EXHIBIT 99.1
To Our Shareholders:
The comparative results of operations of Chicago Rivet & Machine Co.
for the first quarter of 2005 and 2004 are summarized below.
Results for the first quarter of 2005 were quite disappointing. As a
result of lower assembly equipment sales revenue, higher raw material costs and
a significant increase in administrative expenses, the Company recorded its
first quarterly loss in over 17 years.
Within the fastener segment, revenues increased approximately 1%, from
$8,261,283 in the first quarter of 2004 to $8,347,558 in the first quarter of
2005. However, that change includes the pass through of a portion of higher raw
material prices that were incurred in the first quarter of 2005. First quarter
revenues, excluding the portion attributable to recovery of raw material price
increases, were nearly 4.5% lower than in the first quarter of 2004. Gross
margins declined $403,000 compared to the first quarter of 2004. The major
factors contributing to the decrease in margins were an increase of $476,000 in
the cost of raw material and outside services, due primarily to increases in the
price of steel, partially offset by a reduction in tooling expense of $117,000.
The balance represents the net effect of various smaller changes in other
components of cost of sales.
Revenues within the assembly equipment segment declined 9% in the first
quarter of 2005 compared to the first quarter of 2004. Demand for our products
in this segment continues to be comparatively weak. We were able to reduce most
costs of manufacturing by amounts consistent with the reduction in volume and as
a result, gross margins declined by $17,000, which is a 2% reduction from the
year earlier period.
Selling and administrative expenses during the first quarter of 2005
were $153,000 higher than during the first quarter of 2004. Major factors
contributing to this increase included an increase in professional services of
$145,000 primarily related to reviews of procedures and documentation in
connection with Sarbanes-Oxley Act of 2002 compliance. In addition, legal fees
increased approximately $86,000 in connection with ongoing litigation and other
matters. These increases were partially offset by a reduction of $63,000 in
profit sharing expense and smaller, net reductions in a variety of other
expenses.
The recent quarter has been a very difficult one. Demand from our major
customers weakened during the first quarter. While we anticipate that demand
will improve, the amount and timing is uncertain and dependent upon factors that
are beyond our control. Domestic automobile production, especially that of the
"Big Three," is one such factor. Overall domestic manufacturing levels are
another factor. The customers that we serve are increasingly subject to foreign
competition. In response, they are increasingly turning to foreign sources for
product or have outsourced portions of their operations to other, lower cost
countries. In either case, the result adversely impacts our potential market and
increases the competition for available market share. These conditions continue
to limit our pricing ability. We have been fairly successful in controlling
manufacturing costs, with the notable exception of raw material costs which have
increased significantly over the past year. While prices have recently softened
slightly, raw material prices remain much higher than one year ago and our
ability to pass these higher costs on to customers remains limited by the
factors described above. We do not anticipate that the situation will change
appreciably in the near term. While we anticipate that costs associated with
Sarbanes-Oxley compliance will eventually decline somewhat, we expect that
second quarter costs will be approximately equal to those incurred in the first
quarter. We also expect legal expenses will be higher than usual during the
coming months. We will continue to seek opportunities to expand our market and
to increase our share of the existing market, while working to further reduce
our costs. Our future success is tied to our ability to successfully accomplish
these two objectives.
Respectfully yours,
John A. Morrissey John C. Osterman
Chairman President
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May 9, 2005
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; increased global competition; 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 Months Ended March 31,
2005 2004
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Net sales and lease revenue $ 10,082,862 $ 10,168,964
Income (loss) before taxes (115,765) 442,988
Net income (loss) (76,765) 290,988
Net income (loss) per share (.08) .30
Average shares outstanding 966,132 966,132
(All figures subject to year-end audit)
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