-----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, Ggm5MEKMQr0S+6TEV0Ad0sy4Nt9eBg9p8pRGx+fNuXLkwWcciMebGBbLDLs+E+g1 +dFeu1kwaWyUVcrLsf/M7g== 0000950137-04-002276.txt : 20040329 0000950137-04-002276.hdr.sgml : 20040329 20040329090439 ACCESSION NUMBER: 0000950137-04-002276 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040329 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: 04694611 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 c83813e10vk.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, 2003 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 30, 2003 WAS $20,624,997. AS OF FEBRUARY 16, 2004, 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, 2003 (THE "2003 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 2004 ANNUAL MEETING OF SHAREHOLDERS ARE INCORPORATED BY REFERENCE IN PART III OF THIS REPORT. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CHICAGO RIVET & MACHINE CO. PERIOD ENDING DECEMBER 31, 2003
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 9a. Controls and Procedures 11 Part III 10. Directors and Executive Officers of the Registrant 12 11. Executive Compensation 12 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 12 13. Certain Relationships and Related Transactions 12 14. Principal Accountant Fees and Services 13 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 and segments see Note 10 of the financial statements which appears on page 10 of the Company's 2003 Annual Report to Shareholders. The 2003 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 2003, sales to two customers exceeded 10% of the Company's consolidated revenues. Sales to TI Group Automotive Systems Corporation accounted for approximately 13% of the Company's consolidated revenues in 2003, 18% in 2002 and 18% in 2001. Sales to Fisher & Company accounted for approximately 21%, 17% and 14% of the Company's consolidated revenues in 2003, 2002, and 2001, 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 material from a number of sources, primarily within the United States. There are numerous sources of raw material, and the Company does not have to rely on a single source for any of its requirements. Beginning early in 2004, the cost of raw materials used in the manufacture of fasteners escalated sharply and some suppliers have indicated that global demand may constrain material availability. Patents, trademarks, licenses, franchises and concessions are not of significant importance to the business of the Company. The Company does not engage in significant 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, 2003, the Company employed 308 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 2003. 4 Executive Officers of the Registrant The names, ages and positions of all executive officers of the Company, as of March 26, 2004, 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 68 Chairman, Chief 23 Executive Officer John C. Osterman 52 President, Chief Operating 20 Officer and Treasurer Nirendu Dhar 62 General Manager, 3 H & L Tool Company, Inc. Donald P. Long 52 Vice President-Sales 9 Kimberly A. Kirhofer 45 Secretary 13 Michael J. Bourg 41 Controller 5
- - 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. He has been a director of the Company since May 2001. - - 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, 2003 there were approximately 310 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 2003 Annual Report is incorporated herein by reference. The 2003 Annual Report is filed as an exhibit to this report. See Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Dividends," for additional information about the Company's dividend policy. ITEM 6 - SELECTED FINANCIAL DATA The section entitled "Selected Financial Data" which appears on page 11 of the 2003 Annual Report is incorporated herein by reference. The 2003 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 The past year was extremely difficult for the Company. After a relatively auspicious start, which fostered an optimistic outlook for the balance of the year, our business weakened considerably as production of domestic automobiles trailed prior year levels and domestic manufacturing activity, in general, remained weak. In addition, our customers continued to demand price concessions, while simultaneously raising the bar with respect to quality and service requirements. In response to these conditions, we relied on the time-tested approach of cost containment and cost reductions. In retrospect, it is clear that these actions were insufficient to offset the combined impact of lower volumes, lower prices and increased service expectations. 6 2003 COMPARED TO 2002 Reduced revenues were the dominant factor contributing to reduced margins within the fastener segment during 2003. Fastener segment revenues declined abruptly late in the first quarter and remained weak for the balance of the year. For the year 2003, fastener segment revenues declined 11.3% compared to 2002, totaling a disappointing $31,024,036. Reductions in North American production of domestic automobiles and trucks contributed to the weakness in our business as did continuing competitive pressures which contributed to the loss of some business, as we were unable to meet the price concessions demanded by certain customers. In addition, some high margin parts were lost in connection with design changes that accompanied the new model year. Reductions in manufacturing staff failed to keep pace with the decline in business activity, and the resultant inefficiencies are reflected in disproportionately higher labor costs in 2003, compared to 2002. In addition, margins were adversely affected by increases in the cost of employee health insurance and higher tooling expenses incurred in connection with the initial production of a variety of new parts. Within the assembly equipment segment, revenues declined 10.6% compared to 2002. As was the case in the fastener segment, lower volumes contributed to significantly reduced operating efficiencies that were manifested in disproportionately high labor and benefit costs compared with prior years. Other factors impacting margins within this segment were increases in the cost of raw materials, offset in part, by a decrease in depreciation expense. Selling and administrative expenses for 2003 were 5.9% below those for 2002. A $302,000 reduction in profit sharing expense was the largest single factor contributing to the decrease in this expense category, followed by reductions of $145,000 in bonus expense, and $96,000 in commission expense due to lower sales in the current year. These reductions were partially offset by a $74,000 expense related to an early retirement program and an increase in the cost of employee health insurance. Net interest income increased by approximately $45,000 during 2003, primarily as a result of lower interest expense related to lower balances on a note payable, which was paid in full in December. 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 was 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 7 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 remained well below historical levels. 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 remained 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. DIVIDENDS In determining to pay dividends, the Board considers current profitability, the outlook for longer-term profitability, known and potential cash requirements and the overall financial condition of the Company. The Company paid four regular quarterly dividends of $.18 per share during 2003. In addition, an extra dividend of $.25 per share was paid during the second quarter of 2003, bringing the total dividend distribution to $.97 per share. On February 16, 2004, your Board of Directors determined that an extra dividend would not be declared or paid in the second quarter of 2004; however, the Board did declare a regular quarterly dividend of $.18 per share, payable March 19, 2004 to shareholders of record on March 5, 2004. This continues the uninterrupted record of consecutive quarterly dividends paid by the Company to its shareholders that extends over 70 years. PROPERTY, PLANT AND EQUIPMENT During 2003, capital expenditures amounted to $641,715, of which $535,268 was invested within the fastener segment, $89,379 was invested within the assembly equipment segment and the remainder was expended for building improvements that cannot be allocated between segments. Within the fastener segment, approximately $317,000 was invested in a new solvent based parts cleaning system. This system, installed during the second half of the year, is expected to yield reductions in supply and waste disposal costs. Other expenditures were approximately $92,000 for vehicles, including $68,000 for a new delivery truck; $32,000 for in-line wire drawing equipment; some $21,000 for equipment related to quality control; with the balance expended for smaller tools and equipment and building improvements. Within the assembly equipment segment, approximately $86,000 was expended for the purchase of new equipment related to the manufacture of perishable tooling that is sold to customers. The balance was expended for building improvements and office 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 8 was expended for a variety of 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. Depreciation expense amounted to $1,861,600 in 2003, $1,915,726 in 2002 and $1,921,703 in 2001. LIQUIDITY AND CAPITAL RESOURCES The Company's holdings in cash, cash equivalents and certificates of deposits amounted to nearly $6.0 million at December 31, 2003, an increase of approximately $.6 million compared with the end of 2002. Accounts receivable balances decreased approximately $.4 million, reflecting lower sales during the latter part of 2003, compared to the same period in 2002. Inventory levels, at the end of 2003, are also less than at the end of 2002 due to efforts taken to reduce inventories in response to continued weakness in demand for our products. 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, 2003, the indebtedness under the term loan had been extinguished. The line of credit was extended through May 31, 2004 and remained unused at December 31, 2003. Off-Balance Sheet Arrangements The Company has not entered into, and has no current plans to enter into, any off-balance sheet financing arrangements. The following table presents a summary of the Company's contractual obligations as of December 31, 2003:
Payments Due By Period ------------------------------------------------------- Less Than 1 - 3 4 - 5 More Than Cotractual Obligation Total 1 Year Years Years 5 Years - --------------------- -------- -------- -------- ------- --------- Long-term Debt $ -- $ -- $ -- $ -- $ -- Capital Lease Obligations -- -- -- -- -- Operating Leases 36,657 27,493 9,164 -- -- Purchase Obligations 378,686 160,750 200,256 17,680 -- -------- -------- -------- ------- ---- Total $415,343 $188,243 $209,420 $17,680 $ -- ======== ======== ======== ======= ====
Management believes that current cash, cash equivalents and operating cash flow will be sufficient to provide adequate working capital for the foreseeable future. 9 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 of the financial statements. 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. The company did not purchase any of its shares during 2003. During 2002, the company purchased 1,000 shares at an average price of $26.98 per share. Cumulative purchases under the repurchase authorization have amounted to 162,996 shares at an average price of $15.66 per share. OUTLOOK FOR 2004 The anticipated improvement in economic activity has not yet generated a meaningful increase in orders for our products. While we are encouraged by the fact that we have been awarded contracts for a number of new parts in the fastener segment, we are concerned about conditions within the assembly equipment segment, which remains very weak. Domestic competition remains intense and foreign competition, which affects us directly through the increase of imported fasteners and indirectly through the import of products that were previously assembled domestically, is a growing concern. These conditions increase the risk that our markets will not only become even more price competitive due to imports, but will shrink in size as domestic assembly operations are supplanted by imports of products that were traditionally assembled domestically, utilizing domestic fasteners and domestic assembly equipment. As mentioned above, we are pleased that we have been awarded new business within the fastener segment, but, in many instances, production volumes related to this new business will not reach significant levels until later in 2004. We will continue soliciting additional business from our current customers as well as from new customers. We face challenges in the form of recent and significant increases in the cost of raw materials utilized in the production of fasteners. While we have not experienced shortages of raw material, some of our suppliers report that increases in global demand may constrain availability of raw materials later this year. Our success in maintaining supply and recovering these higher costs, without losing market share, will be a critical determinant of our success in the coming year. Cost reduction will be another critical factor influencing future results. As previously reported, we have already taken actions to reduce our manufacturing costs, 10 but the cost reductions realized have not fully offset the impact of lower volumes. We will continue exploring alternatives that will yield positive changes in our cost structure and our ability to compete. Margins, at least in the near term, will remain under pressure from the combination of rising costs and increasing foreign competition. We gratefully acknowledge that the Company's success, both past and future, would not be possible without: the conscientious efforts of our employees, who consistently demonstrate their dedication to meeting the formidable and ever-changing challenges that characterize today's manufacturing environment; the loyalty of our customers, many of whom face the same set of challenges; and, the continuing support of our shareholders. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of December 31, 2003, the Company did not have any outstanding debt, compared to $1.6 million of outstanding debt at the prior year end, that was exposed to changes in interest rates. During 2003 the Company did not use derivative financial instruments relating to this interest rate exposure. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the sections entitled "Consolidated Financial Statements" and "Financial Statement Schedule" which appear on pages 15 through 18 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. ITEM 9A - CONTROLS AND PROCEDURES (a) Disclosure Controls and Procedures. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act. (b) Internal Control Over Financial Reporting. There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 11 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 2004 Proxy Statement, is incorporated herein by reference. The information with respect to the audit committee, its financial expert and the independence of its members, which is set forth in the second paragraph of the section entitled "Additional Information Concerning the Board of Directors and Committees" on page 7 of the Company's 2004 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 10 of the 2004 Proxy Statement, is incorporated herein by reference. The 2004 Proxy Statement is to be filed with the Securities and Exchange Commission in connection with the Company's 2004 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." The Company has adopted a code of ethics for its principal executive officer, chief operating officer and senior financial officers. A copy of this code is included as Exhibit 14 to this report on Form 10-K. ITEM 11 - EXECUTIVE COMPENSATION The information set forth in the section entitled "Executive Compensation" which appears on pages 11 through 15 of the Company's 2004 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 through 10 of the Company's 2004 Proxy Statement is incorporated herein by reference. The 2004 Proxy Statement is to be filed with the Securities and Exchange Commission in connection with the Company's 2004 Annual Meeting of Shareholders. 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 2004 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 2004 Proxy Statement is incorporated herein by reference. The 2004 Proxy Statement is to be filed with the Securities and Exchange Commission in connection with the Company's 2004 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 2004 Proxy Statement is incorporated herein by reference. The 2004 Proxy Statement is to be filed with the Securities and Exchange Commission in connection with the Company's 2004 Annual Meeting of Shareholders. 12 ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES The information set forth in section entitled "Independent Certified Public Accountants" on pages 17 and 18 of the Company's 2004 Proxy Statement is incorporated herein by reference. The 2004 Proxy Statement is to be filed with the Securities and Exchange Commission in connection with the Company's 2004 Annual Meeting of Shareholders. 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 15 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 16 through 18 of this report. 3. Exhibits: See the section entitled "Exhibits" which appears on page 19 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, 2003. 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 29, 2004 /s/John C. Osterman President, Chief Operating - ------------------- Officer, Treasurer (Chief John C. Osterman Financial Officer), Member of the Executive Committee and Director March 29, 2004 /s/John R. Madden Director, Member of the - ------------------ Executive Committee and Member John R. Madden of the Audit Committee March 29, 2004 /s/Walter W. Morrissey Director, Member of Executive - ---------------------- Committee Walter W. Morrissey March 29, 2004 /s/Michael J. Bourg Controller (Principal Accounting - ------------------- Officer) Michael J. Bourg March 29, 2004 14 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 25, 2004, appearing on pages 5 to 11 of the accompanying 2003 Annual Report, and the section entitled "Quarterly Financial Data (Unaudited)" appearing on page 12 of the accompanying 2003 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 2003 Annual Report is not to be deemed filed as part of this Form 10-K Annual Report. Consolidated Financial Statements from 2003 Annual Report (Exhibit 13 hereto): Consolidated Balance Sheets (page 5 of 2003 Annual Report) Consolidated Statements of Income (page 6 of 2003 Annual Report) Consolidated Statements of Retained Earnings (page 6 of 2003 Annual Report) Consolidated Statements of Cash Flows (page 7 of 2003 Annual Report) Notes to Consolidated Financial Statements (pages 8, 9, and 10 of 2003 Annual Report) Report of Independent Auditors (page 11 of 2003 Annual Report) Quarterly Financial Data (Unaudited) (page 12 of 2003 Annual Report) 15 FINANCIAL STATEMENT SCHEDULE 2003, 2002 AND 2001 The following financial statement schedule should be read in conjunction with the consolidated financial statements and the notes thereto in the 2003 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) 17 Report of Independent Auditors on Financial Statement Schedule 18
16 CHICAGO RIVET & MACHINE CO. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
Balance at Additions Balance Beginning Charged to at End Classification of Year Expenses Deductions(1) of Year - -------------- ---------- ---------- ------------ -------- 2003 Allowance for doubtful accounts, returns and allowances $ 240,000 $ 10,174 $ 30,174 $220,000 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
(1) Accounts receivable written off, net of recoveries. 17 Report of Independent Auditors 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 25, 2004 appearing in the 2003 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 25, 2004 18 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 16, 2004. 21 - 46 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, 2003. 47 - 63 14 Code of Ethics for Principal Executive and Senior Financial Officers 64 - 66 21 Subsidiaries of the Registrant. 67 31.1 Certification of CEO Pursuant to Rule 13a-14(a) or 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 68 31.2 Certification of CFO Pursuant to Rule 13a-14(a) or 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 69
19 32.1 Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 70 32.2 Certification of CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 71
* Only the portions of this exhibit which are specifically incorporated herein by reference shall be deemed to be filed herewith. 20 EX-3.4 3 c83813exv3w4.txt AMENDED AND RESTATED BY-LAWS EXHIBIT 3.4 AMENDED AND RESTATED BY-LAWS, AS AMENDED FEBRUARY 16, 2004 21 AMENDED AND RESTATED BY-LAWS (AS OF FEBRUARY 16, 2004) OF CHICAGO RIVET & MACHINE CO., an Illinois corporation (the "Corporation") ARTICLE I OFFICES The principal office of the Corporation shall be in the City of Naperville, County of DuPage and State of Illinois. The Corporation may also have offices at such other places, either within or without the State of Illinois, as the Board of Directors may from time to time appoint or as the business may require. ARTICLE II SHAREHOLDERS' MEETINGS SECTION 1. THE ANNUAL MEETING. The annual meeting of the shareholders shall be held at the principal office of the Corporation at 10:00 o'clock A. M. (Chicago time) on the second Tuesday in May of each year, or if such day be a holiday, then upon the next succeeding secular day. A written or printed notice stating the place, day and hour of the meeting shall be mailed by the Secretary or an Assistant Secretary of the Corporation at least ten days before such meeting to each shareholder to his, her or its last known post-office address, as appears on the books of the Corporation. A majority of the capital stock outstanding represented in person or by proxy shall constitute a quorum at all shareholders' meetings. SECTION 2. SPECIAL MEETINGS. (a) Special meetings of the shareholders may be called by (i) the President or (ii) the Board of Directors and shall be called by the President or the Board of Directors upon the demand, in accordance with this Section 2, of holders of not less than one-fifth of all the outstanding shares of the Corporation entitled to vote on the matter proposed to be considered at the special meeting, for the purpose or purposes stated in the call of the meeting. (b) In order that the Corporation may determine the shareholders entitled to demand a special meeting, the Board 22 of Directors may fix a record date to determine the shareholders entitled to make such a demand (the "Demand Record Date"). The Demand Record Date shall not precede the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors and shall not be more than 10 days after the date upon which the resolution fixing the Demand Record Date is adopted by the Board of Directors. Any shareholder of record seeking to have shareholders demand a special meeting shall, by sending written notice to the Secretary of the Corporation by hand or by certified or registered mail, return receipt requested, request the Board of Directors to fix a Demand Record Date. The Board of Directors shall promptly, but in all events within 10 days after the date on which a valid request to fix a Demand Record Date is received, adopt a resolution fixing the Demand Record Date and shall make a public announcement of such Demand Record Date. If no Demand Record Date has been fixed by the Board of Directors within 10 days after the date on which such request is received by the Secretary, the Demand Record Date shall be the 10th day after the first date on which a valid written request to set a Demand Record Date is received by the Secretary. To be valid, such written request shall set forth the purpose or purposes for which the special meeting is to be held, shall be signed by one or more shareholders of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such shareholder (or proxy or other representative) and shall set forth all information about each such shareholder and about the beneficial owner or owners, if any, on whose behalf the request is made that would be required to be set forth in a shareholder's notice described in paragraph (a) of Section 16 of Article II of these by-laws. (c) In order for a shareholder or shareholders to demand a special meeting, a written demand or demands for a special meeting by the holders of record as of the Demand Record Date of not less than one-fifth of all the outstanding shares of the Corporation entitled to vote on the matter proposed to be considered at the special meeting must be delivered to the Corporation. To be valid, each written demand by a shareholder for a special meeting shall set forth the specific purpose or purposes for which the special meeting is to be held (which purpose or purposes shall be limited to the purpose or purposes set forth in the written request to set a Demand Record Date received by the Corporation pursuant to paragraph (b) of this Section 2), shall be signed by one or more persons who as of the Demand Record Date are shareholders of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such shareholder (or proxy or other representative), shall set forth the name and address, as they appear in the Corporation's books, of each shareholder signing such demand and the class and number of shares of the Corporation which are owned of record and beneficially by each such shareholder, shall be sent to the Secretary by hand or by certified or registered mail, return receipt requested, and shall be received by the Secretary within 60 days after the Demand Record Date. 23 (d) The Corporation shall not be required to call a special meeting upon shareholder demand unless, in addition to the documents required by paragraph (c) of this Section 2, the Secretary receives a written agreement signed by each Soliciting Shareholder (as defined below), pursuant to which each Soliciting Shareholder, jointly and severally, agrees to pay the Corporation's costs of holding the special meeting, including the costs of preparing and mailing proxy materials for the Corporation's own solicitation, provided that if each of the resolutions introduced by any Soliciting Shareholder at such meeting is adopted, and each of the individuals nominated by or on behalf of any Soliciting Shareholder for election as a director at such meeting is elected, then the Soliciting Shareholders shall not be required to pay such costs. For purposes of this paragraph (d), the following terms shall have the meanings set forth below: (i) "Affiliate" of any Person (as defined herein) shall mean any Person controlling, controlled by or under common control with such first Person. (ii) "Participant" shall have the meaning assigned to such term in Instruction 3 of Item 4 of Schedule 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (iii) "Person" shall mean any individual, firm, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity. (iv) "Proxy" shall have the meaning assigned to such term in Rule 14a-1 promulgated under the Exchange Act. (v) "Solicitation" shall have the meaning assigned to such term in Rule 14a-1 promulgated under the Exchange Act. (vi) "Soliciting Shareholder" shall mean, with respect to any special meeting demanded by a shareholder or shareholders, any of the following Persons: (A) if the number of shareholders signing the demand or demands of meeting delivered to the corporation pursuant to paragraph (c) of this Section 2 is 10 or fewer, each shareholder signing any such demand; (B) if the number of shareholders signing the demand or demands of meeting delivered to the corporation pursuant to paragraph (c) of this Section 2 is more than 10, each Person who either (x) was a Participant in any Solicitation of such demand or demands or (y) at the time of the delivery to the 24 Corporation of the documents described in paragraph (c) of this Section 2 had engaged or intended to engage in any Solicitation of Proxies for use at such Special Meeting (other than a Solicitation of Proxies on behalf of the Corporation); or (C) any Affiliate of a Soliciting Shareholder, if a majority of the Directors then in office determine, reasonably and in good faith, that such Affiliate should be required to sign the written notice described in paragraph (c) of this Section 2 and/or the written agreement described in this paragraph (d) in order to prevent the purposes of this Section 2 from being evaded. (e) Except as provided in the following sentence, any special meeting shall be held at such hour and day as may be designated by whichever of the President or the Board of Directors shall have called such meeting. In the case of any special meeting called by the Board of Directors or the President upon the demand of shareholders (a "Demand Special Meeting"), such meeting shall be held at such hour and day as may be designated by the Board of Directors or the President; provided, however, that the date of any Demand Special Meeting shall be not more than 60 days after the Meeting Record Date (as defined in Section 6 of this Article II); and provided further that in the event that the Directors then in office fail to designate an hour and date for a Demand Special Meeting within 10 days after the date that valid written demands for such meeting by the holders of record as of the Demand Record Date of shares representing not less than one-fifth of all the outstanding shares of the Corporation entitled to vote on the matter proposed to be considered at the special meeting are delivered to the Corporation (the "Delivery Date"), then such meeting shall be held at 2:00 P.M. local time on the 90th day after the Delivery Date or, if such 90th day is not a Business Day (as defined below), on the first preceding Business Day. In fixing a meeting date for any special meeting, the President or the Board of Directors may consider such factors as he or it deems relevant within the good faith exercise of his or its business judgment, including, without limitation, the nature of the action proposed to be taken, the facts and circumstances surrounding any demand for such meeting, and any plan of the Board of Directors to call an annual meeting or a special meeting for the conduct of related business. (f) The Corporation may engage independent inspectors of elections to act as an agent of the Corporation for the purpose of promptly performing a ministerial review of the validity of any purported written demand or demands for a special meeting received by the Secretary. For the purpose of permitting the inspectors to perform such review, no purported demand shall be deemed to have been delivered to the Corporation until the earlier of (i) 5 Business Days following receipt by the Secretary of such purported demand and (ii) such date as the independent inspectors 25 certify to the Corporation that the valid demands received by the Secretary represent not less than one-fifth of all the outstanding shares of the Corporation entitled to vote on the matter proposed to be considered at the special meeting. Nothing contained in this paragraph (f) shall in any way be construed to suggest or imply that the Board of Directors or any shareholder shall not be entitled to contest the validity of any demand, whether during or after such 5 Business Day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto). (g) For purposes of these by-laws, "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of Illinois are authorized or obligated by law or executive order to close. SECTION 3. PLACE OF MEETING. The Board of Directors may designate any place as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. If no designation is made or if a special meeting be otherwise called, the place of meeting shall be at the principal office of the Company in Naperville, Illinois. SECTION 4. TIME OF ELECTING DIRECTORS. Directors shall be elected at the regular annual meeting of the shareholders. If the election of directors is not held on the day of the annual meeting, the directors shall cause the election to be held as soon thereafter as conveniently may be. No failure to elect directors or to hold the annual meeting at the designated time shall work any forfeiture or dissolution of the Corporation. SECTION 5. NOTICE OF MEETINGS. Written notice stating the place, date, and hour of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than sixty days before the date of the meeting, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than twenty nor more than sixty days before the meeting, either personally or by mail, by or at the direction of the President, or the Secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notices shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the records of the Corporation, with postage thereon prepaid. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. Any previously scheduled meeting of shareholders may be postponed, and any special meeting of the shareholders may be cancelled upon public notice given prior to the date previously scheduled for such meeting of shareholders. 26 SECTION 6. FIXING OF RECORD DATE. The Board of Directors may fix in advance a date not less than ten days and not more than sixty days, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than twenty and not more than sixty days, prior to the date of any annual meeting or special meeting as the record date for the determination of shareholders entitled to notice of, or to vote at, such meeting (the "Meeting Record Date"). In the case of any Demand Special Meeting, (i) the Meeting Record Date shall be not later than the 30th day after the Delivery Date and (ii) if the Board of Directors fails to fix the Meeting Record Date within 30 days after the Delivery Date, then the close of business on such 30th day shall be the Meeting Record Date. The Board of Directors may also fix in advance a date as the record date for the purpose of determining shareholders entitled to take any other action or determining shareholders for any other purpose. Such record date shall be not more than sixty days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. Except in the case of a Demand Special Meeting, if no record date is fixed, the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be the date on which notice of the meeting is mailed, and the record date for the determination of shareholders for any other purpose shall be the date on which the Board of Directors adopts the resolution relating thereto. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting. Nothing in this Section 6 shall in any way be construed to change the procedure for setting the record date and for determining the effectiveness of shareholder action by written consent as set forth in Section 7 of this Article II. SECTION 7. WRITTEN CONSENTS. (a) In order that the Corporation may determine the shareholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date (a "Consent Record Date"). The Consent Record Date shall not precede the date upon which the resolution fixing the Consent Record Date is adopted by the Board of Directors and shall not be more than 10 days after the date upon which the resolution fixing the Consent Record Date is adopted by the Board of Directors. Any shareholder of record seeking to consent to corporate action in writing without a meeting shall, by sending written notice to the Secretary of the Corporation by hand or by certified or registered mail, return receipt requested, request the Board of Directors to fix a Consent Record Date. The Board of Directors shall promptly, but in all events within 10 days after the date on which a valid request to fix a Consent Record Date is received, adopt a resolution fixing the Consent Record Date and shall make a public announcement of such Consent Record Date. If no Consent Record Date has been fixed by the Board of Directors within 10 days after the date on which such 27 request is received by the Secretary, the Consent Record Date shall be the 10th day after the first date on which a valid written request to set a Consent Record Date is received by the Secretary. To be valid, such written request shall set forth the purpose or purposes for which the written consent is sought to be used, shall be signed by one or more shareholders of record (or their duly authorized proxies or other representatives), shall bear the date of signature of each such shareholder (or proxy or other representative) and shall set forth all information about each such shareholder and about the beneficial owner or owners, if any, on whose behalf the request is made that would be required to be set forth in a shareholder's notice described in paragraph (a) of Section 16 of Article II of these by-laws. (b) Every written consent shall be signed by one or more persons who as of the Consent Record Date are shareholders of record on the Consent Record Date (or their duly authorized proxies or other representatives), shall bear the date of signature of each such shareholder (or proxy or other representative), and shall set forth the name and address, as they appear in the Corporation's books, of each shareholder signing such consent and the class and number of shares of the Corporation which are owned of record and beneficially by each such shareholder and shall be sent to the Secretary by hand or by certified or registered mail, return receipt requested. No written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the date the earliest dated written consent was received in accordance with this paragraph (b) of this Section 7, a written consent or consents signed by a sufficient number of holders to take such action are delivered to the Corporation. (c) In the event of the delivery, in the manner provided by paragraph (b) of this Section 7, to the Corporation of the requisite written consent or consents to take corporate action and/or any related revocation or revocations, the Corporation shall engage independent inspectors of elections for the purpose of promptly performing a ministerial review of the validity of the consents and revocations. For the purpose of permitting the inspectors to perform such review, no action by written consent without a meeting shall be effective until such date as the independent inspectors certify to the Corporation that the consents represent at least the minimum number of votes that would be necessary to take the corporate action. Nothing contained in this paragraph (c) of Section 7 shall in any way be construed to suggest or imply that the Board of Directors or any shareholder shall not be entitled to contest the validity of any consent or revocation thereof, whether before or after certification by the independent inspectors, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation). 28 SECTION 8. VOTING LISTS. The officer or agent having charge of the transfer books for shares of the Corporation shall make, at least ten days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of the shareholder, which list, for a period of ten days prior to such meeting, shall be kept on file at the registered office of the Corporation and shall be open to inspection by any shareholder for any purpose germane to the meeting, at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and may be inspected by any shareholder during the whole time of the meeting. The original share ledger or transfer book, or a duplicate thereof kept in this State, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of shareholders. SECTION 9. QUORUM. The holders of a majority of the outstanding shares of the Corporation, present in person or represented by proxy, shall constitute a quorum at any meeting of shareholders; provided that if less than a majority of the outstanding shares are represented at said meeting, a majority of the shares so represented may adjourn the meeting at any time without further notice. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by The Business Corporation Act, the articles of incorporation or these by-laws. The Chairman of the meeting or the holders of record of a majority of the shares represented at the meeting shall have the power to adjourn the meeting from time to time, without notice other than an announcement at the meeting. At any adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the original meeting. Withdrawal of shareholders from any meeting shall not cause failure of a duly constituted quorum at that meeting. SECTION 10. VOTING BY BALLOT. Voting on any question or in any election may be by voice unless the presiding officer shall order or any shareholder shall demand that voting be by ballot. SECTION 11. PROXIES. Each shareholder shall have one vote for each share of stock having voting power and entitled to vote, registered in his name on the books of the Corporation, and at all meetings of the shareholders, shareholders may vote either in person or by proxy executed in writing by the shareholders, or by a duly authorized attorney. No proxy shall be valid after eleven months from the date of its execution, except where the stock is pledged as security for a debt to the person holding the proxy. 29 SECTION 12. VOTING OF SHARES. Each outstanding share, regardless of class, shall be entitled to one vote upon each matter submitted to vote at a meeting of shareholders. SECTION 13. VOTING OF SHARES BY CERTAIN HOLDERS. Shares outstanding in the name of another corporation, domestic or foreign, may be voted by such officer, agent, or proxy as the by-laws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares outstanding in the name of a deceased person, a minor ward, or an incompetent person, may be voted by his administrator, executor, court appointed guardian, or conservator or custodian under a Gift to Minors Act, either in person or by proxy without a transfer of such shares into the name of such administrator, executor, court appointed guardian, or conservator. Shares outstanding in the name of a trustee may be voted by him, either in person or by proxy. Shares outstanding in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Any number of shareholders may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote or otherwise represent their share, for a period not to exceed ten years, by entering into a written voting trust agreement specifying the terms and conditions of the voting trust, and by transferring their shares to such trustee or trustees for the purpose of the agreement. Any such trust agreement shall not become effective until a counterpart of the agreement is deposited with the Corporation at its registered office. The counterpart of the voting trust agreement so deposited with the Corporation shall be subject to the same right of examination by a shareholder of the Corporation, in person or by agent or attorney, as are the books and records of the Corporation, and shall be subject to examination by any holder of a beneficial interest in the voting trust, either in person or by agent or attorney, at any reasonable time for any proper purpose. Shares of its own stock belonging to this Corporation shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time, but shares of its own stock held by it in a fiduciary 30 capacity may be voted and shall be counted in determining the total number of outstanding shares at any given time. SECTION 14. CUMULATIVE VOTING. In all elections for directors, every shareholder shall have the right to vote, in person or by proxy, the number of shares owned by him, for as many persons as there are directors to be elected, or to cumulate said shares, and give one candidate as many votes as the number of directors multiplied by the number of his shares shall equal, or to distribute them on the same principle among as many candidates as he shall see fit. SECTION 15. INSPECTORS. At any meeting of shareholders, the presiding officer may, or upon the request of any shareholder shall appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares represented at the meeting, based upon their determination of the validity and effect of proxies; count all votes and report the results; and do such other acts as are proper to conduct the election and voting with impartiality and fairness to all the shareholders. Each report of an inspector shall be in writing and signed by him or by a majority of them if there be more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. SECTION 16. NOTICE OF SHAREHOLDER NOMINATIONS AND BUSINESS PROPOSALS. (a) Shareholder Nominations. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Articles of Incorporation of the Corporation. Nominations of persons for election to the Board of Directors may be made at any annual meeting of shareholders (i) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (ii) by any shareholder of the Corporation (A) who is a shareholder of record on the date of the giving of the notice provided for in this Section 16(a) and on the record date for the determination of shareholders entitled to vote at such annual meeting and (B) who complies with the notice procedures set forth in this Section 16(a). In addition to any other applicable requirements, for a nomination to be made by a shareholder, such shareholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. 31 To be timely, a shareholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days in advance of the anniversary date of the mailing of the Corporation's proxy statement in connection with the previous year's annual meeting; provided, however, that in the event that the date of the applicable annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year's proxy statement, notice by the shareholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which notice of the date of the annual meeting was mailed or public announcement of the date of the annual meeting was made, whichever first occurs. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a shareholder's notice as described above. To be in proper written form, a shareholder's notice to the Secretary must set forth (i) as to each person whom the shareholder proposes to nominate for election as a director (A) the name, age, business address and residence address of the person, (B) the principal occupation or employment of the person, (C) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (D) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (ii) as to the shareholder giving the notice (A) the name and record address of such shareholder, (B) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such shareholder, (C) a description of all arrangements or understandings between such shareholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such shareholder, (D) a representation that such shareholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (E) any other information relating to such shareholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 16(a). If the Chairman of the meeting 32 determines that a nomination was not made in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. Notwithstanding anything in the third paragraph of this Section 16(a) to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased board of directors at least one hundred (100) days prior to the first anniversary of the preceding year's annual meeting, a shareholder's notice required by this Section 16(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation. (b) Shareholder Business Proposals. No business may be transacted at an annual meeting of shareholders, other than business that is either (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (ii) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (iii) otherwise properly brought before the annual meeting by any shareholder of the Corporation (A) who is a shareholder of record on the date of the giving of the notice provided for in this Section 16(b) and on the record date for the determination of shareholders entitled to vote at such annual meeting and (B) who complies with the notice procedures set forth in this Section 16(b). In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a shareholder, such shareholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a shareholder's notice to the Secretary must be delivered to or mailed and received at the principal office of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days in advance of the anniversary date of the mailing of the Corporation's proxy statement in connection with the previous year's annual meeting; provided, however, that in the event that the date of the applicable annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year's proxy statement, notice by the shareholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which notice of the date of the annual meeting 33 was mailed or public announcement of the date of the annual meeting was made, whichever first occurs. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a shareholder's notice as described above. To be in proper written form, a shareholder's notice to the Secretary must set forth as to each matter such shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such shareholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such shareholder, (iv) a description of all arrangements or understandings between such shareholder and any other person or persons (including their names) in connection with the proposal of such business by such shareholder and any material interest of such shareholder in such business and (v) a representation that such shareholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted at the annual meeting of shareholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 16(b); provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 16(b) shall be deemed to preclude discussion by any shareholder of any such business. If the Chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. (c) For purposes of this Section 16, "public announcement" shall mean an announcement in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. ARTICLE III BOARD OF DIRECTORS SECTION 1. GENERAL POWERS. The business of the Corporation shall be managed by its Board of Directors. SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the Corporation shall be seven(7), provided however, that effective as of the Company's 2004 annual meeting of shareholders, the number of directors shall be increased to nine (9). Each director shall hold office until the next annual meeting 34 of shareholders or until his successor shall have been elected and qualified. Directors need not be residents of Illinois or shareholders of the Corporation. The number of directors may be increased or decreased from time to time by the amendment of this section; but no decreases shall have the effect of shortening the term of any incumbent director. SECTION 3. REGULAR MEETINGS. Immediately after the adjournment of the annual meeting of the shareholders of the Corporation, the newly elected directors shall meet for the purpose of organization, the election of officers and the transaction of such other business as may properly come before the meeting. Other regular meetings shall be held at such time as shall from time to time be determined by the Board. SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors shall be held whenever called by the President or by a majority of the directors. SECTION 5. NOTICE. Notice of any special meeting shall be given, at least 24 hours previous thereto to each director personally by telegraph, telephone, facsimile transmission or by written notice duly served on each director, or sent or mailed to each director at his business address. If notice of any special meeting is to be given less than five days prior to such meeting, notice shall be by means of telegraph, telephone, facsimile transmission or overnight courier. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegram company. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. SECTION 6. PLACE OF MEETINGS. Regular and Special Meetings of the Board of Directors shall be held at the Registered Office of the Corporation, or any such other place, either within or without the State of Illinois, as may from time to time be determined by the Board of Directors. SECTION 7. QUORUM OF DIRECTORS - MANNER OF ACTING. A majority of the number of directors fixed by the by-laws, or in the absence of a by-law fixing the number of directors, then of the number stated in the articles of incorporation, shall constitute a quorum for the transaction of business unless the greater number is required by the articles of incorporation or the by-laws. The act of the majority of the directors present at a meeting at which a quorum 35 is present shall be the act of the Board of Directors, unless the act of a greater number is required by statute, these by-laws, or the articles or incorporation. SECTION 8. VACANCIES. Any vacancy occurring in the Board of Directors and any directorship to be filled by reason of an increase in the number of directors, may be filled by election at an annual meeting or at a special meeting of shareholders called for that purpose. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. SECTION 9. ACTION WITHOUT A MEETING. Unless specifically prohibited by the articles of incorporation or by-laws, any action required to be taken at a meeting of the Board of Directors, or any other action which may be taken at a meeting of the Board of Directors, or of any committee thereof may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all the directors entitled to vote with respect to the subject matter thereof, or by all the members of such committee, as the case may be. Any such consent signed by all the directors or all the members of the committee shall have the same effect as a unanimous vote, and may be stated as such in any document filed with the Secretary of State or with anyone else. SECTION 10. PRESUMPTION OF ASSENT. A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be conclusively presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. SECTION 11. EXECUTIVE COMMITTEE. The Board of Directors, by resolution adopted by a majority of the number of directors fixed by the by-laws or otherwise, may appoint an executive committee, which committee, to the extent provided in such resolution, shall have and exercise all of the authority of the Board of Directors in the management of the Corporation, except as otherwise required by law. Vacancies in the membership of the committee shall be filled by the Board of Directors at a regular or special meeting of the Board of Directors. The executive committee shall keep regular minutes of its proceedings and report the same to the board when required. SECTION 12. COMMITTEES. The Board of Directors may from its membership appoint other committees as it may from time to time by resolution determine and fix the number of members thereof, and the board may delegate to such committees such of the powers 36 vested in it as it may by the resolution of appointment determine. Such committees so appointed shall observe such rules and regulations for their conduct and keep such records as the board may from time to time by resolution determine. SECTION 13. COMPENSATION. The Board of Directors, by the affirmative vote of a majority of the acting and qualified directors, and notwithstanding any personal interest of any director, shall have authority to establish reasonable compensation of all directors for services to the Corporation as directors, officers or otherwise. By resolution of the Board of Directors, the directors may be paid their expenses of attending each meeting of the board. SECTION 14. INDEMNIFICATION. (a) Generally. Each person who was or is made a party or is threatened to be made a party to or is involved in or called as a witness in any action, suit or proceeding, whether civil, criminal, administrative or investigative, and any appeal therefrom (hereinafter, collectively a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is, was or had agreed to become a director of the Corporation or is, was or had agreed to become an officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Corporation to the fullest extent permitted under the Illinois Business Corporation Act of 1983 (the "IBCA"), as the same now exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than the IBCA permitted the Corporation to provide prior to such amendment), against all expenses, liabilities and losses (including attorneys' fees, judgments, fines, excise taxes or penalties pursuant to the Employee Retirement Income Security Act of 1974, as amended, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided that, except as explicitly provided herein, prior to a Change in Control of the Corporation, as defined herein, a person seeking indemnity in connection with a proceeding (or part thereof) initiated by such person against the Corporation or any director, officer, employee or agent of the Corporation shall not be entitled thereto unless the Corporation has joined in or consented to such proceeding (or part thereof). For purposes of this Section 14, a "Change in Control of the Corporation" shall be deemed to have occurred if the conditions set forth in any one of the following clauses shall have been satisfied: (i) any "person" (as such term is used in Section 13(d) and 14(d) of the Exchange Act) other than (A) the Corporation, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, or (D) a corporation 37 owned, directly or indirectly, by the shareholders of the Corporation in substantially the same proportions as their ownership of shares of the Corporation (any such person is hereinafter referred to as a "Person"), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing more than 50% of the combined voting power of the Corporation's then outstanding securities (not including in the securities beneficially owned by such Person any securities acquired directly from the Corporation); (ii) there is consummated a merger or consolidation of the Corporation with or into any other corporation, other than a merger or consolidation which would result in the holders of the voting securities of the Corporation outstanding immediately prior thereto holding securities which represent, in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Corporation, immediately after such merger or consolidation, more than 70% of the combined voting power of the voting securities of either the Corporation or the other entity which survives such merger or consolidation or the parent of the entity which survives such merger or consolidation; (iii) the shareholders of the Corporation approve any plan or proposal for the liquidation or dissolution of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all the Corporation's assets; or (iv) during any period of two consecutive years (not including any period prior to January 1, 1997), individuals who at the beginning of such period constitute the Board of Directors and any new director (other than a director designated by a Person who has entered into an agreement with the Corporation to effect a transaction described in clause (i), (ii) or (iii) of this paragraph) whose election by the board or nomination for election by the Corporation's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof. For purposes of this Section 14, where a Change in Control of the Corporation results from a series of related transactions, the Change in Control of the Corporation shall be deemed to have occurred on the date of the consummation of the first such transaction. For purposes of clause (i) of this paragraph, the shareholders of another corporation (other than this Corporation or a corporation described in clause (i)(D) of this paragraph), in the aggregate, shall be deemed to constitute a Person. Prior to a Change in Control of the Corporation, any indemnification under this Section 14(a) (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the IBCA. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not 38 parties to such action, suit or proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel (who may be the regular counsel of the Corporation) in a written opinion or (iii) by the shareholders. Following a Change in Control of the Corporation, any indemnification under this Section 14(a) (unless ordered by a court) shall be paid by the Corporation unless within 60 days of such request for indemnification a determination is made, in a written opinion, by special independent counsel selected by the person requesting indemnification and approved by the Corporation (which approval shall not be unreasonably withheld), which counsel has not otherwise performed services (other than in connection with similar matters) within the five years preceding its engagement to render such opinion for such person or for the Corporation or any affiliates (as such term is defined in Rule 405 under the Securities Act of 1933, as amended) of the Corporation (whether or not they were affiliates when services were so performed) ("Independent Counsel"), that indemnification of such person is not proper under the circumstances because such person has not met the necessary standard of conduct under the IBCA. Unless such person has theretofore selected Independent Counsel pursuant to this Section 14(a) and such Independent Counsel has been approved by the Corporation, legal counsel approved by a resolution or resolutions of the Board of Directors prior to a Change in Control of the Corporation shall be deemed to have been approved by the Corporation as required. Such Independent Counsel shall determine as promptly as practicable whether and to what extent such person would be permitted to be indemnified under applicable law and shall render its written opinion to the Corporation and such person to such effect. The Corporation agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such Independent Counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Section 14 or its engagement pursuant hereto. In making a determination under this Section 14(a), the Independent Counsel referred to above shall determine that indemnification is permissible unless clearly precluded by this Section 14 or the applicable provisions of the IBCA. (b) Payment of Expenses in Advance. Expenses, including attorneys' fees, incurred by a person referred to in Subsection (a) of this Section 14 in defending a proceeding shall be paid by the Corporation in advance of the final disposition of such proceeding, including any appeal therefrom, upon receipt of an undertaking (the "Undertaking") by or on behalf of such person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation. (c) Right of Claimant to Bring Suit. If a claim under Subsection (a) of this Section 14 is not paid in full by 39 the Corporation within 60 days after a written claim has been received by the Corporation or if expenses pursuant to Subsection (b) of this Section 14 hereof have not been advanced within 10 days after a written request for such advancement, accompanied by the Undertaking, has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim or the advancement of expenses. (If the claimant is successful, in whole or in part, in such suit or any other suit to enforce a right for expenses or indemnification against the Corporation or any other party under any other agreement, such claimant shall also be entitled to be paid the reasonable expense of prosecuting such claim.) It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required Undertaking has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the IBCA for the Corporation to indemnify the claimant for the amount claimed. After a Change in Control of the Corporation, the burden of proving such defense shall be on the Corporation, and any determination by the Corporation (including its Board of Directors, independent legal counsel or its shareholders) that the claimant had not met the applicable standard of conduct required under the IBCA shall not be a defense to the action nor create a presumption that claimant had not met such applicable standard of conduct. (d) Indemnity Not Exclusive. The indemnification and advancement of expenses provided by, or granted pursuant to, the other Subsections of this Section 14 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, by-law, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. The Board of Directors shall have the authority, by resolution, to provide for such other indemnification of directors, officers, employees or agents as it shall deem appropriate. (e) Insurance. The Corporation shall have power to purchase and maintain insurance to protect itself and any director, officer, employee or agent of this Corporation or another Corporation, partnership, joint venture, trust or other enterprise, against any expenses, liabilities or losses, whether or not the Corporation would have the power to indemnify such person against such expenses, liabilities or losses under the provisions of this Section 14 or the IBCA. (f) Continuation of Indemnification; Enforceability. The provisions of this Section 14 shall be applicable to all proceedings commenced after its adoption, whether such proceedings arise out of events, acts, omissions or circumstances which occurred or existed prior or subsequent to such 40 adoption, and shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. This Section 14 shall be deemed to grant each person who, at any time that this Section 14 is in effect, serves or agrees to serve in any capacity which entitles him to indemnification hereunder rights against the Corporation to enforce the provisions of this Section 14, and any repeal or other modification of this Section 14 or any repeal or modification of the IBCA or any other applicable law shall not limit any rights of indemnification then existing or arising out of events, acts, omissions or circumstances occurring or existing prior to such repeal or modification, including, without limitation, the right to indemnification for proceedings commenced after such repeal or modification to enforce this Section 14 with regard to acts, omissions, events or circumstances occurring or existing prior to such repeal or modification. (g) Severability. If this Section 14 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each director and officer of the Corporation as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation, to the full extent permitted by any applicable portion of this Section 14 that shall not have been invalidated and to the full extent permitted by applicable law. ARTICLE IV OFFICERS AND DEFINITION OF DUTIES SECTION 1. OFFICERS - REMOVAL. The officers of this Corporation shall consist of a Chairman of the Board, a President, one or more Vice-Presidents, a Secretary and a Treasurer, and such other officers, including one or more Assistant Secretaries and one or more Assistant Treasurers, as the Board of Directors may from time to time determine. In addition, the Board of Directors may from time to time elect a Vice Chairman and an Executive Vice President if it so determines. Such officers, when elected, shall hold office for the period of one year and thereafter until their respective successors shall have been duly elected, and shall have qualified; provided, however, that all officers, agents and employees of the Corporation shall be subject to removal at any time by the affirmative vote by a majority of the Board. Any one person may hold two offices at the same time, except that the same person shall not hold at the same time the office of Chairman of the Board and Secretary, President and Vice President, President and Secretary, Treasurer and Assistant Treasurer, or Secretary and Assistant Secretary. 41 SECTION 2. VACANCIES. If any vacancy shall occur among the officers of the Corporation, by resignation or otherwise, such vacancy may be filled by the Board of Directors. SECTION 3. CHAIRMAN OF THE BOARD. The Chairman of the Board shall supervise and control the officers, policies and programs of the Corporation. The Chairman shall preside at all meetings of the Board of Directors and shareholders. The Chairman shall initiate acquisition, merger and investment banking activities. The Chairman, from time to time, may delegate powers and duties to the Vice-Chairman, President and other officers. The Chairman shall possess the power to sign all certificates, contracts and other instruments of the Corporation as authorized by the Board of Directors. In the event of the absence, inability to act or disability of the President, the Chairman shall exercise all powers and discharge all duties of the President. The Chairman shall possess such other duties and powers as may be prescribed from time to time by the Board of Directors and the by-laws. SECTION 4. VICE-CHAIRMAN OF THE BOARD. The Vice Chairman of the Board, if elected, and in the event of the absence, inability to act or disability of the Chairman, shall carry out the responsibilities of the Chairman. The Vice- Chairman when so acting shall exercise the powers and discharge the duties of the Chairman, including presiding at meetings of shareholders and the Board of Directors. The Vice-Chairman shall possess such other duties and powers as may be prescribed from time to time by the Board of Directors, Chairman and by-laws. In the event of the absence, inability to act or disability of the Chairman and Vice-Chairman, the Board of Directors shall elect an acting Chairman. SECTION 5. PRESIDENT. The President shall be the chief operating officer of the Corporation. The President shall conduct the daily business and affairs of the Corporation as so authorized by the by-laws. The President may delegate powers and duties to the Vice-Presidents or other officers. The President shall have the power to sign all certificates, contracts, and other instruments of the Corporation as authorized by the Board of Directors. The President shall perform such other duties as may be prescribed from time to time by the Board of Directors, Chairman and by-laws. In the event of the absence, inability to act or disability of the Chairman, Vice-Chairman and acting Chairman, the President shall preside at meetings of shareholders and the Board of Directors. SECTION 6. THE EXECUTIVE VICE PRESIDENT. In the absence of, or in the case of the inability of the Chairman of the Board or the Vice Chairman (in the absence of the Chairman), and the President to act, the Executive Vice President, if one be elected by the Board, shall perform all duties and have the powers of the President. The Executive Vice President shall, in addition, perform 42 such other duties and have such other powers as the Board of Directors may, from time to time, by resolution determine. SECTION 7. OTHER VICE PRESIDENTS. Other Vice Presidents, including one or more Senior Vice Presidents, if such officers shall have been elected, shall perform such duties and have such duties and powers as the Board of Directors may from time to time by resolution determine, or, in the absence of such determination, as the President, with the consent of the Chairman or Vice Chairman, shall determine. SECTION 8. THE TREASURER. The Treasurer shall be the principal accounting and financial officer of the Corporation. He shall: (a) have charge of and be responsible for the maintenance of adequate books of account for the Corporation; (b) have charge and custody of all funds and securities of the Corporation; and be responsible therefor and for the receipt and disbursement thereof; and (c) perform all the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors may determine. SECTION 9. THE SECRETARY. The Secretary shall: (a) record the minutes of the shareholders' and of the Board of Directors' meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these by-laws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation; (d) keep a register of the post-office address of each shareholder which shall be furnished to the secretary by such shareholder; (e) sign with the President, or a Vice President, or any other officer thereunto authorized by the Board of Directors, certificates for shares of the Corporation, the issue of which shall have been authorized by the Board of Directors, and any contracts, deeds, mortgages, bonds, or other instruments which the Board of Directors has authorized to be executed, according to the requirement of the form of the instrument, except when a different mode of execution is expressly prescribed by the Board of Directors or these by-laws; (f) have general charge of the stock transfer books of the Corporation and (g) perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. SECTION 10. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The Assistant Treasurers and Assistant Secretaries shall perform such duties as shall be assigned to them by the Treasurer or the Secretary, respectively, or by the President or the Board of Directors. The Assistant Secretaries may sign with the President, or a Vice President, or any other officer thereunto authorized by the Board of Directors, certificates for shares of the 43 Corporation, the issue of which shall have been authorized by the Board of Directors, and any contracts, deeds, mortgages, bonds or other instruments which the Board of Directors has authorized to be executed, according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the Board of Directors or these by-laws. The assistant treasurers shall respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with sureties as the Board of Directors shall determine. SECTION 11. SALARIES. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation. ARTICLE V SHARES OF CAPITAL STOCK AND THEIR TRANSFER SECTION 1. STOCK ISSUE. Whenever stock, not previously reported to the Secretary of State as issued, has been issued within the authorized limit fixed by the statement of incorporation of a certificate of increase in capital stock, a statement subscribed and sworn to by the President or any Vice President, and attested by the Secretary or by an Assistant Secretary shall be filed in the office of the Secretary of State within ninety days after the issuance of such additional stock pursuant to authorization thereof by the Board of Directors in the form prescribed by the General Corporation Act of the State of Illinois. Promissory notes shall not be accepted for payment or part payment of stock issued by this Corporation. SECTION 2. CERTIFICATES. Each shareholder shall be entitled to a certificate of stock, executed by the President or Vice President and the Secretary or Assistant Secretary, and under the corporate seal, certifying the number of shares owned by him in such Corporation. When such certificate is countersigned by a transfer agent other than the Corporation itself, or an employee of the Corporation, or by a transfer clerk and registered by a registrar, the signatures of the President or Vice President and the Secretary or Assistant Secretary upon such certificates may be facsimiles, engraved or printed. SECTION 3. TRANSFERS. Transfers of shares of capital stock shall be made only upon the books of the Corporation by the holder in person or by power of attorney, duly executed, and filed with the Secretary, and on surrender of a certificate or certificates for such shares. SECTION 4. ADDRESSES. Every shareholder shall furnish the Secretary with his address, at which notice of meetings 44 and all other notices may be served upon, or mailed to him. In default thereof, notices may be addressed to him at the principal office of the Corporation. SECTION 5. LOST CERTIFICATES. The Chairman or President, as officers of the Company, acting singly, may direct new certificates of stock to be issued in the place of certificates theretofore issued, alleged to have been lost or destroyed, and may, in their discretion, require the owner of such certificate or certificates, or his legal representative, to give the Corporation a bond in such sum as they may direct, as indemnity against any claim that may be made against the Corporation. Said officers may issue instructions to the Transfer Agents and Registrars of the capital stock of the Company, may enter into such agreements and may sign such documents as may be necessary to effectuate the issuance of said certificates. Said officers, however, may refuse to issue or direct the issuance of any new certificates except upon institution of legal proceedings as required by statute, in such case made and provided. ARTICLE VI DIVIDENDS SECTION 1. DECLARATION. Dividends may be declared by the Board of Directors from time to time out of the surplus or net profits of the Corporation, and shall be payable at such times as the Board of Directors may determine. SECTION 2. RESERVES. Before payment of any dividend or making any distribution of profits, there may be set aside out of the surplus or net profits of the Corporation such sum or sums as the Directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purposes as the Directors shall think conducive to the interests of the Corporation. ARTICLE VII SEAL The corporate seal is and until otherwise ordered by the Board of Directors, shall be, an impression bearing the corporate name and the words "corporate seal" and "Illinois." 45 ARTICLE VIII FISCAL YEAR The fiscal year of the Corporation shall begin on the first day of January and end on the 31st day of December of each year. ARTICLE IX INSPECTION OF BOOKS The books kept for transferring stock and the names and addresses of the shareholders, during the usual business hours shall be open to examination for all proper purposes by every shareholder, at its principal office or place of business in the State of Illinois. Each shareholder of the Corporation shall have the right, at all reasonable times, by himself or by his attorney, to examine the records and books of account. ARTICLE X WAIVER OF NOTICE Whenever any action is to be taken after notice either to the shareholders or directors, or after the lapse of a prescribed period of time, such action may be taken without notice and without the lapse of such prescribed period of time, if such action be taken while all persons interested are present, and consenting thereto or be authorized or approved or such requirement be waived in writing by each person interested and entitled to notice, or by his attorney thereto authorized. ARTICLE XI AMENDMENTS These by-laws may be altered, amended or repealed by the affirmative vote of a majority of the Board of Directors at any regular or special meeting of the Board. 46 EX-13 4 c83813exv13.txt ANNUAL REPORT TO SHAREHOLDERS EXHIBIT 13 47 [CHICAGO RIVET LOGO] Chicago Rivet & Machine Co. 2003 Annual Report . . . [CHICAGO RIVET LETTERHEAD] - -------------------------------------------------------------------------------- HIGHLIGHTS
- ------------------------------------------------------------------------------------------ 2003 2002 2001 - ------------------------------------------------------------------------------------------ NET SALES AND LEASE REVENUE.................... $38,190,908 $43,012,766 $40,443,010 NET INCOME..................................... 817,527 2,604,075 1,792,270 NET INCOME PER SHARE........................... .85 2.69 1.85 DIVIDENDS PER SHARE............................ .97 .87 .97 NET CASH PROVIDED BY OPERATING ACTIVITIES...... 3,810,415 4,008,006 5,287,476 EXPENDITURES FOR PROPERTY, PLANT AND EQUIPMENT.................................... 641,715 886,009 1,431,698 WORKING CAPITAL................................ 14,020,185 12,874,182 11,616,424 TOTAL SHAREHOLDERS' EQUITY..................... 23,989,484 24,109,105 22,372,924 COMMON SHARES OUTSTANDING AT YEAR-END.......... 966,132 966,132 967,132 SHAREHOLDERS' EQUITY PER COMMON SHARE.......... 24.83 24.95 23.13
ANNUAL MEETING The annual meeting of shareholders will be held on May 11, 2004 at 10:00 a.m. at 901 Frontenac Road Naperville, Illinois - -------------------------------------------------------------------------------- MANAGEMENT'S REPORT ON FINANCIAL CONDITION AND RESULTS OF OPERATIONS [CHIGAGO RIVET LOGO] - -------------------------------------------------------------------------------- TO OUR SHAREHOLDERS: RESULTS OF OPERATIONS The past year was extremely difficult for the Company. After a relatively auspicious start, which fostered an optimistic outlook for the balance of the year, our business weakened considerably as production of domestic automobiles trailed prior year levels and domestic manufacturing activity, in general, remained weak. In addition, our customers continued to demand price concessions, while simultaneously raising the bar with respect to quality and service requirements. In response to these conditions, we relied on the time-tested approach of cost containment and cost reductions. In retrospect, it is clear that these actions were insufficient to offset the combined impact of lower volumes, lower prices and increased service expectations. 2003 COMPARED TO 2002 Reduced revenues were the dominant factor contributing to reduced margins within the fastener segment during 2003. Fastener segment revenues declined abruptly late in the first quarter and remained weak for the balance of the year. For the year 2003, fastener segment revenues declined 11.3% compared to 2002, totaling a disappointing $31,024,036. Reductions in North American production of domestic automobiles and trucks contributed to the weakness in our business as did continuing competitive pressures which contributed to the loss of some business, as we were unable to meet the price concessions demanded by certain customers. In addition, some high margin parts were lost in connection with design changes that accompanied the new model year. Reductions in manufacturing staff failed to keep pace with the decline in business activity, and the resultant inefficiencies are reflected in disproportionately higher labor costs in 2003, compared to 2002. In addition, margins were adversely affected by increases in the cost of employee health insurance and higher tooling expenses incurred in connection with the initial production of a variety of new parts. Within the assembly equipment segment, revenues declined 10.6% compared to 2002. As was the case in the fastener segment, lower volumes contributed to significantly reduced operating efficiencies that were manifested in disproportionately high labor and benefit costs compared with prior years. Other factors impacting margins within this segment were increases in the cost of raw materials, offset in part, by a decrease in depreciation expense. Selling and administrative expenses for 2003 were 5.9% below those for 2002. A $302,000 reduction in profit sharing expense was the largest single factor contributing to the decrease in this expense category, followed by reductions of $145,000 in bonus expense, and $96,000 in commission expense due to lower sales in the current year. These reductions were partially offset by a $74,000 expense related to an early retirement program and an increase in the cost of employee health insurance. Net interest income increased by approximately $45,000 during 2003, primarily as a result of lower interest expense related to lower balances on a note payable, which was paid in full in December. 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 was 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 remained well below historical levels. 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 remained 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 - -------------------------------------------------------------------------------- 1 MANAGEMENT'S REPORT (Continued) - -------------------------------------------------------------------------------- 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. DIVIDENDS In determining to pay dividends, the Board considers current profitability, the outlook for longer-term profitability, known and potential cash requirements and the overall financial condition of the Company. The Company paid four regular quarterly dividends of $.18 per share during 2003. In addition, an extra dividend of $.25 per share was paid during the second quarter of 2003, bringing the total dividend distribution to $.97 per share. On February 16, 2004, your Board of Directors determined that an extra dividend would not be declared or paid in the second quarter of 2004; however, the Board did declare a regular quarterly dividend of $.18 per share, payable March 19, 2004 to shareholders of record on March 5, 2004. This continues the uninterrupted record of consecutive quarterly dividends paid by the Company to its shareholders that extends over 70 years. PROPERTY, PLANT AND EQUIPMENT During 2003, capital expenditures amounted to $641,715, of which $535,268 was invested within the fastener segment, $89,379 was invested within the assembly equipment segment and the remainder was expended for building improvements that cannot be allocated between segments. Within the fastener segment, approximately $317,000 was invested in a new solvent-based parts cleaning system. This system, installed during the second half of the year, is expected to yield reductions in supply and waste disposal costs. Other expenditures were approximately $92,000 for vehicles, including $68,000 for a new delivery truck; $32,000 for in-line wire drawing equipment; some $21,000 for equipment related to quality control; with the balance expended for smaller tools and equipment and building improvements. Within the assembly equipment segment, approximately $86,000 was expended for the purchase of new equipment related to the manufacture of perishable tooling that is sold to customers. The balance was expended for building improvements and office 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 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. Depreciation expense amounted to $1,861,600 in 2003, $1,915,726 in 2002 and $1,921,703 in 2001. LIQUIDITY AND CAPITAL RESOURCES The Company's holdings in cash, cash equivalents and certificates of deposits amounted to nearly $6.0 million at December 31, 2003, an increase of approximately $.6 million compared with the end of 2002. Accounts receivable balances decreased approximately $.4 million, reflecting lower sales during the latter part of 2003, compared to the same period in 2002. Inventory levels, at the end of 2003, are also less than at the end of 2002 due to efforts taken to reduce inventories in response to continued weakness in demand for our products. 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, 2003, the indebtedness under the term loan had been extinguished. The line of credit was extended through May 31, 2004 and remained unused at December 31, 2003. OFF-BALANCE SHEET ARRANGEMENTS The Company has not entered into, and has no current plans to enter into, any off-balance sheet financing arrangements. - -------------------------------------------------------------------------------- 2 MANAGEMENT'S REPORT (Continued) [CHIGAGO RIVET LOGO] - -------------------------------------------------------------------------------- The following table presents a summary of the Company's contractual obligations as of December 31, 2003:
PAYMENTS DUE BY PERIOD --------------------------------------------------- LESS MORE CONTRACTUAL THAN 1 - 3 4 - 5 THAN 5 OBLIGATION TOTAL 1 YEAR YEARS YEARS YEARS - ----------- -------- -------- -------- ------- -------- Long-term Debt....... $ -- $ -- $ -- $ -- $ -- Capital Lease Obligations......... -- -- -- -- -- Operating Leases..... 36,657 27,493 9,164 -- -- Purchase Obligations......... 378,686 160,750 200,256 17,680 -- -------- -------- -------- ------- -------- Total................ $415,343 $188,243 $209,420 $17,680 $ -- ======== ======== ======== ======= ========
Management believes that current cash, cash equivalents and operating cash flow will be sufficient to provide adequate working capital for the foreseeable future. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS As of December 31, 2003, the Company did not have any outstanding debt, compared to $1.6 million of outstanding debt at the prior year-end, that was exposed to changes in interest rates. During 2003 the Company did not use derivative financial instruments relating to this interest rate exposure. 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 of the financial statements. 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. The company did not purchase any of its shares during 2003. During 2002, the company purchased 1,000 shares at an average price of $26.98 per share. Cumulative purchases under the repurchase authorization have amounted to 162,996 shares at an average price of $15.66 per share. OUTLOOK FOR 2004 The anticipated improvement in economic activity has not yet generated a meaningful increase in orders for our products. While we are encouraged by the fact that we have been awarded contracts for a number of new parts in the fastener segment, we are concerned about conditions within the assembly equipment segment, which remains very weak. Domestic competition remains intense and foreign competition, which affects us directly through the increase of imported fasteners and indirectly through the import of products that were previously assembled domestically, is a growing concern. These conditions increase the risk that our markets will not only become even more price competitive due to imports, but will shrink in size as domestic assembly operations are supplanted by imports of products that were traditionally assembled domestically, utilizing domestic fasteners and domestic assembly equipment. As mentioned above, we are pleased that we have been awarded new business within the fastener segment, but, in many instances, production volumes related to this new business will not reach significant levels until later in 2004. We will continue soliciting additional business from our current customers as well as from new customers. We face challenges in the form of recent and significant increases in the cost of raw materials utilized in the production of fasteners. While we have not experienced shortages of raw material, some of our suppliers report that increases in global demand may constrain availability of raw materials later this year. Our success in maintaining supply and recovering these higher costs, without losing market share, will be a critical determinant of our success in the coming year. Cost reduction will be another critical factor influencing future results. As previously reported, we have already taken actions to reduce our manufacturing costs, but the cost reductions realized have not fully offset the impact of lower volumes. We will continue exploring alternatives that will yield positive changes in our cost structure and our ability to - -------------------------------------------------------------------------------- 3 MANAGEMENT'S REPORT (Continued) - -------------------------------------------------------------------------------- compete. Margins, at least in the near term, will remain under pressure from the combination of rising costs and increasing foreign competition. We gratefully acknowledge that the Company's success, both past and future, would not be possible without: the conscientious efforts of our employees, who consistently demonstrate their dedication to meeting the formidable and ever-changing challenges that characterize today's manufacturing environment; the loyalty of our customers, many of whom face the same set of challenges; and, the continuing support of our shareholders. Respectfully, /s/ J. A. MORRISSEY /s/ JOHN C. OSTERMAN John A. Morrissey John C. Osterman Chairman President
February 25, 2004 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 2003 2002 - ----------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and Cash Equivalents................................. $ 5,530,099 $ 2,204,430 Certificates of Deposit................................... 455,000 3,157,733 Accounts Receivable -- Less allowances of $220,000 and $240,000, respectively................................. 4,549,168 4,994,697 Inventories............................................... 5,233,788 6,089,941 Deferred Income Taxes..................................... 602,191 581,191 Other Current Assets...................................... 218,560 277,983 ----------- ----------- Total Current Assets...................................... 16,588,806 17,305,975 Net Property, Plant and Equipment........................... 11,549,574 12,782,198 ----------- ----------- Total Assets................................................ $28,138,380 $30,088,173 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current Portion of Note Payable........................... $ -- $ 1,632,760 Accounts Payable.......................................... 1,310,044 1,121,195 Accrued Wages and Salaries................................ 754,394 795,920 Contributions Due Profit Sharing Plan..................... 133,243 435,542 Other Accrued Expenses.................................... 370,940 446,376 ----------- ----------- Total Current Liabilities................................. 2,568,621 4,431,793 Deferred Income Taxes....................................... 1,580,275 1,547,275 ----------- ----------- Total Liabilities......................................... 4,148,896 5,979,068 ----------- ----------- 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......................................... 26,326,352 26,445,973 Treasury Stock, 171,964 Shares at cost.................... (3,922,098) (3,922,098) ----------- ----------- Total Shareholders' Equity................................ 23,989,484 24,109,105 ----------- ----------- Total Liabilities and Shareholders' Equity.................. $28,138,380 $30,088,173 =========== ===========
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 2003 2002 2001 - ----------------------------------------------------------------------------------------------- Net Sales and Lease Revenue....................... $38,190,908 $43,012,766 $40,443,010 Cost of Goods Sold and Costs Related to Lease Revenue......................................... 30,744,104 32,427,203 31,255,964 ----------- ----------- ----------- Gross Profit...................................... 7,446,804 10,585,563 9,187,046 Selling and Administrative Expenses............... 6,280,455 6,674,821 6,439,603 Other (Income) Expense, net....................... (76,178) (50,333) 56,173 ----------- ----------- ----------- Income Before Income Taxes........................ 1,242,527 3,961,075 2,691,270 Provision for Income Taxes........................ 425,000 1,357,000 899,000 ----------- ----------- ----------- Net Income........................................ $ 817,527 $ 2,604,075 $ 1,792,270 =========== =========== =========== Net Income Per Share.............................. $ .85 $ 2.69 $ 1.85 =========== =========== ===========
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
- ----------------------------------------------------------------------------------------------- For the Years Ended December 31 2003 2002 2001 - ----------------------------------------------------------------------------------------------- Retained Earnings at Beginning of Year............ $26,445,973 $24,682,816 $23,828,665 Net Income........................................ 817,527 2,604,075 1,792,270 Cash Dividends Paid, $.97 Per Share in 2003, $.87 Per Share in 2002 and $.97 Per Share in 2001.... (937,148) (840,918) (938,119) ----------- ----------- ----------- Retained Earnings at End of Year.................. $26,326,352 $26,445,973 $24,682,816 =========== =========== ===========
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 2003 2002 2001 --------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net Income................................................ $ 817,527 $ 2,604,075 $ 1,792,270 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization........................... 1,861,600 1,915,726 1,921,703 Net Gain on the Sale of Properties...................... (11,405) (30,559) (42,917) Deferred Income Taxes................................... 12,000 144,000 154,000 Changes in Operating Assets and Liabilities: Accounts Receivable, net.............................. 445,529 (999,549) 1,042,083 Inventories........................................... 856,153 (39,273) 1,153,516 Other Current Assets.................................. 59,423 57,607 (143,922) Accounts Payable...................................... 188,849 191,561 (135,927) Accrued Wages and Salaries............................ (41,526) 44,338 (1,995) Accrued Profit Sharing Plan Contributions............. (302,299) 140,556 (142,090) Other Accrued Expenses................................ (75,436) (20,476) (309,245) ----------- ----------- ----------- Net Cash Provided by Operating Activities........ 3,810,415 4,008,006 5,287,476 ----------- ----------- ----------- Cash Flows from Investing Activities: Capital Expenditures.................................... (641,715) (886,009) (1,431,698) Proceeds from the Sale of Properties.................... 24,144 37,179 57,894 Proceeds from Held-to-Maturity Securities............... 3,207,733 3,007,882 3,815,989 Purchases of Held-to-Maturity Securities................ (505,000) (5,987,733) (2,563,985) ----------- ----------- ----------- Net Cash Provided by (Used in) Investing Activities....................................... 2,085,162 (3,828,681) (121,800) ----------- ----------- ----------- Cash Flows from Financing Activities: Payments under Term Loan Agreement...................... (1,632,760) (1,800,000) (1,800,000) Purchases of Treasury Stock............................. -- (26,976) -- Cash Dividends Paid..................................... (937,148) (840,918) (938,119) ----------- ----------- ----------- Net Cash Used in Financing Activities.............. (2,569,908) (2,667,894) (2,738,119) ----------- ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents...... 3,325,669 (2,488,569) 2,427,557 Cash and Cash Equivalents: Beginning of Year....................................... 2,204,430 4,692,999 2,265,442 ----------- ----------- ----------- End of Year............................................. $ 5,530,099 $ 2,204,430 $ 4,692,999 =========== =========== =========== Cash Paid During the Year for: Income Taxes............................................ $ 508,213 $ 1,247,000 $ 663,381 Interest................................................ $ 20,633 $ 79,708 $ 354,649
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 are for a quarterly or 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 approximated 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 966,132 in 2003, 966,537 in 2002 and 967,132 in 2001. ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. RECLASSIFICATIONS--Certain items in 2002 and 2001 have been reclassified to conform to the presentation in 2003. These changes have no effect on the financial position of the Company. - -------------------------------------------------------------------------------- 8 [CHIGAGO RIVET LOGO] - -------------------------------------------------------------------------------- 2--BALANCE SHEET DETAILS
2003 2002 ------------ ------------ Inventories: Raw materials................. $ 1,109,463 $ 1,636,216 Work in process............... 1,760,990 1,818,106 Finished goods................ 2,363,335 2,635,619 ----------- ----------- $ 5,233,788 $ 6,089,941 =========== =========== Net Property, Plant and Equipment: Land and improvements......... $ 1,015,635 $ 1,010,595 Buildings and improvements.... 5,779,993 5,743,325 Production equipment, leased machines and other.......... 28,201,191 27,774,278 ----------- ----------- 34,996,819 34,528,198 Accumulated depreciation...... 23,447,245 21,746,000 ----------- ----------- $11,549,574 $12,782,198 =========== =========== Other Accrued Expenses: Property taxes................ $ 112,794 $ 116,837 Unearned revenue and customer deposits.................... 120,893 140,390 All other items............... 137,253 189,149 ----------- ----------- $ 370,940 $ 446,376 =========== ===========
3--LEASED MACHINES--Lease revenue amounted to $160,312 in 2003, $198,869 in 2002 and $225,948 in 2001. 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:
2003 2002 --------- --------- Cost.................................. $343,833 $450,717 Accumulated depreciation.............. 331,933 422,828 -------- -------- Carrying value........................ $ 11,900 $ 27,889 ======== ========
4--INCOME TAXES--The provision for income tax expense consists of the following:
2003 2002 2001 ---------- ----------- ----------- Current: Federal................ $ 408,000 $ 1,203,000 $ 739,000 State.................. 5,000 10,000 6,000 Deferred................. 12,000 144,000 154,000 ---------- ----------- ----------- $ 425,000 $ 1,357,000 $ 899,000 ========== =========== ===========
The deferred tax liabilities and assets consist of the following:
2003 2002 ------------ ------------ Depreciation.................... $(1,592,820) $(1,560,005) ----------- ----------- Inventory....................... 338,281 311,911 Accrued vacation................ 171,491 170,292 Allowance for doubtful accounts...................... 76,800 83,800 Other, net...................... 28,164 27,918 ----------- ----------- 614,736 593,921 ----------- ----------- $ (978,084) $ (966,084) =========== ===========
The following is a reconciliation of the statutory federal income tax rate to the actual effective tax rate:
2003 2002 2001 --------------- ----------------- --------------- AMOUNT % Amount % Amount % --------------- ----------------- --------------- Expected tax at U.S. Statutory rate.......................... $422,000 34.0 $1,347,000 34.0 $915,000 34.0 State taxes, net of federal benefit....................... 3,000 .2 7,000 .2 4,000 .1 Other, net..................... -- -- 3,000 .1 5,000 .2 Adjustment to prior year accrual....................... -- -- -- -- (25,000) (.9) -------- ---- ---------- ---- -------- ---- Income tax expense............. $425,000 34.2 $1,357,000 34.3 $899,000 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 million plus a $1 million line of credit. The new borrowing was used to repay an existing loan and to fund purchases of stock under the terms of a "Dutch auction." As of December 31, 2003, the term loan was paid off. The line of credit was extended through May 31, 2004 and remained unused at December 31, 2003. 6--TREASURY STOCK TRANSACTIONS--In 2002, the Company purchased 1,000 shares of its common stock for $26,976. These shares are being held in treasury. During 2003 and 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 $133,000 in 2003, $435,000 in 2002 and $295,000 in 2001. - -------------------------------------------------------------------------------- 9 [CHIGAGO RIVET LOGO] - -------------------------------------------------------------------------------- 9--OTHER INCOME (EXPENSE), NET--consists of the following:
2003 2002 2001 --------- --------- ---------- Interest income............. $ 72,087 $ 83,770 $ 145,233 Interest expense............ (22,847) (79,556) (259,840) Gain on sale of property and equipment................. 11,405 30,559 42,917 Other....................... 15,533 15,560 15,517 --------- --------- ---------- $ 76,178 $ 50,333 $ (56,173) ========= ========= ==========
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, 2003: Net sales and lease revenue................ $31,024,036 $7,166,872 $ -- $38,190,908 Depreciation............ 1,490,592 161,200 209,808 1,861,600 Segment profit.......... 2,084,889 1,482,888 -- 3,567,777 Selling and administrative expenses............... 2,374,490 2,374,490 Interest expense........ 22,847 22,847 Interest income......... (72,087) (72,087) ----------- Income before income taxes.................. 1,242,527 ----------- Capital expenditures.... 535,268 89,379 17,068 641,715 Segment assets: Accounts receivable.... 3,836,968 712,200 -- 4,549,168 Inventory.............. 3,191,132 2,042,656 -- 5,233,788 Property, plant and equipment............ 9,099,003 1,448,530 1,002,041 11,549,574 Other assets........... -- -- 6,805,850 6,805,850 ----------- 28,138,380 ----------- 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 -----------
Assembly Fastener Equipment Other Consolidated ----------- ------------- ---------- ------------ 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 -----------
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 13, 18 and 18 percent and 21, 17 and 14 percent of consolidated revenues during 2003, 2002 and 2001, 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 and $(.02) per share, for 2002 and 2001, respectively. There was no fourth quarter adjustment in 2003. 12--COMMITMENTS AND CONTINGENCIES--The Company recorded rent expense aggregating approximately $40,000, $41,000 and $40,000 for 2003, 2002 and 2001, respectively. Total future minimum rentals at December 31, 2003 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 AUDITORS 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, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 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 25, 2004 SELECTED FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------- Net Sales and Lease Revenue $38,190,908 $43,012,766 $40,443,010 $45,423,263 $49,080,257 - ------------------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 1,242,527 3,961,075 2,691,270 3,986,161 5,229,291 - ------------------------------------------------------------------------------------------------------------------------------- Net Income 817,527 2,604,075 1,792,270 2,656,161 3,454,291 - ------------------------------------------------------------------------------------------------------------------------------- Net Income Per Share .85 2.69 1.85 2.60 3.00 - ------------------------------------------------------------------------------------------------------------------------------- Dividends Per Share .97 .87 .97 1.07 1.07 - ------------------------------------------------------------------------------------------------------------------------------- Average Common Shares Outstanding 966,132 966,537 967,132 1,022,627 1,151,333 - ------------------------------------------------------------------------------------------------------------------------------- Working Capital 14,020,185 12,874,182 11,616,424 12,001,291 12,447,590 - ------------------------------------------------------------------------------------------------------------------------------- Total Debt -- 1,632,760 3,432,760 5,232,760 3,150,000 - ------------------------------------------------------------------------------------------------------------------------------- Total Assets 28,138,380 30,088,173 29,678,013 31,157,119 32,621,585 - ------------------------------------------------------------------------------------------------------------------------------- Shareholders' Equity 23,989,484 24,109,105 22,372,924 21,518,773 23,887,278 - -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 11 [CHIGAGO RIVET LOGO] - -------------------------------------------------------------------------------- QUARTERLY FINANCIAL DATA (UNAUDITED)
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ----------- ----------- ---------- ----------- 2003 Net Sales and Lease Revenue............. $10,236,463 $10,005,944 $8,831,742 $ 9,116,759 Gross Profit......... 2,385,529 1,929,633 1,539,172 1,592,470 Net Income........... 465,241 221,621 5,431 125,234 Per Share Data: Net Income Per Share............. .48 .23 .01 .13 Average Common Shares Outstanding....... 966,132 966,132 966,132 966,132 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
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, 2003, there were approximately 310 shareholders of record. The transfer agent and registrar for the Company's common stock is: EquiServe Trust Company, N.A. P.O. Box 43069 Providence, RI 02940-3069 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 2003 2002 2003 2002 - --------------------- ---- ---- ---------------- ---------------- First................ $.43* $.33* $25.50 $22.80 $28.80 $22.70 Second............... .18 .18 $26.26 $24.10 $28.80 $25.65 Third................ .18 .18 $29.99 $26.30 $26.60 $23.50 Fourth............... .18 .18 $28.24 $25.00 $26.66 $22.40
- --------------- * Includes an extra dividend of $.25 and $.15 per share in 2003 and 2002, respectively. - -------------------------------------------------------------------------------- 12 [CHIGAGO RIVET LETTERHEAD] - -------------------------------------------------------------------------------- BOARD OF DIRECTORS EDWARD L. CHOTT(a)(c)(n) 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)(n) Chairman of the Board and Chief Executive Officer of Divane Bros. Electric Co. Franklin Park, Illinois JOHN R. MADDEN(a)(c)(e)(n) Chairman of the Board of 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(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 (n) Member of Nominating Committee - -------------------------------------------------------------------------------- [CHICAGO RIVET GRAPHIC & LETTERHEAD] - -------------------------------------------------------------------------------- EX-14 5 c83813exv14.txt CODE OF ETHICS EXHIBIT 14 64 EXHIBIT 14 CODE OF ETHICS FOR CHIEF EXECUTIVE AND SENIOR OFFICERS The Company is committed to conducting our business in accordance with applicable laws, rules and regulations and the highest standards of business conduct, and to full and accurate financial disclosure in compliance with applicable law. This Code of Ethics, applicable to the Company's Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and Controller (or persons performing similar functions) (together, "Senior Officers"), sets forth specific policies to guide you in the performance of your duties. As a Senior Officer, you must not only comply with applicable law. You also must engage in and promote honest and ethical conduct and abide by the Code of Business Conduct and other Company policies and procedures that govern the conduct of our business. Your leadership responsibilities include creating a culture of ethical business conduct and commitment to compliance, maintaining a work environment that encourages employees to raise concerns, and promptly addressing employee compliance concerns. COMPLIANCE WITH LAWS, RULES AND REGULATIONS You are required to comply with the laws, rules and regulations that govern the conduct of our business and to report any suspected violations in accordance with the section below entitled "Compliance With Code Of Ethics." CONFLICTS OF INTEREST Your obligation to conduct the Company's business in an honest and ethical manner includes the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. No Senior Officer shall make any investment, accept any position or benefits, participate in any transaction or business arrangement or otherwise act in a manner that creates or appears to create a conflict of interest unless the Senior Officer makes full disclosure of all facts and circumstances to, and obtains the prior written approval of, the Audit Committee of the Board of Directors. DISCLOSURES It is Company policy to make full, fair, accurate, timely and understandable disclosure in compliance with all applicable laws and regulations in all reports and documents that the Company files with, or submits to, the Securities and Exchange Commission and in all other public communications made by the Company. As a Senior Officer, you are required to promote compliance with this policy and to abide by Company standards, policies and procedures designed to promote compliance with this policy. 65 COMPLIANCE WITH CODE OF ETHICS If you know of or suspect a violation of applicable laws, rules or regulations or this Code of Ethics, you must immediately report that information to any member of the Audit Committee of the Board of Directors. No one will be subject to retaliation because of a good faith report of a suspected violation. Violations of this Code of Ethics may result in disciplinary action, up to and including discharge. The Audit Committee of the Board of Directors shall determine, or shall designate appropriate persons to determine, appropriate action in response to violations of this Code. WAIVERS OF CODE OF ETHICS If you would like to seek a waiver of the Code of Ethics you must make full disclosure of your particular circumstances to the Audit Committee of the Board of Directors. Amendments to and waivers of this Code of Ethics will be publicly disclosed as required by applicable law and regulations. NO RIGHTS CREATED This Code of Ethics is a statement of certain fundamental principles, policies and procedures that govern the Company's Senior Officers in the conduct of the Company's business. It is not intended to and does not create any rights in any employee, customer/client, supplier, competitor, shareholder or any other person or entity. 66 EX-21 6 c83813exv21.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. 67 EX-31.1 7 c83813exv31w1.txt CERTIFICATION OF THE CEO EXHIBIT 31.1 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 29, 2004 /s/ John A. Morrissey --------------------- John A. Morrissey Chief Executive Officer 68 EX-31.2 8 c83813exv31w2.txt CERTIFICATION OF THE CFO EXHIBIT 31.2 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 29, 2004 /s/ John C. Osterman -------------------- John C. Osterman Chief Financial Officer 69 EX-32.1 9 c83813exv32w1.txt CERTIFICATION OF THE CEO EXHIBIT 32.1 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, 2003 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. Section 1350, as adopted pursuant to Section 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 29, 2004 70 EX-32.2 10 c83813exv32w2.txt CERTIFICATION OF THE CFO EXHIBIT 32.2 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, 2003 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. Section 1350, as adopted pursuant to Section 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 29, 2004 71 -----END PRIVACY-ENHANCED MESSAGE-----