 1998, respectively. Total future minimum rentals at December 31, 2000 are not significant. The Company is, from time to time involved in litigation, including environmental claims, in the normal course of business. While it is not possible at this time to establish the ultimate amount of liability with respect to contingent liabilities, including those related to legal proceedings, management is of the opinion that the aggregate amount of any such liabilities, for which provision has not been made, will not have a material adverse effect on the Company's financial position. 13--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. -------------------------------------------------------------------------------- 10 51 14 [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 income, retained earnings and cash flows present fairly, in all material respects, the financial position of Chicago Rivet & Machine Co. and its subsidiary at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America, 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 our opinion. PRICE WATERHOUSE LLP Chicago, Illinois March 2, 2001 SELECTED FINANCIAL DATA
------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------------------------------------------------------- Net Sales and Lease Revenue $45,423,263 $49,080,257 $44,938,184 $44,543,404 $22,510,953 ------------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 3,986,161 5,229,291 5,077,480 6,044,510 3,174,001 ------------------------------------------------------------------------------------------------------------------------------- Net Income 2,656,161 3,454,291 3,360,480 3,861,510 1,948,001 ------------------------------------------------------------------------------------------------------------------------------- Net Income Per Share 2.60 3.00 2.90 3.30 1.66 ------------------------------------------------------------------------------------------------------------------------------- Dividends Per Share 1.07 1.07 1.12 .91 .90 ------------------------------------------------------------------------------------------------------------------------------- Average Common Shares Outstanding 1,022,627 1,151,333 1,159,360 1,170,988 1,171,496 ------------------------------------------------------------------------------------------------------------------------------- Working Capital 12,001,291 12,447,590 12,302,179 13,766,681 12,040,579 ------------------------------------------------------------------------------------------------------------------------------- Total Debt 5,232,760 3,150,000 4,950,000 6,750,000 9,000,000 ------------------------------------------------------------------------------------------------------------------------------- Total Assets 31,157,119 32,621,585 31,815,781 32,947,460 31,326,552 ------------------------------------------------------------------------------------------------------------------------------- Shareholders' Equity 21,518,773 23,887,278 22,012,659 20,511,102 17,776,760 -------------------------------------------------------------------------------------------------------------------------------
In November 1996 the Company acquired H & L Tool Company, Inc. The results of operations for H & L Tool are included above from the date of acquisition. -------------------------------------------------------------------------------- 11 52 15 [CHIGAGO RIVET LOGO] -------------------------------------------------------------------------------- QUARTERLY FINANCIAL DATA (UNAUDITED)
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ----------- ----------- ----------- ----------- 2000 Net Sales and Lease Revenue............... $12,435,736 $12,366,088 $10,345,570 $10,275,869 Gross Profit........... 3,543,512 3,646,726 2,262,689 2,490,103 Net Income............. 921,435 894,713 274,583 565,430 Per Share Data: Net Income Per Share.. .81 .89 .28 .58 Average Common Shares Outstanding......... 1,138,096 1,003,080 978,532 971,841 1999 Net Sales and Lease Revenue............... $12,517,480 $12,933,690 $11,721,458 $11,907,629 Gross Profit........... 3,643,041 2,758,165 3,297,581 3,662,588 Net Income............. 1,152,460 481,112 816,774 1,003,945 Per Share Data: Net Income Per Share.. 1.00 .42 .71 .87 Average Common Shares Outstanding......... 1,153,496 1,152,832 1,152,139 1,147,005 1998 Net Sales and Lease Revenue............... $11,672,949 $10,822,531 $10,331,367 $12,111,337 Gross Profit........... 3,241,963 3,043,413 3,058,459 3,337,500 Net Income............. 914,820 783,924 718,506 943,230 Per Share Data: Net Income Per Share.. .78 .68 .62 .82 Average Common Shares Outstanding......... 1,169,100 1,159,793 1,155,535 1,153,764
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 2000 1999 2000 1999 ------- ---- ---- -------------------------------- -------------------------------- First................ $.53* $.53* $23 1/4 $19 $27 3/4 $23 Second............... .18 .18 $23 1/4 $21 1/8 $28 3/8 $19 1/8 Third................ .18 .18 $23 $19 1/2 $26 7/8 $20 5/8 Fourth............... .18 .18 $19 7/8 $16 1/8 $24 1/2 $21 3/8
--------------- * Includes an extra dividend of $.35 per share. -------------------------------------------------------------------------------- 12 53 16 [CHIGAGO RIVET LOGO] -------------------------------------------------------------------------------- BOARD OF DIRECTORS CORPORATE OFFICERS CHICAGO RIVET & MACHINE CO. ------------------ ------------------ --------------------------- EDWARD L. CHOTT(a) JOHN A. MORRISSEY ADMINISTRATIVE & SALES OFFICES Chairman and Chief Chairman, Chief Naperville, Illinois Executive Officer Executive Officer Norwell, Massachusetts The Broaster Co. Beloit, Wisconsin JOHN C. OSTERMAN MANUFACTURING FACILITIES President, Chief Operating Albia Division WILLIAM T. DIVANE, Jr. (a)(c) Officer and Treasurer Albia, Iowa President and Chairman of Divane Bros. Electric Co. DONALD P. LONG Jefferson Division Franklin Park, Illnois Vice President-Sales Jefferson, Iowa JOHN R. MADDEN(a)(c)(e) KIMBERLY A. KIRHOFER Tyrone Division Chairman of the Board Secretary Tyrone, Pennsylvania The First National of La Grange MICHAEL J. BOURG H & L Tool Company, Inc. La Grange, Illinois Corporate Controller Madison Heights, Michigan JOHN A. MORRISSEY(e) WEB SITE Chairman of the Board www.chicagorivet.com of the Company President and Director of Algonquin State Bank Algonquin, Illinois WALTER W. MORRISSEY(c)(e) Attorney at Law Morrissey & Robinsn Oak Brook, Illinois JOHN C. OSTERMAN(e) President of the Company
(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 -------------------------------------------------------------------------------- 54 17 [CHICAGO RIVET LOGO] Chicago Rivet & Machine Co. - 901 Frontenac Road - P.O. Box 3061 - Naperville, Illinois 60566 - Telephone: (630) 357-8500 55