1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------- FORM 8-K CURRENT REPORT (AMENDMENT NO. 1) PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 December 3, 1996 --------------------------------- (Date of earliest event reported) CHICAGO RIVET & MACHINE CO. ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Illinois 0-1227 36-0904920 - -------------------------------------------------------------------------------- (State or Other (Commission File (IRS Employer Jurisdiction of File Number) Identification Incorporation) Number) 901 Frontenac Road, Naperville, IL 60566-7061 ------------------------------------------------------------------ (Address of Principal Offices, including zip code) (630) 357-8500 ---------------------------------------------------------- (Registrant's telephone number, including area code) N/A ------------------------------------------------------------- (Former name or former address, if changed since last report) 2 Page No. Item 7. FINANCIAL STATEMENTS AND EXHIBITS (a) FINANCIAL STATEMENTS OF ACQUIRED COMPANY Report of Independent Certified Public Accountants 3 Balance Sheets at September 30, 1996 and October 31, 1995 4-5 Statements of Income and Retained Earnings for the eleven months ended September 30, 1996 and the year ended October 31, 1995 6 Statements of Cash Flows for the eleven months ended September 30, 1996 and the year ended October 31, 1995 7 Summary of Accounting Policies 8-9 Notes to Financial Statements 10-11 (b) PRO FORMA FINANCIAL INFORMATION Pro Forma Condensed Consolidated Financial Statements (unaudited) 12 Pro Forma Condensed Consolidated Balance Sheet at September 30, 1996 (unaudited) 13 Notes to Pro Forma Condensed Consolidated Balance Sheet at September 30, 1996 (unaudited) 14 Pro Forma Condensed Consolidated Statement of Income for the nine months ended September 30, 1996 (unaudited) 15 Notes to Pro Forma Condensed Consolidated Statement of Income for the nine months ended September 30, 1996 (unaudited) 16 Pro Forma Condensed Consolidated Statement of Income for the year ended December 31, 1995 (unaudited) 17 Notes to Pro Forma Condensed Consolidated Statement of Income for the year ended December 31, 1995 (unaudited) 18-19 3 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS H & L Tool Company, Inc. Madison Heights, Michigan We have audited the accompanying balance sheets of H & L Tool Company, Inc. as of September 30, 1996 and October 31, 1995, and the related statements of income and retained earnings, and cash flows for the eleven months ended September 30, 1996 and the year ended October 31, 1995. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of H & L Tool Company, Inc. at September 30, 1996 and October 31, 1995, and the results of its operations and its cash flows for the eleven months ended September 30, 1996 and the year ended October 31, 1995 in conformity with generally accepted accounting principles. /s/ BDO SEIDMAN, LLP Troy, Michigan November 18, 1996 4 H & L TOOL COMPANY, INC. BALANCE SHEETS September 30, October 31, 1996 1995 ASSETS CURRENT ASSETS Cash and equivalents $ 4,894,334 $ 2,181,284 Marketable securities 1,942,556 1,702,654 Accounts receivable, less allowance for possible losses of $21,000 (Note 1) 3,179,957 3,086,456 Inventories (Notes 1 and 2) 1,179,537 1,525,046 Prepaid expenses and other current assets (Note 1) 383,192 158,804 ------------ ----------- TOTAL CURRENT ASSETS 11,579,576 8,654,244 ------------ ----------- PROPERTY AND EQUIPMENT (Note 1) Land 175,500 175,500 Building and improvements 2,008,046 2,008,046 Machinery and equipment 14,487,284 14,487,284 Motor equipment 161,077 211,278 Furniture and equipment 422,747 410,443 ------------ ----------- 17,254,654 17,292,551 Less accumulated depreciation 15,237,960 14,661,863 ------------ ----------- NET PROPERTY AND EQUIPMENT 2,016,694 2,630,688 ------------ ----------- OTHER Cash surrender value of life insurance, net of policy loans of $80,000 285,759 264,364 Miscellaneous 226,334 229,795 ------------ ----------- TOTAL OTHER ASSETS 512,093 494,159 ------------ ----------- TOTAL ASSETS $ 14,108,363 $11,779,091 ============ =========== SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS. 5 H & L TOOL COMPANY, INC. BALANCE SHEETS September 30, October 31, 1996 1995 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 684,451 $ 627,513 Accruals Compensation and witholdings (Note 7) 2,404,316 506,254 Profit-sharing (Note 4) 200,000 200,000 Taxes, other than income 98,028 73,100 Other 28,570 7,629 Current maturities of long-term debt (Note 3) -- 166,668 ----------- ----------- TOTAL CURRENT LIABILITIES 3,415,365 1,581,164 LONG-TERM DEBT, less current maturities (Note 3) -- 152,775 ----------- ----------- TOTAL LIABILITIES 3,415,365 1,733,939 ----------- ----------- COMMITMENTS (Note 5) STOCKHOLDERS' EQUITY Common stock - $1 par value, 50,000 shares authorized, 30,000 issued and outstanding 30,000 30,000 Additional paid-in capital 35,000 35,000 Retained earnings 10,627,998 9,980,152 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 10,692,998 10,045,152 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $14,108,363 $11,779,091 =========== =========== SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS. 6 H & L TOOL COMPANY, INC. STATEMENTS OF INCOME AND RETAINED EARNINGS Eleven months Year Ended ended September 30, October 31, 1996 1995 NET SALES (Note 6) $19,661,602 $22,285,744 COST OF SALES 14,801,048 16,298,541 ----------- ----------- GROSS PROFIT 4,860,554 5,987,203 SELLING AND ADMINISTRATIVE EXPENSES 4,515,892 4,232,330 ----------- ----------- OPERATING INCOME 344,662 1,754,873 ----------- ----------- OTHER INCOME (EXPENSE) Interest income 283,089 228,369 Gain on sale of equipment 20,984 21,615 Interest expense (8,331) (39,431) Miscellaneous 7,442 (255) ----------- ----------- TOTAL 303,184 210,298 ----------- ----------- NET INCOME (Note 7) 647,846 1,965,171 RETAINED EARNINGS, at beginning of year 9,980,152 8,314,981 DIVIDENDS PAID -- (300,000) ----------- ----------- RETAINED EARNINGS, at end of year $10,627,998 $9,980,152 =========== ========== SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS. 7 H & L TOOL COMPANY, INC. STATEMENTS OF CASH FLOWS Eleven months Year Ended ended September 30, October 31, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net income $647,846 $1,965,171 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 703,302 787,767 Gain on sale of equipment (20,984) (21,615) Changes in non-investing and non-financing assets and liabilities Increase in accounts receivable (93,501) (39,890) Decrease (increase) in inventories 345,509 (10,599) Increase in prepaid expenses and other current assets (224,388) (64,746) Increase (decrease) in accounts payable 56,938 (580,519) Increase (decrease) in accrued expenses 1,943,931 (152,533) ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 3,358,653 1,883,036 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of marketable securities 2,000,000 2,500,000 Purchase of marketable securities (2,239,902) (3,228,449) Proceeds from sale of equipment 23,000 30,174 Purchase of property and equipment (87,863) (1,238,387) Increase in cash surrender value of life insurance (21,395) (22,383) ---------- ----------- NET CASH USED IN INVESTING ACTIVITIES (326,160) (1,959,045) ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Repayment of debt (319,443) (166,668) Dividends paid --- (300,000) ---------- ----------- NET CASH USED IN FINANCING ACTIVITIES (319,443) (466,668) ---------- ----------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 2,713,050 (542,677) CASH AND EQUIVALENTS, beginning of year 2,181,284 2,723,961 ---------- ----------- CASH AND EQUIVALENTS, end of year $4,894,334 $2,181,284 ========== ========== SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS. 8 H & L TOOL COMPANY, INC. SUMMARY OF ACCOUNTING POLICIES NATURE OF H & L Tool Company, Inc. (the Company) manufactures screw OPERATIONS machine and coldheader parts for the automotive industry. USE OF ESTIMATES In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect (1) the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and (2) revenues and expenses during the reporting period. Actual results could differ from these estimates. CONCENTRATIONS OF Financial instruments which potentially subject the Company CREDIT RISK to concentrations of credit risk consist principally of cash, cash equivalents and accounts receivable. At times, such cash and equivalents in banks are in excess of the respective financial institution's FDIC insurance limit. With respect to accounts receivable, the Company attempts to minimize credit risk by monitoring customers' credit exposure on a continuing basis. The Company establishes an allowance for possible losses on accounts receivable based upon factors surrounding the credit risk of specific customers, historical trends and other information. Also see Note 6. FAIR VALUE OF The carrying amounts of cash and equivalents, accounts FINANCIAL receivable, accounts payable and accrued expenses INSTRUMENTS approximate fair value because of the short maturity of these items. CASH EQUIVALENTS Cash equivalents consist of certificates of deposit with original maturities of three months or less. MARKETABLE Marketable securities, consisting of U.S. treasury bills, SECURITIES are classified as "available-for-sale" and therefore are stated at market value (which equals cost) in accordance with Statement of Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity Securities." Marketable securities all mature within one year of the respective balance sheet dates. INVENTORIES Inventories are valued at the lower-of-cost or market. Cost is determined by the dollar value last-in, first-out (LIFO) method. 9 H & L TOOL COMPANY, INC. SUMMARY OF ACCOUNTING POLICIES PROPERTY, Property and equipment are stated at cost. EQUIPMENT AND Depreciation is computed over the estimated useful DEPRECIATION lives of the assets ranging from 3 to 30 years using both straight-line and accelerated methods. REVENUE RECOGNITION The Company recognizes product sales at the time of shipment. RECENT ACCOUNTING The Financial Accounting Standards Board has issued PRONOUNCEMENTS SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets Being Disposed Of," which provides guidance on how and when impairment losses are recognized on long-lived assets. This statement will be adopted November 1, 1996 and will not have a material impact on the Company. 10 H & L TOOL COMPANY, INC. NOTES TO FINANCIAL STATEMENTS 1. SALE OF ASSETS The Company has entered into a purchase and sale agreement to sell substantially all of its operating assets for approximately $19,000,000 in cash and the assumption of certain liabilities. The purchase price is subject to a credit of $4,800,000 in consideration of cash and equivalents which are being retained by H & L Tool Company, Inc. The sale is expected to be finalized in December 1996. 2. INVENTORIES Inventories consisted of the following: September 30, October 31, 1996 1995 Raw material $1,053,777 $1,342,954 Work-in-process 757,261 900,476 Finished goods 368,750 385,918 LIFO reserve (1,000,251) (1,104,302) ----------- ----------- $ 1,179,537 $ 1,525,046 =========== =========== If the first-in, first-out method of inventory valuation had been used by the Company, inventories would have been approximately $1,000,000 and $1,104,000 higher than reported at September 30, 1996 and October 31, 1995, respectively. During the eleven months ended September 30, 1996 and the year ended October 31, 1995, inventory quantities were reduced. This resulted in liquidations of LIFO inventory carried at costs lower than replacement value. The effect of this reduction was to increase net income by approximately $151,000 in 1996 and $51,000 in 1995. 3. LONG-TERM DEBT Long-term debt at October 31, 1995, consisted of a note payable to a bank, payable monthly in installments of $13,889, plus interest at 8.5% per annum. This note was collateralized by specific equipment. The Company repaid this obligation during the eleven months ended September 30, 1996. 11 H & L TOOL COMPANY, INC. NOTES TO FINANCIAL STATEMENTS 4. EMPLOYEE The Company has a profit-sharing plan for the benefit of BENEFIT PLANS all eligible employees. The Company's contribution to the plan, as determined by its board of directors, is discretionary but may not exceed 15% of the annual aggregate compensation, as defined, paid to all participating employees. Provision for profit-sharing expense for the eleven months ended September 30, 1996 and fiscal year ended October 31, 1995 was $407,241 and $476,399, respectively. 5. OPERATING LEASE The Company leases a warehouse facility from its stockholders. The lease, which will be terminated when the sale of assets is finalized (Note 1), requires monthly rental payments of $8,400. The lease also requires that the Company be responsible for insurance, property taxes, and repairs and maintenance on the warehouse. Rent expense amounted to $92,400 for the eleven months ended September 30, 1996 and $100,800 for the fiscal year ended October 31, 1995. 6. MAJOR Sales to three major customers amounted to approximately CUSTOMERS 75% of total sales for the eleven months ended September 30, 1996 and fiscal year ended October 31, 1995. 7. ABSENCE OF A The absence of a provision for taxes on income is due to PROVISION FOR an election made by the Company, with consent of its TAXES ON stockholders, to include the stockholders' respective shares INCOME of the Company's taxable income in their individual tax returns. As a result, no federal tax is imposed on the Company. The Company pays bonuses in October to its affected stockholders to cover their estimated tax liabilities on their respective shares of taxable income. Bonus expense was $1,805,000 and $1,441,000 for the eleven months ended September 30, 1996 and year ended October 31, 1995, respectively. 8. SUPPLEMENTAL Cash paid for interest for the eleven months ended CASH FLOW September 30, 1996 and fiscal year ended October 31, 1995 INFORMATION was $10,790 and $45,638, respectively. 12 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following unaudited pro forma financial statements give effect to the acquisition of certain assets and liabilities of H & L Tool Company, Inc. (H & L) by Chicago Rivet & Machine Co. (the Company) in a transaction accounted for as a purchase. The pro forma financial data are based upon the historical financial statements of H & L and the Company and the assumptions and adjustments described in the notes to the financial data. The pro forma financial data reflect the preliminary allocation of purchase price. The final allocation of purchase price and the resulting depreciation expense will differ from the preliminary allocation since it will reflect the actual closing date asset and liability amounts, as well as any other purchase price adjustments pursuant to the asset purchase agreement. The following unaudited pro forma balance sheet as of September 30, 1996 was prepared as if the acquisition had occurred on that date. The unaudited pro forma statements of income were prepared as if the acquisition had occurred at the beginning of the Company's year ended December 31, 1995, using fiscal year ended October 31, 1995 data for H & L and as if the acquisition had occurred at the beginning of the Company's nine month period ended September 30, 1996, using H & L data for the nine month period ended July 31, 1996. These unaudited pro forma financial statements should be read in conjunction with the historical financial statements and notes thereto of Chicago Rivet & Machine Co. filed with the Company's Form 10-Q for the quarter ended September 30, 1996 and with the Company's Annual Report on From 10-K for the year ended December 31, 1995, as well as with the audited historical financial statements and notes thereto of H & L Tool Company, Inc. appearing elsewhere in this Form 8-K. The unaudited pro forma financial statements do not necessarily reflect the operations of Chicago Rivet & Machine Co. and H & L Tool Company, Inc. as they would have been had the two entities existed as one for the periods shown and the operating results should not be deemed to be indicative of the future operations of the combined entity. The pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable. 13 CHICAGO RIVET & MACHINE CO. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1996 (UNAUDITED) Historical ---------------------------------------- Company Chicago Rivet H & L Tool Combined Adjustments Pro Forma ------------- ---------- ----------- ------------ ----------- Current Assets: Cash $ 6,950,761 $ 4,894,334 $11,845,095 $(10,150,084) (1) $ 1,695,011 Marketable securities 1,662,319 1,942,556 3,604,875 (1,942,556) (1) 1,662,319 Accounts receivable (net of allowances) 2,681,328 3,179,957 5,861,285 --- 5,861,285 Inventories 3,497,701 1,179,537 4,677,238 1,240,038 (2) 5,917,276 Prepaid expenses and other assets 605,413 383,192 988,605 (297,684) (3) 690,921 ----------- ----------- ----------- ------------ ----------- Total Current Assets 15,397,522 11,579,576 26,977,098 (11,150,286) 15,826,812 ----------- ----------- ----------- ------------ ----------- Property, plant and equipment, net 4,971,807 2,016,694 6,988,501 7,423,967 (4) 14,412,468 Goodwill, net of amortization 14,597 --- 14,597 --- 14,597 Other assets 722,951 512,093 1,235,044 (512,093) (5) 722,951 ----------- ----------- ----------- ------------ ----------- Total assets $21,106,877 $14,108,363 $35,215,240 $ (4,238,412) $30,976,828 =========== =========== =========== ============ =========== Current Liabilities: Accounts payable $ 792,170 $ 684,451 $ 1,476,621 $ --- $ 1,476,621 Accrued expense 2,113,401 2,730,914 4,844,315 (2,545,414) (6) 2,298,901 ----------- ----------- ----------- ------------ ----------- Total Current Liabilities 2,905,571 3,415,365 6,320,936 (2,545,414) 3,775,522 ----------- ----------- ----------- ------------ ----------- Deferred Income Taxes 1,031,190 --- 1,031,190 -- 1,031,190 Note Payable --- --- --- 9,000,000 (7) 9,000,000 Shareholders' Equity Common stock 1,171,496 30,000 1,201,496 (30,000) (8) 1,171,496 Additional paid-in-capital 460,252 35,000 495,252 (35,000) (8) 460,252 Retained earnings 15,538,368 10,627,998 26,166,366 (10,627,998) 15,538,368 ----------- ----------- ----------- ------------ ----------- Total Shareholders' Equity 17,170,116 10,692,998 27,863,114 (10,692,998) 17,170,116 ----------- ----------- ----------- ------------ ----------- Total Liabilities and Shareholders' Equity $21,106,877 $14,108,363 $35,215,240 $ (4,238,412) $30,976,828 =========== =========== =========== ============ =========== See accompanying notes 14 CHICAGO RIVET & MACHINE CO. NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1996 (UNAUDITED) The unaudited Pro Forma Balance Sheet gives effect to the following pro forma adjustments: (1) Represents the estimated drawdown of cash required as a source of funds to finance a portion of the acquisition ($5,255,750) and an adjustment for H & L cash retained by seller ($4,894,334) and an adjustment for marketable securities retained by seller ($1,942,556). (2) Represents the estimated write up to fair market value of acquired inventories due to the reversal of H & L's LIFO reserve ($1,000,251) less an adjustment for obsolescence reserve ($140,000) and an additional write up arising from the application of APB Statement No. 16, which management expects will be realized prior to the end of the first quarter of 1997 ($379,787). (3) Reflects an adjustment for assets not acquired. (4) Reflects the estimated adjustment to record the acquired property, plant and equipment at its fair value in accordance with APB No. 16. (5) Represents an adjustment for assets not acquired. (6) Represents an adjustment for liabilities not assumed. (7) Represents the incremental borrowings necessary as a source of funds to finance a portion of the acquisition. The borrowings are pursuant to an unsecured term loan with principal and interest to be paid quarterly over five years at a variable rate of interest that is adjusted subject to changes in the reference rate specified in the loan agreement. The current interest rate associated with this borrowing is 6.30%. (8) Represents the elimination of the historical equity and net assets of H & L in connection with purchase accounting. 15 CHICAGO RIVET & MACHINE CO. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) Historical Adjustments Company ------------------------ ------------ Pro Forma Chicago H & L --------- Rivet Tool --------- ---- Net sales and lease revenue $16,293,372 $15,826,245 $ --- $32,119,617 Cost of goods sold 11,071,626 12,002,384 48,536 (1) 23,122,546 ----------- ----------- -------- ----------- Gross profit 5,221,746 3,823,861 (48,536) 8,997,071 Shipping, selling and administrative 3,673,185 3,400,443 (901,503)(2) 6,172,125 ----------- ----------- -------- ----------- Income from operations 1,548,561 423,418 852,967 2,824,946 ----------- ----------- -------- ----------- Other income 337,068 161,416 (407,214)(3) 91,270 Interest expense ---- (6,531) (425,250)(4) (431,781) ----------- ----------- -------- ----------- Total other income and expense 337,068 154,885 (832,464) (340,511) ----------- ----------- -------- ----------- Income before income taxes 1,885,629 578,303 20,503 2,484,435 Provision for income taxes 720,000 --- 234,000 954,000 ----------- ----------- -------- ----------- Net income $1,165,629 $578,303 $(213,497) $ 1,530,435 =========== =========== ========= =========== Average shares outstanding 585,748 585,748 =========== =========== Net income per share $ 1.99 $ 2.61 =========== =========== See accompanying notes 16 CHICAGO RIVET & MACHINE CO. NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) The unaudited Pro Forma Consolidated Statement of Income gives effect to the following unaudited pro forma adjustments: (1) Includes an adjustment of $123,545 to cost of sales to reflect the removal of H & L's favorable LIFO impact since the Company records inventory on a FIFO basis; elimination of $92,400 in rental expense associated with warehouse facilities that were rented by H & L Tool, but have been purchased by Chicago Rivet; additional depreciation expense of $17,391, assumed to be allocated entirely to cost of sales, resulting from write-up of property, plant and equipment to fair value in accordance with APB No. 16. (2) H & L Tool, with the consent of its stockholders, made an election to include the stockholders' respective shares of H & L's taxable income in their individual tax returns. Accordingly, no federal tax is recorded on the books of H & L. However, H & L paid bonuses to its affected stockholders to cover the estimated tax liabilities on their respective shares of taxable income. In addition, the stockholders who were also employees of H & L were paid additional amounts for services rendered in connection with general management, sales development and sales management. This adjustment gives effect to the estimated saving from the elimination of all amounts previously paid to the stockholders ($2,067,200), the additional expenses associated with the addition of staff to perform certain services previously rendered by the former stockholders and estimated incremental sales and marketing expenses ($1,241,700) and a reduction in expenses associated with assets not purchased by Chicago Rivet ($76,003). (3) Reflects the elimination of interest income of $213,277 reported by H & L on investments in marketable securities and an estimated reduction of $193,937 in interest income earned by Chicago Rivet, due to the use of cash to finance the acquisition. The reduction in interest income assumes that the Company would have earned approximately 4.9%, (which was the average rate of return earned by the Company on investments in marketable securities during 1996) on $5,255,750 of cash that was used as a portion of the funding for the acquisition. (4) Reflects additional interest expense pursuant to a term loan agreement between the Company and Bank of America, NA. The agreement provides for 20 quarterly payments of principal plus interest at a variable rate equal to a reference rate plus 80 basis points. The adjustment of $425,250 is based upon the current rate of 6.30% on the full amount of borrowing. (5) Reflects tax provision, for H & L's pro forma income, before tax, at a rate of 39%, which is approximately equal to the combined statutory federal rate plus an estimate of state income taxes net of federal benefit. 17 CHICAGO RIVET & MACHINE CO. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED) Historical Adjustments ------------------------ ----------- Company Chicago H & L Pro Forma Rivet Tool --------- ----- ---- Net sales and lease revenue $23,717,410 $22,285,744 $ --- $ 46,003,154 Cost of goods sold 15,036,303 16,298,541 (44,575)(1) 31,290,269 ----------- ----------- --------- ------------ Gross profit 8,681,107 5,987,203 44,575 14,712,885 Shipping, selling and administrative 5,347,049 4,232,330 (784,900)(2) 8,794,479 ----------- ----------- --------- ------------ Income from operations 3,334,058 1,754,873 829,475 5,918,406 Other income 311,157 249,729 (475,915)(3) 84,971 Interest expense ---- (39,431) (567,000)(4) (606,431) ----------- ----------- --------- ------------ Total other income and expense 311,157 210,298 (1,042,915) (521,460) ----------- ----------- --------- ------------ Income before income taxes 3,645,215 1,965,171 (213,440) 5,396,946 Provision for income taxes 1,410,000 --- 683,000 (5) 2,093,000 ----------- ----------- ---------- ------------ Net income $ 2,235,215 $ 1,965,171 $ (896,440) $ 3,303,946 =========== =========== ========== =========== Average shares outstanding 585,748 585,748 ======= ======= Net income per share $ 3.81 $ 5.64 =========== =========== See accompanying notes 18 CHICAGO RIVET & MACHINE CO. NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED) The unaudited Pro Forma Consolidated Statement of Income gives effect to the following unaudited pro forma adjustments: (1) Includes elimination of $100,800 in rental expense associated with warehouse facilities that were rented by H & L Tool, but have been purchased by Chicago Rivet; a $51,000 adjustment to cost of sales to reflect the removal of H & L's favorable LIFO impact, since the Company records inventory on a FIFO basis; additional depreciation expense of $5,225, assumed to be allocated entirely to cost of sales, resulting from the write-up of property, plant and equipment to fair value in accordance with APB No. 16. (2) H & L Tool, with the consent of its stockholders, made an election to include the stockholders' respective shares of H & L's taxable income in their individual tax returns. Accordingly, no federal tax is recorded on the books of H & L. However, H & L paid bonuses to its affected stockholders to cover the estimated tax liabilities on their respective shares of taxable income. In addition, the stockholders who were also employees of H & L were paid additional amounts for services rendered in connection with general management, sales development and sales management. This adjustment gives effect to the estimated saving from the elimination of all amounts previously paid to the stockholders ($2,354,900), the additional expenses associated with the addition of staff to perform certain services previously rendered by the former stockholders and estimated incremental sales and marketing expenses ($1,669,000) and a reduction in expenses associated with assets not purchased by Chicago Rivet ($99,000). (3) Reflects the elimination of interest income of $228,369 reported by H & L on investments in marketable securities and an estimated reduction of $247,546 in interest income earned by Chicago Rivet, due to the use of cash to finance the acquisition. The reduction in interest income assumes that the Company would have earned approximately 4.7%, (which was the average rate of return earned by the Company on investments in marketable securities during 1995) on $5,255,750 of cash that was used as a portion of the funding for the acquisition. (4) Reflects additional interest expense pursuant to a term loan agreement between the Company and Bank of America, NA. The agreement provides for 20 quarterly payments of principal plus interest at a variable rate equal to a reference rate plus 80 basis points. The adjustment of $567,000 is based upon the current rate of 6.30% on the full amount of borrowing. 19 (5) Reflects tax provision, for H & L's pro forma income, before tax, at a rate of 39%, which is approximately equal to the combined statutory federal rate plus an estimate of state income taxes net of federal benefit. 20 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CHICAGO RIVET & MACHINE CO. By: /s/ John C. Osterman ---------------------------- Name:John C. Osterman Title: President, Chief Operating Officer and Treasurer Dated: February 14, 1997