-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NdbVoMfPXM3xVPF7lhNm2trmt0Om8vNXiw529ccove5RCcCF1jC+wWnFPnkqwe1a 1DNzEaESfYIfRFdC+Y5E2w== 0000950137-03-001725.txt : 20030326 0000950137-03-001725.hdr.sgml : 20030325 20030326081041 ACCESSION NUMBER: 0000950137-03-001725 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHICAGO RIVET & MACHINE CO CENTRAL INDEX KEY: 0000019871 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 360904920 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-01227 FILM NUMBER: 03616909 BUSINESS ADDRESS: STREET 1: 901 FRONTENAC RD STREET 2: P O BOX 3061 CITY: NAPERVILLE STATE: IL ZIP: 60566 BUSINESS PHONE: 6303578500 MAIL ADDRESS: STREET 1: 901 FRONTENAC RD STREET 2: P O BOX 3061 CITY: NAPERVILLE STATE: IL ZIP: 60566 10-K 1 c75479e10vk.txt ANNUAL REPORT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ------------------------------------ FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-1227
CHICAGO RIVET & MACHINE CO. (Exact Name of Registrant as Specified in Its Charter) Illinois 36-0904920 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 901 Frontenac Road, Naperville, Illinois 60563 (Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (630) 357-8500 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS --------------- Common Stock -- $1.00 Par Value (including Preferred Stock Purchase Rights) NAME OF EACH EXCHANGE ON WHICH REGISTERED -------------------- American Stock Exchange (Trading privileges only, not registered) Securities registered pursuant to Section 12(g) of the Act: None INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ____ INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN EXCHANGE ACT RULE 12B-2). YES ____ NO X THE AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF JUNE 28, 2002 WAS $20,177,327. AS OF FEBRUARY 15, 2003, 966,132 SHARES OF THE REGISTRANT'S COMMON STOCK WERE OUTSTANDING. DOCUMENTS INCORPORATED BY REFERENCE (1) PORTIONS OF THE COMPANY'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 2002 (THE "2002 REPORT") ARE INCORPORATED BY REFERENCE IN PARTS I, II AND IV OF THIS REPORT. (2) PORTIONS OF THE COMPANY'S DEFINITIVE PROXY STATEMENT WHICH IS TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IN CONNECTION WITH THE COMPANY'S 2003 ANNUAL MEETING OF SHAREHOLDERS ARE INCORPORATED BY REFERENCE IN PART III OF THIS REPORT. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CHICAGO RIVET & MACHINE CO. PERIOD ENDING DECEMBER 31, 2002
Item Page No. No. ---- ---- Part I 1. Business 3 2. Properties 4 3. Legal Proceedings 4 4. Submission of Matters to a Vote of Security Holders 4 Part II 5. Market for Registrant's Common Equity and Related Stockholder Matters 6 6. Selected Financial Data 6 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 7a. Quantitative and Qualitative Disclosures About Market Risk 11 8. Financial Statements and Supplementary Data 11 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 11 Part III 10. Directors and Executive Officers of the Registrant 11 11. Executive Compensation 11 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 12 13. Certain Relationships and Related Transactions 12 14. Controls and Procedures 12 Part IV 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 13
2 PART I ITEM 1 - BUSINESS Chicago Rivet & Machine Co. (the Company) was incorporated under the laws of the State of Illinois in December, 1927, as successor to the business of Chicago Rivet & Specialty Co. The Company operates in two segments of the fastener industry: fasteners and assembly equipment. The fastener segment consists of the manufacture and sale of rivets, cold-formed fasteners and parts and screw machine products. The assembly equipment segment consists primarily of the manufacture of automatic rivet setting machines, automatic assembly equipment, parts and tools for such machines, and the leasing of automatic rivet setting machines. For further discussion regarding the Company's operations see Note 10 which appears on page 10 of the Company's 2002 Annual Report to Shareholders. The 2002 Annual Report is filed as an exhibit to this report. The principal market for the Company's products is the North American automotive industry. Sales are solicited by employees and by independent sales representatives. The segments in which the Company operates are characterized by active and substantial competition. No single company dominates the industry. The Company's competitors include both larger and smaller manufacturers, and segments or divisions of large, diversified companies with substantial financial resources. Principal competitive factors in the market for the Company's products are quality, service, reliability and price. The Company serves a variety of customers. Revenues are primarily derived from sales to customers involved, directly or indirectly, in the manufacture of automobiles and automotive components. Information concerning backlog of orders is not considered material to the understanding of the Company's business due to relatively short production cycles. The level of business activity for the Company is closely related to the overall level of industrial activity in the United States. During 2002, sales to two customers exceeded 10% of the Company's consolidated revenues. Sales to TI Group Automotive Systems Corporation accounted for approximately 18% of the Company's consolidated revenues in 2002, 18% in 2001 and 19% in 2000. Sales to Fisher & Company accounted for approximately 17%, 14% and 11% of the Company's consolidated revenues in 2002, 2001, and 2000, respectively. Sales to Purchased Parts Group accounted for approximately 10% of the Company's consolidated revenues in 2001. The Company's business has historically been stronger during the first half of the year. The Company purchases raw materials from a number of sources, primarily within the United States. There are numerous sources of raw materials, and the Company does not have to rely on a single source for any of its requirements. The Company is not aware of any significant problem in the availability of raw materials used in its production. Patents, trademarks, licenses, franchises and concessions are not of significant importance to the business of the Company. The Company does not engage in basic research activities, but rather in ongoing product improvement and development. The amounts spent on product development activities in the last three years were not material. 3 At December 31, 2002, the Company employed 340 people. The Company has no foreign operations, and sales to foreign customers represent only a minor portion of the Company's total sales. ITEM 2 - PROPERTIES The Company conducts its manufacturing and warehousing operations at five plants, which are described below. All five plants are owned by the Company and considered suitable and adequate for their present use. The Company also currently maintains a small sales office in Norwell, Massachusetts in a leased facility. Of the properties described below, the Jefferson, Iowa and the Madison Heights, Michigan facilities are used entirely in the fastener segment. The Albia, Iowa facility is used exclusively in the assembly equipment segment. The Tyrone, Pennsylvania and the Naperville, Illinois facilites are utilized in both operating segments. Plant Locations and Descriptions -------------------------------- Naperville, Illinois Brick, concrete block and partial metal construction with metal roof. Tyrone, Pennsylvania Concrete block with small tapered beam type warehouse. Jefferson, Iowa Steel tapered beam construction. Albia, Iowa Concrete block with prestressed concrete roof construction. Madison Heights, Michigan Concrete, brick and partial metal construction with metal roof. ITEM 3 - LEGAL PROCEEDINGS 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. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of the Company's shareholders during the fourth quarter of 2002. 4 Executive Officers of the Registrant The names, ages and positions of all executive officers of the Company, as of March 26, 2003, are listed below. Officers are elected annually by the Board of Directors at the meeting of the directors immediately following the Annual Meeting of Shareholders. There are no family relationships among these officers, nor any arrangement or understanding between any officer and any other person pursuant to which the officer was selected. Name and Age of Officer Position Years an Officer - -------------------------- -------- ---------------- John A. Morrissey 67 Chairman, Chief 22 Executive Officer John C. Osterman 51 President, Chief Operating 19 Officer and Treasurer Nirendu Dhar 61 General Manager, 2 H & L Tool Company, Inc. Donald P. Long 51 Vice-President Sales 8 Kimberly A. Kirhofer 44 Secretary 12 Michael J. Bourg 40 Controller 4 - - Mr. Morrissey has been Chairman of the Board of Directors of the Company since November 1979, and Chief Executive Officer since August 1981. He has been a director of the Company since 1968. - - Mr. Osterman has been President, Chief Operating Officer and Treasurer of the Company since September 1987. He was Assistant Secretary from November 1983 to May 1985 when he became Assistant Vice President-Administration. He became Vice President-Administration in May 1986 and was named Executive Vice President in May 1987. He has been a director of the Company since May 1988. - - Mr. Dhar has been employed as General Manager of the Company's subsidiary, H & L Tool Company, Inc., since 1996. Mr. Dhar was employed as Plant Manager and Chief Engineer of H & L Tool Company, Inc. prior to the Company's acquisition of H & L Tool Company for more than five years. - - Mr. Long has been Vice President-Sales of the Company since November 1994, and was Director of Sales and Marketing of the Company from March 1993 through November 1994. Prior to that, he was employed by Townsend Engineered Products, a maker of rivets, cold-formed fasteners and rivet setting equipment in various sales management positions for more than 5 years. - - Mrs. Kirhofer has been Secretary of the Company since August 1991, and was Assistant Secretary of the Company from February 1991 through August 1991. Prior to that, she held various administrative positions with the Company since May 1983. - - Mr. Bourg has been Controller of the Company since December 1998. Prior to that, he was Accounting Manager at Fuchs Lubricants Co., a manufacturer of industrial lubricants, for two years and prior to that was employed by the public accounting firm of McGladrey & Pullen, LLP as a public accountant, for more than five years. 5 PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the American Stock Exchange (trading privileges only, not registered). As of December 31, 2002 there were 320 record holders of such stock. The information on the market price of, and dividends paid with respect to, the Company's common stock, set forth in the section entitled "Information on Company's Common Stock" which appears on page 12 of the 2002 Annual Report is incorporated herein by reference. The 2002 Annual Report is filed as an exhibit to this report. ITEM 6 - SELECTED FINANCIAL DATA The section entitled "Selected Financial Data" which appears on page 11 of the 2002 Annual Report is incorporated herein by reference. The 2002 Annual Report is filed as an exhibit to this report. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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; 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. In addition to the disclosures contained herein, readers are also urged to carefully review and consider any risks and uncertainties contained in other documents filed by the Company with the Securities and Exchange Commission. RESULTS OF OPERATIONS For 2002, the Company posted increases in both revenues and net income compared with 2001. The Company's performance is especially gratifying in view of available data indicating the level of industrial production within the manufacturing sector of the domestic economy declined again in 2002. With the notable exception of automobile production, we witnessed little, if any, improvement in conditions within our markets. Despite the fact that operating results improved, our enthusiasm is restrained by the knowledge that while revenues increased overall, gains were customer specific, rather than a broadly based improvement that would suggest the beginning of a sustained rebound. Indeed, while we are pleased to have successfully solicited new customers, and new business from existing customers, we are mindful that our markets continue to be intensely competitive; and, that as global sourcing becomes more widespread, we are also affected by customers' decisions to shift manufacturing to facilities outside of the United States. 6 We continued to benefit from successful efforts to control many cost elements; however, costs of certain items - such as health insurance, and to a lesser extent raw materials - seem to be driven by factors that are beyond our immediate control. Despite the increase in operating levels within the automotive industry in 2002, there were limited opportunities to recover these higher costs by increasing prices. We see no reason to anticipate a meaningful change in this situation in the near future. Our past investments in new equipment have helped offset some of the increase in our costs of operations, while also expanding our capabilities and providing a foundation for the future. 2002 COMPARED TO 2001 Net sales and lease revenues improved approximately 6% compared with 2001 and totaled $43,012,766 in 2002. As discussed below, revenue gains were achieved in both the fastener and assembly equipment segments and the increased volume, coupled with successful efforts to hold the line on costs, translated into improvements in gross margins, which amounted to $10,585,563 for 2002, compared with $9,187,046 recorded in 2001. Within the fastener segment, revenues increased 7%, to $34,991,758, reflecting an overall increase in automobile production. However, it should be noted that our volumes did not increase across our entire customer base. Instead, our overall gain was due to increases in business with certain key customers, bolstered by revenues related to new customers and new products from existing customers. Gross margins within the fastener segment improved to 21.1% in 2002, compared with 19.9% recorded in 2001. This improvement is largely attributable to the effects of higher volumes and increases in efficiency associated with those higher volumes. A number of other factors impacted operations during the year. While we benefited from reductions in tooling costs, those savings were offset by increases in the cost of materials and by a substantial increase in the cost of employee health insurance. Activity levels within the assembly equipment segment remain well below the level that we consider normal. While revenues within the segment improved to $8,021,008 in 2002, compared with $7,738,868 in 2001, the change is attributable to a few large orders and not due to any significant improvement in the market for equipment, which remains adversely affected by a persistent decline in the broad manufacturing sector and the related restraint on capital spending. Nevertheless, gross margins within this segment improved to approximately 40% in 2002 compared with 35% for 2001. This improvement is primarily attributable to higher volumes and reduced labor expense. Selling and administrative expenses increased approximately 3.7% compared with 2001. Both profit sharing and sales commissions increased as a result of higher sales and increased profits. Other factors contributing to the increase include higher salary expense and increased health insurance costs, partially offset by a decrease in the provision for bad debt expense, which was unusually high in the prior year due to the bankruptcy filing of a certain customer. The Company recorded net interest income during 2002 of $4,214, compared with net interest expense of $114,607 in 2001, as a result of lower prevailing interest rates and reduced debt levels. 2001 COMPARED TO 2000 The effect of the recession was apparent in the comparison of revenues and margins between 2001 and 2000. Net sales and lease revenues fell to $40,443,010 in 2001, a decline of 11% compared to 2000. This lower level of operations was the 7 primary factor contributing to the decrease in gross margins, which fell to $9,187,046 for 2001, compared to $11,943,030 reported for 2000. Revenues within the fastener segment declined 8.5% and amounted to $32,704,142 during 2001. This decline stems from the combination of lower volumes for existing business, partially offset by successful efforts to win new business from both new and existing customers. Gross margins within this segment declined from 22.3% in 2000 to 19.9% for 2001. During the year, the Company was able to take advantage of softness within the raw materials market, successfully negotiating price reductions for certain raw materials and supplies. Unfortunately, the positive contribution from those activities was offset by increases in the cost of health insurance and a somewhat higher cost for perishable tooling. Other than those two areas, we were generally successful in reducing our variable costs in a manner consistent with the reduced level of operations. Fixed costs, as would be expected, remained relatively unchanged despite the reduced levels of operations. The domestic metalworking machinery market suffered a significant decline in 2001, with overall activity falling to its lowest level in nearly a decade. These conditions were plainly evident in the results of operations within our assembly equipment segment. Revenues fell to $7,738,868 during 2001, compared to $9,687,564 recorded during 2000. Despite our efforts to reduce costs and manage the negative effects of lower volumes, we were unable to cut costs as quickly and as deeply as demand declined. Because we believe that this downturn is of a cyclical nature, we made a decision to attempt to maintain as much of our skilled workforce as possible, rather than attempt to match volume declines with a wholesale reduction in the workforce. As a result, labor and benefit costs remained at levels somewhat higher than might otherwise be expected, given recent business conditions. On a short-term basis, we view this as the most practical response to what we believe will be a temporary situation. We were able to achieve only limited reductions in fixed costs compared with the prior year. The net result was an overall decline in gross margins, which fell to approximately 35% in 2001, compared to 42% recorded in 2000. Selling and administrative expenses declined significantly compared with the prior year. Successful completion of the first phase of implementation of new data processing systems resulted in a significant reduction in consulting expenses compared with the prior year. In addition, salary and benefit expenses declined significantly due to reductions in headcount, achieved mainly through attrition. Sales commissions and profit sharing expense declined to levels consistent with the lower sales volumes and lower income, respectively. Unfortunately, bad debt expense increased by a net amount of $114,000, mainly due to the third quarter bankruptcy filing of a certain customer. Lower prevailing interest rates, combined with lower debt, resulted in a net interest expense reduction of $61,000. DIVIDENDS The Company paid four regular quarterly dividends of $.18 per share during 2002. In addition, an extra dividend of $.15 per share was paid during the second quarter of 2002, bringing the total dividend distribution to $.87 per share. On February 17, 2003 your Board of Directors declared a regular quarterly dividend of $.18 per share, payable March 20, 2003 to shareholders of record March 5, 2003. This continues the uninterrupted record of consecutive quarterly dividends paid by the Company to its shareholders that extends over 69 years. At that same meeting, the Board declared an extra dividend of $.25 per share, payable April 17, 2003 to shareholders of record on April 4, 2003. 8 MACHINERY AND EQUIPMENT Investments in machinery and equipment totaled $886,009 in 2002. The majority of this investment was related to the fastener segment of our operations. Approximately $567,000 was invested in new equipment directly related to the manufacture of fasteners, with an additional $123,000 expended for equipment related to quality control and finishing operations for the fastener segment. The balance was expended for a variety of miscellaneous items, including material handling, data processing and other equipment. The Company invested approximately $1.4 million in machinery, equipment and building improvements during 2001. The majority of these expenditures were related to the fastener segment of our operations. Specifically, a total of $1.1 million was expended for the purchase of equipment used directly in the manufacture of fasteners and $88,000 was invested in new equipment related to the quality control process in fastener manufacturing. $129,000 was expended in connection with data processing and data communications equipment, $61,000 was spent for building improvements, primarily related to the fastener segment of our business, and the balance was expended for a variety of smaller machinery and equipment, including the manufacture of automatic rivet setting equipment that is leased to our customers. 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 was purchased 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. Depreciation expense amounted to $1,915,726 in 2002, $1,921,703 in 2001, and $1,889,849 in 2000. LIQUIDITY AND CAPITAL RESOURCES At year end, working capital amounted to $12.9 million, an increase of $1.3 million compared with year end 2001. The most significant change in working capital components was the increase in accounts receivable. This increase is due to two factors: higher sales in the latter part of the year in 2002 compared with 2001 and, to a lesser extent, changes in the payment practices of certain customers. As a result, our credit risk is somewhat greater than in the past, but we do not believe that this change in payment practices represents a significant deterioration in the quality of receivables. 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 December 31, 2002, the indebtedness under the term loan was approximately $1.63 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 9 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 and was approximately 2.4% at December 31, 2002. The line of credit was extended through May 31, 2003 and remained unused at December 31, 2002. The loan agreement expires on March 1, 2005, at which time any unpaid principal and interest is due. Management believes that current cash, cash equivalents, operating cash flow and the available line of credit will be sufficient to provide adequate working capital for the foreseeable future. The Company has not entered into, and has no current plans to enter into, any off-balance sheet financing arrangements. The Company has no long-term supply contracts that will have a material impact on liquidity and financial resources. APPLICATION OF CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of revenue and expenses during the reporting period. During interim periods, the Company uses estimated gross profit rates to determine the cost of goods sold for a portion of its operations. Actual results can vary from these estimates, and these estimates are adjusted, as necessary, when actual information is available. The effect of these estimates is described in Note 11. NEW ACCOUNTING STANDARDS The Company's financial statements and financial condition were not, and are not expected to be, materially impacted by 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, permit 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. During 2002, the company purchased 1,000 shares at an average price of $26.98 per share. Cumulative purchases under the current repurchase authorization have amounted to 162,996 shares at an average price of $15.66 per share. 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. OUTLOOK FOR 2003 Much of last year's success was attributable to the surprising strength of the automotive industry. Excluding the automotive sector, domestic manufacturing activity exhibited very little strength during 2002. Some analysts express doubt that the automotive sector can repeat its 2002 performance in 2003. Still, others expect the rest of the manufacturing sector will soon recover from its current weakness, mitigating the effects of a decline in automobile manufacturing. Early indications from customers within our markets suggest that meaningful improvement is still some distance away. Our order levels are approximately the same as they were one year ago, and although our quotation activity has picked up slightly, that increased activity has not yet been translated into increased orders. Margins will likely remain under pressure from the combination of rising costs and customers' expectations that we reduce our prices in order to successfully compete with global producers. In many respects, 2003 seems likely to present many of the same 10 challenges we have faced in the recent past. Fortunately, the company can continue to rely upon highly skilled and dedicated employees who have consistently demonstrated that they are equal to those challenges. We gratefully acknowledge their contributions, as well as the continued loyalty and support of our customers and our shareholders. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Over time, the Company is exposed to market risks arising from changes in interest rates. The Company has not historically used derivative financial instruments. As of December 31, 2002, $1.63 million of floating-rate debt was exposed to changes in interest rates compared to $3.43 million at the prior year end. This exposure was primarily linked to the London Inter-Bank Offering Rate and the lender's prime rate under the Company's term loan. A hypothetical 10% change in these rates would not have had a material effect on the Company's annual earnings. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the sections entitled "Consolidated Financial Statements" and "Financial Statement Schedule" which appear on pages 17 through 20 of this report. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with accountants requiring disclosure herein. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information with respect to the Board of Directors' nominees for directors that is not related to security ownership, which is set forth in the section entitled "Election of Directors" on pages 4 through 7 of the Company's 2003 Proxy Statement, is incorporated herein by reference. The information with regard to compliance with Section 16 (a) of the Exchange Act, which is set forth in the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" on page 8 of the 2003 Proxy Statement, is incorporated herein by reference. The 2003 Proxy Statement is to be filed with the Securities and Exchange Commission in connection with the Company's 2003 Annual Meeting of Shareholders. The information called for with respect to executive officers of the Company is included in Part I of this Report on Form 10-K under the caption "Executive Officers of the Registrant." ITEM 11 - EXECUTIVE COMPENSATION The information set forth in the section entitled "Executive Compensation" which appears on pages 9 through 13 of the Company's 2003 Proxy Statement and the information relating to compensation of directors set forth in the last paragraph of the section entitled "Additional Information Concerning the Board of Directors and Committees" which appears on pages 7 and 8 of the Company's 2003 Proxy Statement is incorporated herein by reference. The 2003 Proxy Statement is to be filed with the Securities and Exchange Commission in connection with the Company's 2003 Annual Meeting of Shareholders. 11 ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS The information set forth in the section entitled "Principal Shareholders" on page 3 of the Company's 2003 Proxy Statement and the information with respect to security ownership of the Company's directors and officers set forth in the section entitled "Security Ownership of Management" on pages 5 through 7 of the Company's 2003 Proxy Statement is incorporated herein by reference. The 2003 Proxy Statement is to be filed with the Securities and Exchange Commission in connection with the Company's 2003 Annual Meeting of Shareholders. The Company does not have any equity compensation plans or arrangements. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information relating to the law firm of Morrissey & Robinson set forth in the last sentence of footnote (2) on page 6 of the Company's 2003 Proxy Statement is incorporated herein by reference. The 2003 Proxy Statement is to be filed with the Securities and Exchange Commission in connection with the Company's 2003 Annual Meeting of Shareholders. ITEM 14 - CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures. The Company's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiary) required to be included in the Company's periodic filings under the Exchange Act. (b) Changes in Internal Controls. Since the Evaluation Date, there have not been any significant changes in the Company's internal controls or in other factors that could significantly affect such controls. 12 PART IV ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report: 1. Financial Statements: See the section entitled "Consolidated Financial Statements" which appears on page 17 of this report. 2. Financial statement schedule and supplementary information required to be submitted. See the section entitled "Financial Statement Schedule" which appears on pages 18 through 20 of this report. 3. Exhibits: See the section entitled "Exhibits" which appears on page 21 of this report. (b) Reports on Form 8-K 1. The Company did not file any reports on Form 8-K during the quarter ended December 31, 2002. 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Chicago Rivet & Machine Co. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Chicago Rivet & Machine Co. By /s/ John C. Osterman -------------------------------- John C. Osterman, President and Chief Operating Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: /s/ John A. Morrissey Chairman of the Board of - ------------------------- Directors, Chief Executive John A. Morrissey Officer and Member of the Executive Committee March 26, 2003 /s/ John C. Osterman President, Chief Operating - ------------------------- Officer, Treasurer (Chief John C. Osterman Financial Officer), Member of the Executive Committee and Director March 26, 2003 /s/ John R. Madden Director, Member of the Executive - ------------------------- Committee and Member of the Audit John R. Madden Committee March 26, 2003 /s/ Walter W. Morrissey Director, Member of Executive - ------------------------- Committee March 26, 2003 Walter W. Morrissey /s/ Michael J. Bourg Controller (Principal Accounting - ------------------------- Officer) March 26, 2003 Michael J. Bourg 14 CERTIFICATIONS I, John A. Morrissey, certify that: 1. I have reviewed this annual report on Form 10-K of Chicago Rivet & Machine Co.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 26, 2003 /s/ John A. Morrissey -------------------------- John A. Morrissey Chief Executive Officer 15 CERTIFICATIONS I, John C. Osterman, certify that: 1. I have reviewed this annual report on Form 10-K of Chicago Rivet & Machine Co.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 26, 2003 /s/ John C. Osterman ------------------------ John C. Osterman Chief Financial Officer 16 CHICAGO RIVET & MACHINE CO. CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements, together with the notes thereto and the report thereon of PricewaterhouseCoopers LLP dated February 21, 2003, appearing on pages 5 to 11 of the accompanying 2002 Annual Report, and the section entitled "Quarterly Financial Data (Unaudited)" appearing on page 12 of the accompanying 2002 Annual Report are incorporated herein by reference. With the exception of the aforementioned information and the information incorporated in Items 1, 5, 6 and 8 herein, the 2002 Annual Report is not to be deemed filed as part of this Form 10-K Annual Report. Consolidated Financial Statements from 2002 Annual Report (Exhibit 13 hereto): Consolidated Balance Sheets (page 5 of 2002 Annual Report) Consolidated Statements of Income (page 6 of 2002 Annual Report) Consolidated Statements of Retained Earnings (page 6 of 2002 Annual Report) Consolidated Statements of Cash Flows (page 7 of 2002 Annual Report) Notes to Consolidated Financial Statements (pages 8, 9, and 10 of 2002 Annual Report) Report of Independent Accountants (page 11 of 2002 Annual Report) Quarterly Financial Data (Unaudited) (page 12 of 2002 Annual Report) 17 FINANCIAL STATEMENT SCHEDULE 2002, 2001 AND 2000 The following financial statement schedule should be read in conjunction with the consolidated financial statements and the notes thereto in the 2002 Annual Report. Financial statement schedules not included herein have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. Page ---- Financial Statement Schedule: Valuation and Qualifying Accounts (Schedule II) 19 Report of Independent Accountants on Financial Statement Schedule 20 18 CHICAGO RIVET & MACHINE CO. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Balance at Additions Balance Beginning Charged to at End Classification of Year Expenses Deductions(1) of Year - -------------- ---------- ---------- ------------- ------- 2002 Allowance for doubtful accounts, returns and allowances $240,000 $ 7,067 $ 7,067 $240,000 2001 Allowance for doubtful accounts, returns and allowances $ 90,000 $172,728 $ 22,728 $240,000 2000 Allowance for doubtful accounts, returns and allowances $ 80,000 $58,993 $ 48,993 $ 90,000
(1) Accounts receivable written off, net of recoveries. 19 Report of Independent Accountants on Financial Statement Schedule To the Board of Directors of Chicago Rivet & Machine Co. Our audits of the consolidated financial statements referred to in our report dated February 21, 2003 appearing in the 2002 Annual Report to Shareholders of Chicago Rivet & Machine Co. (which report and financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Chicago, Illinois February 21, 2003 20 CHICAGO RIVET & MACHINE CO. -------------------------- EXHIBITS INDEX TO EXHIBITS
Exhibit Number Page - ------- ---- 3.1 Articles of Incorporation and Charter. Incorporated by reference to Company's report on Form 10, dated March 30, 1935. 3.2 Certified copy of articles of Amendment to Articles of Incorporation, dated November 4, 1959. Incorporated by reference to Company's report on Form 8-A, dated April 30, 1965. 3.3 Amendment of Articles of Incorporation creating a class of 500,000 shares of no par value preferred stock. Incorporated by reference to Company's report on Form 10-K, dated April 30, 1972. 3.4 Amended and Restated By-Laws, as amended February 19, 2001. Incorporated by reference to the Company's report on Form 10-K, dated March 29, 2001. 3.5 Articles of Incorporation, as amended by the amendment to the Articles of Incorporation, dated August 18, 1997. Incorporated by reference to the Company's report on Form 10-K, dated March 27, 1998. 4.1 Rights Agreement, dated November 22, 1999, between the Company and First Chicago Trust Company of New York as Rights Agent. Incorporated by reference to the Company's report on Form 10-K, dated March 29, 2000. 13* Annual Report to Shareholders for the year ended December 31, 2002. 22 - 38 21 Subsidiaries of the Registrant. 39 99.1 Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 40 99.2 Certification of CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 41 * Only the portions of this exhibit which are specifically incorporated herein by reference shall be deemed to be filed herewith.
21 EX-13 3 c75479exv13.txt ANNUAL REPORT TO SHAREHOLDERS EXHIBIT 13 [CHICAGO RIVET LOGO] Chicago Rivet & Machine Co. 2002 Annual Report [CHICAGO RIVET LETTERHEAD] - -------------------------------------------------------------------------------- HIGHLIGHTS
- ------------------------------------------------------------------------------------------ 2002 2001 2000 - ------------------------------------------------------------------------------------------ NET SALES AND LEASE REVENUE.................... $43,012,766 $40,443,010 $45,423,263 NET INCOME..................................... 2,604,075 1,792,270 2,656,161 NET INCOME PER SHARE........................... 2.69 1.85 2.60 DIVIDENDS PER SHARE............................ .87 .97 1.07 NET CASH PROVIDED BY OPERATING ACTIVITIES...... 4,008,006 5,287,476 4,773,144 EXPENDITURES FOR PROPERTY, PLANT AND EQUIPMENT.................................... 886,009 1,431,698 2,125,189 WORKING CAPITAL................................ 12,874,182 11,616,424 12,001,291 TOTAL SHAREHOLDERS' EQUITY..................... 24,109,105 22,372,924 21,518,773 COMMON SHARES OUTSTANDING AT YEAR END.......... 966,132 967,132 967,132 SHAREHOLDERS' EQUITY PER COMMON SHARE.......... 24.95 23.13 22.25
ANNUAL MEETING The annual meeting of shareholders will be held on May 13, 2003 at 10:00 a.m. at 901 Frontenac Road Naperville, Illinois 60566 - -------------------------------------------------------------------------------- MANAGEMENT'S REPORT ON FINANCIAL CONDITION AND RESULTS OF OPERATIONS [CHIGAGO RIVET LOGO] - -------------------------------------------------------------------------------- TO OUR SHAREHOLDERS: RESULTS OF OPERATIONS For 2002, the Company posted increases in both revenues and net income compared with 2001. The Company's performance is especially gratifying in view of available data indicating the level of industrial production within the manufacturing sector of the domestic economy declined again in 2002. With the notable exception of automobile production, we witnessed little, if any, improvement in conditions within our markets. Despite the fact that operating results improved, our enthusiasm is restrained by the knowledge that while revenues increased overall, gains were customer specific, rather than a broadly based improvement that would suggest the beginning of a sustained rebound. Indeed, while we are pleased to have successfully solicited new customers, and new business from existing customers, we are mindful that our markets continue to be intensely competitive; and, that as global sourcing becomes more widespread, we are also affected by customers' decisions to shift manufacturing to facilities outside of the United States. We continued to benefit from successful efforts to control many cost elements; however, costs of certain items -- such as health insurance, and to a lesser extent raw materials -- seem to be driven by factors that are beyond our immediate control. Despite the increase in operating levels within the automotive industry in 2002, there were limited opportunities to recover these higher costs by increasing prices. We see no reason to anticipate a meaningful change in this situation in the near future. Our past investments in new equipment have helped offset some of the increase in our costs of operations, while also expanding our capabilities and providing a foundation for the future. We closed last year's report by expressing the sentiment that we were glad to have left 2001 behind us, and we were looking forward to a better year in 2002. While our results certainly improved in 2002 compared with 2001, our anticipation of a broader manufacturing recovery was not realized. 2002 COMPARED TO 2001 Net sales and lease revenues improved approximately 6% compared with 2001 and totaled $43,012,766 in 2002. As discussed below, revenue gains were achieved in both the fastener and assembly equipment segments and the increased volume, coupled with successful efforts to hold the line on costs, translated into improvements in gross margins, which amounted to $10,585,563 for 2002, compared with $9,187,046 recorded in 2001. Within the fastener segment, revenues increased 7%, to $34,991,758, reflecting an overall increase in automobile production. However, it should be noted that our volumes did not increase across our entire customer base. Instead, our overall gain was due to increases in business with certain key customers, bolstered by revenues related to new customers and new products from existing customers. Gross margins within the fastener segment improved to 21.1% in 2002, compared with 19.9% recorded in 2001. This improvement is largely attributable to the effects of higher volumes and increases in efficiency associated with those higher volumes. A number of other factors impacted operations during the year. While we benefited from reductions in tooling costs, those savings were offset by increases in the cost of materials and by a substantial increase in the cost of employee health insurance. Activity levels within the assembly equipment segment remain well below the level that we consider normal. While revenues within the segment improved to $8,021,008 in 2002, compared with $7,738,868 in 2001, the change is attributable to a few large orders and not due to any significant improvement in the market for equipment, which remains adversely affected by a persistent decline in the broad manufacturing sector and the related restraint on capital spending. Nevertheless, gross margins within this segment improved to approximately 40% in 2002 compared with 35% for 2001. This improvement is primarily attributable to higher volumes and reduced labor expense. Selling and administrative expenses increased approximately 3.7% compared with 2001. Both profit sharing and sales commissions increased as a result of higher sales and increased profits. Other factors contributing to the increase include higher salary expense and increased health insurance costs, partially offset by a decrease in the provision for bad debt expense, which was unusually high in the prior year due to the bankruptcy filing of a certain customer. The Company recorded net interest income during 2002 of $4,214, compared with net interest expense of $114,607 in 2001, as a result of lower prevailing interest rates and reduced debt levels. 2001 COMPARED TO 2000 The effect of the recession was apparent in the comparison of revenues and margins between 2001 and 2000. Net sales and lease revenues fell to $40,443,010 in 2001, a decline of 11% compared to 2000. This lower level of operations was the primary factor contributing to the decrease in gross margins, which fell to $9,187,046 for 2001, compared to $11,943,030 reported for 2000. Revenues within the fastener segment declined 8.5% and amounted to $32,704,142 during 2001. This decline stems from the combination of lower volumes for existing business, partially offset by successful efforts to win new business from both new and existing customers. Gross margins within this segment declined from 22.3% in 2000 to 19.9% for 2001. During the year, the Company was able to - -------------------------------------------------------------------------------- 1 MANAGEMENT'S REPORT (Continued) - -------------------------------------------------------------------------------- take advantage of softness within the raw materials market, successfully negotiating price reductions for certain raw materials and supplies. Unfortunately, the positive contribution from those activities was offset by increases in the cost of health insurance and a somewhat higher cost for perishable tooling. Other than those two areas, we were generally successful in reducing our variable costs in a manner consistent with the reduced level of operations. Fixed costs, as would be expected, remained relatively unchanged despite the reduced levels of operations. The domestic metalworking machinery market suffered a significant decline in 2001, with overall activity falling to its lowest level in nearly a decade. These conditions were plainly evident in the results of operations within our assembly equipment segment. Revenues fell to $7,738,868 during 2001, compared to $9,687,564 recorded during 2000. Despite our efforts to reduce costs and manage the negative effects of lower volumes, we were unable to cut costs as quickly and as deeply as demand declined. Because we believe that this downturn is of a cyclical nature, we made a decision to attempt to maintain as much of our skilled workforce as possible, rather than attempt to match volume declines with a wholesale reduction in the workforce. As a result, labor and benefit costs remained at levels somewhat higher than might otherwise be expected, given recent business conditions. On a short-term basis, we view this as the most practical response to what we believe will be a temporary situation. We were able to achieve only limited reductions in fixed costs compared with the prior year. The net result was an overall decline in gross margins, which fell to approximately 35% in 2001, compared to 42% recorded in 2000. Selling and administrative expenses declined significantly compared with the prior year. Successful completion of the first phase of implementation of new data processing systems resulted in a significant reduction in consulting expenses compared with the prior year. In addition, salary and benefit expenses declined significantly due to reductions in headcount, achieved mainly through attrition. Sales commissions and profit sharing expense declined to levels consistent with the lower sales volumes and lower income, respectively. Unfortunately, bad debt expense increased by a net amount of $114,000, mainly due to the third quarter bankruptcy filing of a certain customer. Lower prevailing interest rates, combined with lower debt, resulted in a net interest expense reduction of $61,000. DIVIDENDS The Company paid four regular quarterly dividends of $.18 per share during 2002. In addition, an extra dividend of $.15 per share was paid during the second quarter of 2002, bringing the total dividend distribution to $.87 per share. On February 17, 2003 your Board of Directors declared a regular quarterly dividend of $.18 per share, payable March 20, 2003 to shareholders of record March 5, 2003. This continues the uninterrupted record of consecutive quarterly dividends paid by the Company to its shareholders that extends over 69 years. At that same meeting, the Board declared an extra dividend of $.25 per share, payable April 17, 2003 to shareholders of record on April 4, 2003. MACHINERY AND EQUIPMENT Investments in machinery and equipment totaled $886,009 in 2002. The majority of this investment was related to the fastener segment of our operations. Approximately $567,000 was invested in new equipment directly related to the manufacture of fasteners, with an additional $123,000 expended for equipment related to quality control and finishing operations for the fastener segment. The balance was expended for a variety of miscellaneous items, including material handling, data processing and other equipment. The Company invested approximately $1.4 million in machinery, equipment and building improvements during 2001. The majority of these expenditures were related to the fastener segment of our operations. Specifically, a total of $1.1 million was expended for the purchase of equipment used directly in the manufacture of fasteners and $88,000 was invested in new equipment related to the quality control process in fastener manufacturing. $129,000 was expended in connection with data processing and data communications equipment, $61,000 was spent for building improvements, primarily related to the fastener segment of our business, and the balance was expended for a variety of smaller machinery and equipment, including the manufacture of automatic rivet setting equipment that is leased to our customers. 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 was purchased 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. Depreciation expense amounted to $1,915,726 in 2002, $1,921,703 in 2001, and $1,889,849 in 2000. - -------------------------------------------------------------------------------- 2 MANAGEMENT'S REPORT (Continued) [CHIGAGO RIVET LOGO] - -------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES At year end, working capital amounted to $12.9 million, an increase of $1.3 million compared with year end 2001. The most significant change in working capital components was the increase in accounts receivable. This increase is due to two factors: higher sales in the latter part of the year in 2002 compared with 2001 and, to a lesser extent, changes in the payment practices of certain customers. As a result, our credit risk is somewhat greater than in the past, but we do not believe that this change in payment practices represents a significant deterioration in the quality of receivables. 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 December 31, 2002, the indebtedness under the term loan was approximately $1.63 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 and was approximately 2.4% at December 31, 2002. The line of credit was extended through May 31, 2003 and remained unused at December 31, 2002. The loan agreement expires on March 1, 2005, at which time any unpaid principal and interest is due. Management believes that current cash, cash equivalents, operating cash flow and the available line of credit will be sufficient to provide adequate working capital for the foreseeable future. The Company has not entered into, and has no current plans to enter into, any off-balance sheet financing arrangements. The Company has no long-term supply contracts that will have a material impact on liquidity and financial resources. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Over time, the Company is exposed to market risks arising from changes in interest rates. The Company has not historically used derivative financial instruments. As of December 31, 2002, $1.63 million of floating-rate debt was exposed to changes in interest rates compared to $3.43 million at the prior year end. This exposure was primarily linked to the London Inter-Bank Offering Rate and the lender's prime rate under the Company's term loan. A hypothetical 10% change in these rates would not have had a material effect on the Company's annual earnings. APPLICATION OF CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of revenue and expenses during the reporting period. During interim periods, the Company uses estimated gross profit rates to determine the cost of goods sold for a portion of its operations. Actual results can vary from these estimates, and these estimates are adjusted, as necessary, when actual information is available. The effect of these estimates is described in Note 11. NEW ACCOUNTING STANDARDS The Company's financial statements and financial condition were not, and are not expected to be, materially impacted by 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, permit 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. During 2002, the company purchased 1,000 shares at an average price of $26.98 per share. Cumulative purchases under the current repurchase authorization have amounted to 162,996 shares at an average price of $15.66 per share. 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. OUTLOOK FOR 2003 Much of last year's success was attributable to the surprising strength of the automotive industry. Excluding the automotive sector, domestic manufacturing activity exhibited very little strength during 2002. Some analysts express doubt that the automotive sector can repeat its 2002 performance in 2003. Still, others expect the rest of the manufacturing sector will soon recover from its current weakness, mitigating the effects of a decline in automobile manufacturing. Early - -------------------------------------------------------------------------------- 3 MANAGEMENT'S REPORT (Continued) - -------------------------------------------------------------------------------- indications from customers within our markets suggest that meaningful improvement is still some distance away. Our order levels are approximately the same as they were one year ago, and although our quotation activity has picked up slightly, that increased activity has not yet been translated into increased orders. Margins will likely remain under pressure from the combination of rising costs and customers' expectations that we reduce our prices in order to successfully compete with global producers. In many respects, 2003 seems likely to present many of the same challenges we have faced in the recent past. Fortunately, the company can continue to rely upon highly skilled and dedicated employees who have consistently demonstrated that they are equal to those challenges. We gratefully acknowledge their contributions, as well as the continued loyalty and support of our customers and our shareholders. Respectfully, /s/ J. A. MORRISSEY /s/ JOHN C. OSTERMAN John A. Morrissey John C. Osterman Chairman President
February 21, 2003 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; 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. - -------------------------------------------------------------------------------- 4 [CHICAGO RIVET LOGO] - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------- December 31 2002 2001 - ----------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and Cash Equivalents................................. $ 2,204,430 $ 4,692,999 Certificates of Deposit................................... 3,157,733 177,882 Accounts Receivable--Less allowances of $240,000.......... 4,994,697 3,995,148 Inventories............................................... 6,089,941 6,050,668 Deferred Income Taxes..................................... 581,191 607,191 Other Current Assets...................................... 277,983 335,590 ----------- ----------- Total Current Assets...................................... 17,305,975 15,859,478 Net Property, Plant and Equipment........................... 12,782,198 13,818,535 ----------- ----------- Total Assets................................................ $30,088,173 $29,678,013 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current Portion of Note Payable........................... $ 1,632,760 $ 1,800,000 Accounts Payable.......................................... 1,121,195 929,634 Accrued Wages and Salaries................................ 795,920 751,582 Contributions Due Profit Sharing Plan..................... 435,542 294,986 Other Accrued Expenses.................................... 397,634 384,110 Federal and State Income Taxes Payable.................... 48,742 82,742 ----------- ----------- Total Current Liabilities................................. 4,431,793 4,243,054 Note Payable................................................ -- 1,632,760 Deferred Income Taxes....................................... 1,547,275 1,429,275 ----------- ----------- Total Liabilities......................................... 5,979,068 7,305,089 ----------- ----------- 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......................................... 26,445,973 24,682,816 Treasury Stock, 171,964 and 170,964 Shares at cost, respectively........................................... (3,922,098) (3,895,122) ----------- ----------- Total Shareholders' Equity................................ 24,109,105 22,372,924 ----------- ----------- Total Liabilities and Shareholders' Equity.................. $30,088,173 $29,678,013 =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 5 [CHICAGO RIVET LOGO] - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME
- ----------------------------------------------------------------------------------------------- For the Years Ended December 31 2002 2001 2000 - ----------------------------------------------------------------------------------------------- Net Sales and Lease Revenue....................... $43,012,766 $40,443,010 $45,423,263 Cost of Goods Sold and Costs Related to Lease Revenue......................................... 32,427,203 31,255,964 33,480,233 ----------- ----------- ----------- Gross Profit...................................... 10,585,563 9,187,046 11,943,030 Selling and Administrative Expenses............... 6,674,821 6,439,603 7,801,089 Other (Income) Expense, net....................... (50,333) 56,173 155,780 ----------- ----------- ----------- Income Before Income Taxes........................ 3,961,075 2,691,270 3,986,161 Provision for Income Taxes........................ 1,357,000 899,000 1,330,000 ----------- ----------- ----------- Net Income........................................ $ 2,604,075 $ 1,792,270 $ 2,656,161 =========== =========== =========== Net Income Per Share.............................. $ 2.69 $ 1.85 $ 2.60 =========== =========== ===========
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Retained Earnings at Beginning of Year............ $24,682,816 $23,828,665 $22,302,048 Net Income........................................ 2,604,075 1,792,270 2,656,161 Cash Dividends Paid, $.87 Per Share in 2002, $.97 Per Share in 2001 and $1.07 Per Share in 2000... (840,918) (938,119) (1,129,544) ----------- ----------- ----------- Retained Earnings at End of Year.................. $26,445,973 $24,682,816 $23,828,665 =========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 6 [CHIGAGO RIVET LOGO] - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------------------------- For the Years Ended December 31 2002 2001 2000 --------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net Income................................................ $ 2,604,075 $ 1,792,270 $ 2,656,161 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization........................... 1,915,726 1,921,703 1,889,849 Net Gain on the Sale of Properties...................... (30,559) (42,917) (2,439) Deferred Income Taxes................................... 144,000 154,000 45,000 Changes in Operating Assets and Liabilities: Accounts Receivable, net.............................. (999,549) 1,042,083 1,644,428 Inventories........................................... (39,273) 1,153,516 (280,463) Other Current Assets.................................. 57,607 (143,922) 54,329 Accounts Payable...................................... 191,561 (135,927) (372,586) Accrued Wages and Salaries............................ 44,338 (1,995) (39,029) Accrued Profit Sharing Plan Contributions............. 140,556 (142,090) (231,977) Other Accrued Expenses................................ 13,524 (390,864) 174,401 Income Taxes Payable.................................. (34,000) 81,619 (764,530) ----------- ----------- ----------- Net Cash Provided by Operating Activities........ 4,008,006 5,287,476 4,773,144 ----------- ----------- ----------- Cash Flows from Investing Activities: Capital Expenditures.................................... (886,009) (1,431,698) (2,125,189) Proceeds from the Sale of Properties.................... 37,179 57,894 22,225 Proceeds from Held-to-Maturity Securities............... 3,007,882 3,815,989 2,506,327 Purchases of Held-to-Maturity Securities................ (5,987,733) (2,563,985) (3,383,619) ----------- ----------- ----------- Net Cash Used in Investing Activities............ (3,828,681) (121,800) (2,980,256) ----------- ----------- ----------- 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............................. (26,976) -- (3,895,122) Cash Dividends Paid..................................... (840,918) (938,119) (1,129,544) ----------- ----------- ----------- Net Cash Used in Financing Activities............ (2,667,894) (2,738,119) (2,941,906) ----------- ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents...... (2,488,569) 2,427,557 (1,149,018) Cash and Cash Equivalents: Beginning of Year....................................... 4,692,999 2,265,442 3,414,460 ----------- ----------- ----------- End of Year............................................. $ 2,204,430 $ 4,692,999 $ 2,265,442 =========== =========== =========== Cash Paid During the Year for: Income Taxes............................................ $ 1,247,000 $ 663,381 $ 2,049,530 Interest................................................ $ 79,708 $ 354,649 $ 288,769
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 7 [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 on the basis of terms that are customary within our markets to various companies doing business primarily in the automotive industry. 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--The Company reports segment information in accordance with Statement of Financial Accounting Standards No. 131 ("FAS 131"), "Disclosures about Segments of an Enterprise and Related Information." FAS 131 requires that segments be based on the internal structure and reporting of the Company's operations. NET INCOME PER SHARE--Net income per share of common stock is based on the weighted average number of shares outstanding of 966,537 in 2002, 967,132 in 2001 and 1,022,627 in 2000. 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. - -------------------------------------------------------------------------------- 8 [CHIGAGO RIVET LOGO] - -------------------------------------------------------------------------------- 2--BALANCE SHEET DETAILS
2002 2001 ------------ ------------ Inventories: Raw materials................. $ 1,636,216 $ 1,649,051 Work in process............... 1,818,106 1,766,068 Finished goods................ 2,635,619 2,635,549 ----------- ----------- $ 6,089,941 $ 6,050,668 =========== =========== Net Property, Plant and Equipment: Land and improvements......... $ 1,010,595 $ 1,010,595 Buildings and improvements.... 5,743,325 5,738,460 Production equipment, leased machines and other.......... 27,774,278 27,958,777 ----------- ----------- 34,528,198 34,707,832 Accumulated depreciation........ 21,746,000 20,889,297 ----------- ----------- $12,782,198 $13,818,535 =========== =========== Other Accrued Expenses: Property taxes................ $ 116,837 $ 120,189 Unearned revenue and customer deposits.................... 140,390 99,733 All other items............... 140,407 164,188 ----------- ----------- $ 397,634 $ 384,110 =========== ===========
3--LEASED MACHINES--Lease revenue amounted to $198,869 in 2002, $225,948 in 2001 and $246,940 in 2000. 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:
2002 2001 --------- --------- Cost.................................. $450,717 $506,208 Accumulated depreciation.............. 422,828 465,884 -------- -------- Carrying value........................ $ 27,889 $ 40,324 ======== ========
4--INCOME TAXES--The provision for income tax expense consists of the following:
2002 2001 2000 ----------- --------- ----------- Current: Federal................. $ 1,203,000 $ 739,000 $ 1,271,000 State................... 10,000 6,000 14,000 Deferred.................. 144,000 154,000 45,000 ----------- --------- ----------- $ 1,357,000 $ 899,000 $ 1,330,000 =========== ========= ===========
The deferred tax liabilities and assets consist of the following:
2002 2001 ------------ ------------ Depreciation.................... $(1,560,005) $(1,444,861) ----------- ----------- Inventory....................... 311,911 329,485 Accrued vacation................ 170,292 175,866 Allowance for doubtful accounts...................... 83,800 83,800 Other, net...................... 27,918 33,626 ----------- ----------- 593,921 622,777 ----------- ----------- $ (966,084) $ (822,084) =========== ===========
The following is a reconciliation of the statutory federal income tax rate to the actual effective tax rate:
2002 2001 2000 ----------------- --------------- ----------------- AMOUNT % AMOUNT % AMOUNT % ----------------- --------------- ----------------- Expected tax at U.S. Statutory rate.............. $1,347,000 34.0 $915,000 34.0 $1,355,000 34.0 State taxes, net of federal benefit 7,000 .2 4,000 .1 9,000 .2 Other, net................... 3,000 .1 5,000 .2 5,000 .1 Adjustment to prior year accrual..................... -- -- (25,000) (.9) (39,000) (.9) ---------- ---- -------- ---- ---------- ---- Income tax expense........... $1,357,000 34.3 $899,000 33.4 $1,330,000 33.4 ========== ==== ======== ==== ========== ====
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 a "Dutch auction." As of December 31, 2002, total indebtedness under the term loan was $1,632,760. 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 2.4% at December 31, 2002. This note is subject to the maintenance of certain financial covenants, including net worth, funded debt ratio and debt coverage ratio. The line of credit was extended through May 31, 2003 and remained unused at December 31, 2002. The loan agreement expires on March 1, 2005, at which time any unpaid principal and interest is due. 6--TREASURY STOCK TRANSACTIONS--In 2002, the Company purchased 1,000 shares of its common stock for $26,976 and in 2000, 170,964 shares were purchased for $3,895,122. These shares are being held in treasury. During 2001, no shares were purchased. 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--PROFIT SHARING PLAN--The Company has a noncontributory profit sharing plan covering substantially all employees. Total expenses relating to the profit sharing plan amounted to approximately $435,000 in 2002, $295,000 in 2001 and $437,000 in 2000. - -------------------------------------------------------------------------------- 9 [CHIGAGO RIVET LOGO] - -------------------------------------------------------------------------------- 9--OTHER INCOME (EXPENSE), NET--consists of the following:
2002 2001 2000 --------- ---------- ---------- Interest income............ $ 83,770 $ 145,233 $ 202,915 Interest expense........... (79,556) (259,840) (378,640) Gain on sale of property and equipment............ 30,559 42,917 2,439 Other...................... 15,560 15,517 17,506 --------- ---------- ---------- $ 50,333 $ (56,173) $ (155,780) ========= ========== ==========
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, 2002: Net sales and lease revenue................ $34,991,758 $8,021,008 $ -- $43,012,766 Depreciation............ 1,474,228 217,665 223,833 1,915,726 Segment profit.......... 4,499,657 2,325,353 -- 6,825,010 Selling and administrative expenses............... 2,868,149 2,868,149 Interest expense........ 79,556 79,556 Interest income......... (83,770) (83,770) ----------- Income before income taxes.................. 3,961,075 ----------- Capital expenditures.... 790,261 13,446 82,302 886,009 Segment assets: Accounts receivable.... 4,115,988 878,709 -- 4,994,697 Inventory.............. 3,874,804 2,215,137 -- 6,089,941 Property, plant and equipment............ 10,054,327 1,530,960 1,196,911 12,782,198 Other assets........... -- -- 6,221,337 6,221,337 ----------- 30,088,173 ----------- YEAR ENDED DECEMBER 31, 2001: Net sales and lease revenue................ $32,704,142 $7,738,868 $ -- $40,443,010 Depreciation............ 1,446,254 242,517 232,932 1,921,703 Segment profit.......... 3,892,772 1,860,559 -- 5,753,331 Selling and administrative expenses............... 2,947,454 2,947,454 Interest expense........ 259,840 259,840 Interest income......... (145,233) (145,233) ----------- Income before income taxes.................. 2,691,270 ----------- Capital expenditures.... 1,283,566 17,209 130,923 1,431,698 Segment assets: Accounts receivable.... 3,276,948 718,200 -- 3,995,148 Inventory.............. 3,636,677 2,413,991 -- 6,050,668 Property, plant and equipment............ 10,741,793 1,737,603 1,339,139 13,818,535 Other assets........... -- -- 5,813,662 5,813,662 ----------- 29,678,013 -----------
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: Accounts receivable.... 3,844,195 1,193,036 -- 5,037,231 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........... -- -- 4,592,187 4,592,187 ----------- 31,157,119 -----------
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 accounts receivable, 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 18, 18 and 19 percent and 17, 14 and 11 percent of consolidated revenues during 2002, 2001 and 2000, respectively. Sales to a third customer amounted to 10 percent in 2001. 11--OTHER UNUSUAL ITEMS OF INCOME AND EXPENSE-- During interim periods, the Company uses estimated gross profit rates to determine the cost of goods sold for a portion of its operations. Actual results can vary from these estimates, and these estimates are adjusted, as necessary, when actual information is available. Fourth quarter net income includes the net favorable (unfavorable) effect of certain adjustments related to inventory and certain accruals of $.01, $(.02) and $.10 per share, for 2002, 2001 and 2000, respectively. 12--COMMITMENTS AND CONTINGENCIES--The Company recorded rent expense aggregating approximately $41,000, $40,000 and $36,000 for 2002, 2001 and 2000, respectively. Total future minimum rentals at December 31, 2002 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. - -------------------------------------------------------------------------------- 10 [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, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 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. /s/ PricewaterhouseCoopers LLP Chicago, Illinois February 21, 2003 SELECTED FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------- Net Sales and Lease Revenue $43,012,766 $40,443,010 $45,423,263 $49,080,257 $44,938,184 - ------------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 3,961,075 2,691,270 3,986,161 5,229,291 5,077,480 - ------------------------------------------------------------------------------------------------------------------------------- Net Income 2,604,075 1,792,270 2,656,161 3,454,291 3,360,480 - ------------------------------------------------------------------------------------------------------------------------------- Net Income Per Share 2.69 1.85 2.60 3.00 2.90 - ------------------------------------------------------------------------------------------------------------------------------- Dividends Per Share .87 .97 1.07 1.07 1.12 - ------------------------------------------------------------------------------------------------------------------------------- Average Common Shares Outstanding 966,537 967,132 1,022,627 1,151,333 1,159,360 - ------------------------------------------------------------------------------------------------------------------------------- Working Capital 12,874,182 11,616,424 12,001,291 12,447,590 12,302,179 - ------------------------------------------------------------------------------------------------------------------------------- Total Debt 1,632,760 3,432,760 5,232,760 3,150,000 4,950,000 - ------------------------------------------------------------------------------------------------------------------------------- Total Assets 30,088,173 29,678,013 31,157,119 32,621,585 31,815,781 - ------------------------------------------------------------------------------------------------------------------------------- Shareholders' Equity 24,109,105 22,372,924 21,518,773 23,887,278 22,012,659 - -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 11 [CHIGAGO RIVET LOGO] - -------------------------------------------------------------------------------- QUARTERLY FINANCIAL DATA (UNAUDITED)
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ----------- ----------- ----------- ----------- 2002 Net Sales and Lease Revenue............. $10,452,326 $12,437,856 $ 9,832,012 $10,290,572 Gross Profit......... 2,575,805 3,116,223 2,280,903 2,612,632 Net Income........... 625,116 902,589 435,015 641,355 Per Share Data: Net Income Per Share............. .65 .93 .45 .66 Average Common Shares Outstanding....... 967,132 966,768 966,132 966,132 2001 Net Sales and Lease Revenue............. $10,627,831 $11,216,249 $ 9,398,572 $ 9,200,358 Gross Profit......... 2,249,917 2,819,622 2,330,542 1,786,965 Net Income........... 339,241 737,438 426,996 288,595 Per Share Data: Net Income Per Share............. .35 .76 .44 .30 Average Common Shares Outstanding....... 967,132 967,132 967,132 967,132 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
INFORMATION ON COMPANY'S COMMON STOCK The Company's common stock is traded on the American Stock Exchange. The ticker symbol is: CVR At December 31, 2002, there were approximately 320 shareholders of record The transfer agent and registrar for the Company's common stock is EquiServe Trust Company, N.A. The following table 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 2002 2001 2002 2001 - --------------------- ---- ---- ---------------- ---------------- First................ $.33* $.43* $28.80 $22.70 $21.50 $16.50 Second............... .18 .18 $28.80 $25.65 $19.70 $18.70 Third................ .18 .18 $26.60 $23.50 $22.75 $19.00 Fourth............... .18 .18 $26.66 $22.40 $22.90 $20.00
- --------------- * Includes an extra dividend of $.15 and $.25 per share in 2002 and 2001, respectively. - -------------------------------------------------------------------------------- 12 [CHIGAGO RIVET LETTERHEAD] - -------------------------------------------------------------------------------- BOARD OF DIRECTORS EDWARD L. CHOTT(a) Chairman and Chief Executive Officer of The Broaster Co. Beloit, Wisconsin NIRENDU DHAR General Manager of H & L Tool Company, Inc. WILLIAM T. DIVANE, JR.(a)(c) Chairman of the Board and Chief Executive Officer of Divane Bros. Electric Co. Franklin Park, Illinois JOHN R. MADDEN(a)(c)(e) Chairman of the Board of The First National Bank of La Grange La Grange, Illinois JOHN A. MORRISSEY(e) Chairman of the Board of the Company President and Director of Algonquin State Bank Algonquin, Illinois WALTER W. MORRISSEY(c)(e) Attorney at Law Morrissey & Robinson Oakbrook Terrace, Illinois JOHN C. OSTERMAN(e) President of the Company CORPORATE OFFICERS JOHN A. MORRISSEY Chairman, Chief Executive Officer JOHN C. OSTERMAN President, Chief Operating Officer and Treasurer NIRENDU DHAR General Manager of H & L Tool Company, Inc. DONALD P. LONG Vice President-Sales KIMBERLY A. KIRHOFER Secretary MICHAEL J. BOURG Corporate Controller CHICAGO RIVET & MACHINE CO. ADMINISTRATIVE & SALES OFFICES Naperville, Illinois Norwell, Massachusetts MANUFACTURING FACILITIES Albia Division Albia, Iowa Jefferson Division Jefferson, Iowa Tyrone Division Tyrone, Pennsylvania H & L Tool Company, Inc. Madison Heights, Michigan WEB SITE www.chicagorivet.com (a) Member of Audit Committee (c) Member of Compensation Committee (e) Member of Executive Committee - -------------------------------------------------------------------------------- [CHICAGO RIVET GRAPHIC & LETTERHEAD] - -------------------------------------------------------------------------------- EX-21 4 c75479exv21.txt SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 CHICAGO RIVET & MACHINE CO. SUBSIDIARIES OF THE REGISTRANT The Company's only subsidiary is H & L Tool Company, Inc., which is wholly-owned and is organized in the State of Illinois. 39 EX-99.1 5 c75479exv99w1.txt CERTIFICATION OF CEO EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Chicago Rivet & Machine Co. (the "Company") for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John A. Morrissey, as Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ John A. Morrissey - ----------------------------- Name: John A. Morrissey Title: Chief Executive Officer Date: March 26, 2003 This certification accompanies the Report pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of ss.18 of the Securities Exchange Act of 1934, as amended. 40 EX-99.2 6 c75479exv99w2.txt CERTIFICATION OF CFO EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Chicago Rivet & Machine Co. (the "Company") for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John C. Osterman, as Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ John C. Osterman - --------------------------- Name: John C. Osterman Title: Chief Financial Officer Date: March 26, 2003 This certification accompanies the Report pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of ss.18 of the Securities Exchange Act of 1934, as amended. 41 -----END PRIVACY-ENHANCED MESSAGE-----