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