EXHIBIT 99.1
To Our Shareholders:
The comparative results of operations of Chicago Rivet & Machine Co.
for the third quarter and first nine months of 2002 and 2001 are summarized
below.
Net revenue for the third quarter of 2002 totaled $9,832,012, an
increase of 4.6% compared with the third quarter of 2001. Within the fastener
segment, revenue improved 3.6% compared with the third quarter of 2001 while
revenue within the assembly equipment segment increased 9.4 % compared with the
year earlier period. Historically, third quarter revenues fall short of the
preceding quarters as a result of regularly scheduled vacation shutdowns at our
facilities as well as at many of our customers and that was again the case in
2002. On a year to date basis, net revenue for the first nine months of 2002
amounted to $32,722,194, a 4.7% increase compared with the first nine months of
2001. Within the fastener segment, year to date revenue is 5.4% higher than that
reported one year ago while revenue within the assembly equipment segment
increased a more modest 1.9% compared with the first nine months of 2001. These
improvements are primarily attributable to a combination of new business and
modest increases in activity at certain customers and are not indicative of a
widespread improvement in market conditions.
While we are pleased with the revenue gains that were attained despite
difficult market conditions, our operating results were somewhat disappointing.
Within our primary markets, the combination of weak demand and excess capacity
continue to limit our ability to obtain the price relief necessary to offset the
impact of rising costs of manufacturing. Customers within the automotive
markets, in particular, continue to press for price reductions. These conditions
have had a negative impact on operating profits, and this was especially evident
in the results for the fastener segment during the third quarter of this year.
While selling prices were under pressure, the tariffs imposed upon steel
products contributed to an overall increase in the cost of raw materials.
Margins within the fastener segment were also adversely affected by higher costs
for employee health insurance and higher expenses related to resolving specific
quality control issues. Within the assembly equipment segment, slightly higher
volumes were the primary factor contributing to an improvement in gross margins
for the period.
On a year to date basis, gross margin percentages within the assembly
equipment segment are slightly below those of the first nine months of 2001,
primarily due to increases in the cost of raw materials, labor and employee
insurance. Year to date results within the fastener segment continue to show
improvement compared with the prior year, despite third quarter results.
Operating results for the first nine months were positively impacted by
increased operating volumes, combined with lower expenses for tooling and
utilities, compared with the prior year. These improvements have been partially
offset by increases in the cost of health insurance, higher labor rates, and
recently, the impact of tariffs upon the price of raw material.
Selling and administrative expenses, in total, declined modestly during
both the third quarter and the first nine months of 2002 compared with the same
periods in 2001. During the third quarter, increases in salaries, commissions
and insurance costs were fully offset by a decrease in the provision for bad
debts. During the third quarter of 2001, bad debt expense was unusually high due
to a bankruptcy filing of a large customer.
We do not anticipate a significant improvement in overall business
conditions in the near term. Within the fastener segment, excess capacity is
likely to limit our ability to increase prices enough to fully offset increases
in manufacturing costs. We also expect that automotive customers will continue
to press for price reductions. In response, we will continue our efforts to hold
the line on expenses, reduce costs wherever possible and to continue our efforts
to secure new, profitable business from both new and existing customers.
Respectfully yours,
John A. Morrissey John C. Osterman
Chairman President
November 1, 2002
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The foregoing discussion is only intended to provide highlights of operations
for the periods covered. Additional information is contained in our Form 10-Q,
which has been filed with the SEC and is available to shareholders upon request
from the Company, or via the internet through the SEC's EDGAR database. 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.
CHICAGO RIVET & MACHINE CO.
SUMMARY OF CONSOLIDATED RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30
THIRD QUARTER FIRST NINE MONTHS
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2002 2001 2002 2001
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Net sales and lease revenue $ 9,832,012 $ 9,398,572 $32,722,194 $31,242,652
Income before income taxes 659,015 642,996 2,976,720 2,279,675
Net income 435,015 426,996 1,962,720 1,503,675
Net income per share .45 .44 2.03 1.55
Average shares outstanding 966,132 967,132 966,674 967,132
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(All figures subject to year end audit)
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