CHICAGO RIVET & MACHINE CO, 10-K405, 1997-03-27

CHICAGO RIVET & MACHINE CO
10-K405, 1997-03-27
METALWORKG MACHINERY & EQUIPMENT

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-K
(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, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

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
(State or Other Jurisdiction of
Incorporation or Organization)
36-0904920
(I.R.S. Employer
Identification No.)

901 Frontenac Road
Naperville, IL
(Address of Principal Executive Offices)
60563
(Zip Code)

Registrant's Telephone Number, Including Area Code: (630) 357-8500

Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock--$2.00 Par Value American Stock Exchange
(Trading privileges
only,
not registered)
</TABLE>

Securities registered pursuant to Section 12(g) of the Act:

None.
- --------------------------------------------------------------------------------
(Title of Class)

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 ]

STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT. THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO
THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF
SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF FILING.

$15,742,436 AS OF FEBRUARY 14, 1997

COMMON SHARES OUTSTANDING AS OF FEBRUARY 14, 1997 WERE 585,748 ($2 PAR VALUE)

DOCUMENTS INCORPORATED BY REFERENCE

(1) PORTIONS OF THE COMPANY'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR
ENDED DECEMBER 31, 1996 (THE "1996 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 1997 ANNUAL MEETING OF SHAREHOLDERS ARE INCORPORATED BY REFERENCE IN
PART III OF THIS REPORT.

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PAGE 1 OF ____
EXHIBIT INDEX IS ON PAGE ____
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CHICAGO RIVET & MACHINE CO.
PERIOD ENDING DECEMBER 31, 1996

<TABLE>
<CAPTION>
Item Page
No. No.
- --- ---
Part I
<S> <C> <C>
1. Business 3
2. Properties 4
3. Legal Proceedings 5
4. Submission of Matters to a Vote of Security Holders 5

Part II

5. Market for Registrant's Common Equity and Related Stockholder
Matters 7
6. Selected Financial Data 7
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
8. Financial Statements and Supplementary Data 10
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 10

Part III

10. Directors and Executive Officers of the Registrant 10
11. Executive Compensation 11
12. Security Ownership of Certain Beneficial Owners and Management 11
13. Certain Relationships and Related Transactions 11

Part IV

14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 11

</TABLE>
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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 the fastener industry
in the United States, producing and selling rivets, cold-headed parts, screw
machine products, automatic rivet setting machines, parts and tools for such
machines, and the leasing of automatic rivet setting machines. For further
discussion regarding the Company's operations see Note 1 which appears on page
8 of the Company's 1996 Annual Report to Shareholders, incorporated herein by
reference. The 1996 Annual Report is filed as an exhibit to this report.

The principal market for the fastener industry operations is the
automotive and appliance industries within the United States. Sales are
generally solicited by independent sales representatives.

The industry in which the Company operates is 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 wide variety of customers. Sales revenues are
primarily derived from sales to customers involved, directly or indirectly, in
the manufacture of automobiles and appliances. Information concerning backlog
of orders is not considered material to the understanding of the Company's
business due to relatively short delivery cycles. The level of business
activity for the Company is closely related to the overall level of industrial
activity of the United States.

On December 3, 1996, the Company acquired substantially all of the
assets and assumed certain liabilities of H & L Tool Company, Inc. (H & L Tool)
of Madison Heights, Michigan. H & L Tool manufactures specialty cold-formed
parts, including fasteners, and screw machine products for sale to customers
primarily in the automotive industry. The assets purchased included all of
H & L Tool's production equipment, its facilities in Madison Heights,
inventories, accounts receivable and other operating assets. The purchase price
was approximately $19.1 million including approximately $0.3 million of
acquisition costs, and was financed through a $4.8 million credit against the
selling price, in consideration of the seller's retention of all cash and cash
equivalents, an unsecured loan of $9.0 million and approximately $5.3 million
in available cash. The Registrant intends to continue operations at the
Madison Heights location. For further information regarding this acquisition,
see Note 2 which appears on page 8 of the Company's Annual Report to
Shareholders, incorporated herein by reference.

The Company's business has historically been somewhat stronger during
the first half of the year.
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In conformity with industry practice, the Company does not provide
credit terms in excess of thirty days.

The Company purchases raw materials, primarily wire materials used in
the manufacture of rivets, from large domestic metal product manufacturers.
There are numerous sources of raw materials, and the Company does not have to
rely on a single source for any of its requirements. The Company is not aware
of any significant problem in the availability of raw materials used in its
production.

Patents, trademarks, licenses, franchises and concessions are not of
significant importance to the business of the Company.

The Company does not engage in basic research activities, but rather
in ongoing product improvement and development. The amounts spent on product
development activities in the last three years were not material.

At December 31, 1996, the Company employed 379 people.

The Company has no foreign operations, and sales to foreign
customers only represent a minor portion of the Company's total sales.

ITEM 2 - PROPERTIES

The Company conducts its fastener manufacturing and warehousing
operations in five plants, which are described below. All Company-owned
properties are held in fee and are used for the manufacture and warehousing of
the Company's products. All plants are considered suitable and adequate for
their present use. The Company also currently maintains a small sales office
in Norwell, Massachusetts in a leased facility.

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 shed.

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.

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ITEM 3 - LEGAL PROCEEDINGS

The Company is, from time to time, involved in litigation, including
environmental claims, in the normal course of business. With regard to
environmental claims, the Company has been named by state and/or federal
government agencies as a "potentially responsible party" with respect to
certain waste disposal sites. The specific sites in which the Company is
involved are as follows: the Industrial Solvents and Chemicals Site in York
County Pennsylvania, the government agency involved at this site is the
Pennsylvania Department of Environmental Protection and the Company has been
involved since November 1990; the Delta Chemicals Site, Armstrong County,
Pennsylvania, the government agency involved is the Pennsylvania Department of
Environmental Protection, and the Company has been involved since November
1993. With regard to the sites in Pennsylvania, the Company, along with other
potentially responsible parties, has entered into consent agreements with the
Pennsylvania Department of Environmental Protection providing for remediation
of the sites. As a potentially responsible party, the Company may be
considered jointly and severally liable, along with other potentially
responsible parties, for the cost of remediation of these waste sites. The
actual cost of remediation is presently unknown; however, estimates currently
available suggest that the cost of remediation at these sites will be between
$47 million and $85 million. Despite the joint and several nature of liability,
these proceedings are frequently resolved on the basis of the quantity and type
of waste disposed by the parties. The actual amount of liability for the
Company is unknown due to disagreement concerning the allocation of
responsibility, uncertainties regarding the amount of contribution that will be
available from other parties and uncertainties related to insurance coverage.
After investigation of the quantities and type of waste disposed at these
sites, it is management's opinion that any liability will not be material to
the Company's financial condition. At a number of waste disposal sites, the
issues affecting the Company, have been favorably resolved, or are nearing
resolution, and accordingly, the Company has reduced the amount of reserves
recorded in connection with these sites. Nevertheless, it is unlikely that the
Company will not incur significant costs associated with the remaining
proceedings and, accordingly, the Company has recorded a total liability of
approximately $250,000 related to these matters. The adequacy of this reserve
will be reviewed periodically as more definitive cost information becomes
available.

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 1996.

EXECUTIVE OFFICERS OF THE REGISTRANT

The names, ages and positions of all executive officers of the
Company, as of March 27, 1997, 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.
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<TABLE>
<CAPTION>
Number of Years
Name and Age of Officer Position an Officer
- ------------------------ --------- ---------------
<S> <C> <C> <C>
John A. Morrissey 61 Chairman, Chief
Executive Officer 17

John C. Osterman 45 President, Chief
Operating Officer
and Treasurer 13

Donald P. Long 45 Vice President - Sales 2

Stephen D. Voss 35 Assistant Treasurer and
Corporate Controller 8

Kimberly A. Kirhofer 38 Secretary 6
</TABLE>

- - 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. 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 five years.

- - Mr. Voss has been Assistant Treasurer of the Company since May 1992
and has been Controller of the Company since November 1988.

- - Mrs. Kirhofer has been Secretary of the Company since August 1991, and
was Assistant Secretary of the Company from February 1991 through
August 1991. She has been employed by the Company for more than five
years, during which she held various administrative positions.
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PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS

The Company's common stock is traded on the American Stock Exchange
(trading privileges only, not registered). As of March 5, 1997 there were 505
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 1996 Annual Report is incorporated herein by reference. The 1996
Annual Report is filed as an exhibit to this report.

ITEM 6 - SELECTED FINANCIAL DATA

The section entitled "Selected Financial Data" which appears on page 11 of
the 1996 Annual Report is incorporated herein by reference. The 1996 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

When used in this discussion, the words "believe," "anticipated,"
"expected" and similar expressions are intended to identify "forward-looking
statements," which statements speak only as of the date hereof. Such statements
are subject to certain risks and uncertainties which could cause actual
circumstances to differ materially from those mentioned in this discussion
including, but not limited to: (i) the ability of the Company to successfully
integrate H & L Tool Company, Inc. into its operations, (ii) the ability of the
Company to maintain its relationships with its significant customers, (iii)
increases in the prices of, or limitations on the availability of, the Company's
primary raw materials, and (iv) a downturn in the automotive industry, upon
which the Company relies 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.

Readers are cautioned not to place undue reliance on these forward-looking
statements. The Company undertakes 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

We are pleased to report that 1996 was yet another very successful year for
the Company. Revenues amounted to $22,510,953 and net income totaled $1,948,001.
Although neither sales nor net income quite equaled the outstanding levels
reported for 1995, the past year was one of the best in the Company's recent
history. Late in 1996, the acquisition of the assets of H & L Tool Company, Inc.
(H & L Tool) was successfully completed. This strategic acquisition represents a
significant step in the Company's continuing efforts to enhance its market
position by expanding its cold-forming capabilities and providing entry into the
market for screw machine products. In addition, it further improves our presence
and market position with respect to key customers in the automotive sector.
Since the acquisition was completed late in the year, H & L Tool's contribution
to the Company's 1996 results was not substantial; however, we anticipate that H
& L Tool will have a significant positive impact on results in the years ahead.

1996 COMPARED TO 1995

Net sales and lease revenues for 1996 totaled $22,510,953, including
$1,390,158 in revenues from H & L Tool's operations recorded in December. This
is a decline of approximately 5.1% compared to 1995, the best year in the
Company's recent history. As previously reported, sales activity across all
product lines began to weaken during the latter part of 1995. This weakness
continued throughout 1996 and was more pronounced in our markets for machinery
and related tools and parts, especially in the area of complex, highly automated
assembly equipment. The additional revenue related to H & L Tool more than
offset the effects of weak market conditions with regard to fasteners and, as a
result, revenues for fasteners increased relative to 1995.

Gross margins declined compared to the prior year due to a number of
factors. Variable costs of manufacturing were generally reduced in line with
lower operating levels. However, certain costs of manufacture, including wages,
utility expense and supply costs increased, on a relative basis, compared to
1995. These increases were partially offset by a reduction in workers'
compensation insurance costs. Operating profits in connection with H & L Tool
were offset by the recognition of a portion of the "step-up" value assigned to
the purchased inventory of H & L Tool. This treatment is required under the
purchase accounting provisions of APB Opinion No. 16 and is intended to reflect
that portion of the profit on the sale of purchased inventory that was earned by
the seller, prior to the sale of assets to the Company. The effect, in 1996, was
to reduce income by approximately $192,000, before income taxes. This represents
approximately one-half of the total amount that will ultimately be recognized;
the remaining amount will be reflected in operating results for the first
quarter of 1997. Fixed operating costs, as would be expected, remained
relatively unchanged from the prior period. In addition, a slight change in
product mix contributed to the unfavorable comparison with the prior year.
Extreme resistance to price relief has become an unchanging characteristic of
the automotive markets which we continue to serve, and while cost reduction
programs continue to be emphasized at Chicago Rivet, their effectiveness has
diminished as the most dramatic opportunities for cost reduction have already
been implemented.

Interest income increased in 1996, reflecting higher interest rates and
larger invested balances throughout most of the year. Interest expense for 1996
amounted to $47,250, which represents one month of interest expense on
borrowings associated with the acquisition of H & L Tool. Interest expense in
connection with this loan, along with the lower cash balances available for
investment, will significantly impact non-operating income in 1997. Selling and
administrative expenses were relatively unchanged compared to the prior year
period.

1995 COMPARED TO 1994

Revenues increased to a total of $23,717,410 during 1995. This represented
an increase of approximately 3.1 % over the prior year and marked the fourth
consecutive year of revenue growth. The strong demand for the Company's products
that existed throughout 1994 continued during the first half of 1995. That
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demand, coupled with a high backlog of orders booked in 1994, allowed the
Company to post very strong revenue gains during the first half of 1995.
Historically, first half sales revenues tend to exceed those of the second half
of the year, and while the traditional pattern held, the difference between
first half and second half was more pronounced in 1995. Demand for fasteners
weakened considerably during the third and fourth quarters as most of the
Company's major customers reduced their production requirements. The market for
rivet setting machines and related tooling also weakened in the latter half of
the year, but the change was not as pronounced as it was for fasteners.

Gross margins again showed improvement over the prior period. Two major
factors contributed to this improvement; a more favorable product mix was the
most significant factor, followed by the contribution from ongoing cost
reduction programs. Cost reduction efforts, at all facilities, continued to be
critical to our success as raw materials, supply and labor costs have generally
continued to increase, while our customers have consistently resisted any form
of price relief. This is particularly true with regard to fasteners sold to
automotive customers, and less so for automatic assembly equipment and related
parts. We were more successful in obtaining price relief in our market for tools
and assembly equipment.

An increase in the funds available for investment resulted in higher
interest income in spite of lower prevailing interest rates. Selling and
administrative expenses increased approximately 6% during 1995 as a result of
higher commissions paid on increased sales, and due to higher pension, profit
sharing expense and salary expense.

1994 COMPARED TO 1993

Net sales and lease revenues advanced for the third consecutive year. During
1994, net sales and lease revenues amounted to $23,012,730, compared with
$20,390,304 recorded during 1993. Revenues from the sale of automatic rivet
setting equipment, tools and parts accounted for the majority of the increased
revenues and revenues attributable to product lines acquired in connection with
the Company's May 1993 purchase of Textron's Townsend Automation division, were
the dominant factor. Overall, revenues from the sale and lease of automatic
rivet setting equipment, tools and parts increased approximately 19% compared
with 1993. Revenue from the sale of rivets and cold-formed fasteners increased
approximately 7% compared with 1993.

Operating profits increased appreciably compared with 1993, largely due to
the effect of higher sales volumes as well as an overall improvement in
manufacturing efficiencies. Partially offsetting the gain from improved
efficiencies were increases in the cost of raw materials and supplies. In
addition to higher wage rates, labor costs reflected the cost of training new
employees as well as an increase in overtime expense required to meet customer
delivery requirements throughout the year.

While the Company's 1994 sales were favorably impacted by increased product
demand that accompanied robust levels of automobile production, capacity in our
industry continued to exceed aggregate demand. Major customers continued to take
advantage of this excess capacity by staunchly refusing to consider price
increases while vigorously pursuing lower prices from the supply base. These
conditions had the effect of limiting our success in achieving long overdue
price relief. Even though our competitive position has improved substantially as
a result of successful cost reduction programs, certain costs were beyond our
direct control and margins continue to be under pressure, especially in the
fastener segment.

Selling and administrative expenses increased approximately 9% over prior
year levels, with increases in commission expense associated with increased
sales volume, and higher profit sharing expense accounting for the majority of
the change. The combination of generally higher interest rates and increases in
the Company's cash position resulted in an increase, before taxes, of
approximately $37,000 in interest income compared with 1993.

DIVIDENDS

The Company paid four regular quarterly dividends of 30 cents per share
during 1996. In addition, an extra dividend of 60 cents per share was paid
during the second quarter of 1996, bringing the total dividend payout for 1996
to $1.80 per share. On February 17, 1997, the Board of Directors declared a
regular quarterly dividend of 30 cents per share, payable March 20, 1997 to
shareholders of record March 5, 1997. This continues the uninterrupted record
of consecutive quarterly dividends paid by the Company to its shareholders that
extends over 63 years. At that same meeting, the Board declared an extra
dividend of 50 cents per share, payable April 18, 1997 to shareholders of
record, April 4, 1997.

ACQUISITION

On December 3, 1996, the Company acquired substantially all of the
assets, and assumed certain liabilities of, H & L Tool Company, Inc. of Madison
Heights, Michigan. The purchase price was approximately $19.1 million,
including acquisition costs of $0.3 million, and was financed through a $4.8
million credit against the purchase price in consideration of the seller's
retention of all cash and marketable securities, an unsecured loan of $9.0
million and approximately $5.3 million in available cash. Additional
information is contained in Note 2 to the Consolidated Financial Statements.
H & L Tool is a leading manufacturer of specialty screw-machine and cold-headed
products serving the automotive industry. This acquisition significantly
enhances the Company's product offerings and is expected to strengthen our
relationships with certain key customers.

MACHINERY & EQUIPMENT

Capital investments during 1996, exclusive of expenditures related to
the acquisition of the assets of H & L Tool totaled $861,128. Of this total,
approximately $289,000 was invested in equipment used in the manufacture of
fasteners and machinery and $193,000 was expended for the purchase of a new
boiler to provide heat and process steam for our Tyrone facility. Approximately
$280,000 was invested in new data processing equipment and software, which
represents approximately one-half of the projected cost associated with the
installation of new information management systems. This effort, scheduled for
completion in 1999, is expected to provide significant improvements in
manufacturing management and customer service, and should also yield a
reduction in administrative expenses. Approximately $22,000 was invested in new
automatic rivet setting machines manufactured by the Company and leased to its
customers. The balance was expended for the purchase of various smaller machine
tools and office equipment.

<PAGE> 9
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Capital investments during 1995 were $231,340, with the major portion of
that total invested in cold-heading equipment. Of the balance, $32,531 was
invested in new automatic rivet setting machines manufactured by the Company and
leased to its customers.

Capital expenditures totaled $383,354 during 1994. In addition to $42,422
expended for automatic rivet setting machines manufactured by the Company and
leased to its customers, significant investments were made in new machine tools
related to the manufacture of automatic rivet setting machines. Other
significant purchases included telecommunications equipment, and computer aided
design equipment and software.

Depreciation expense amounted to $709,678 in 1996, $646,456 in 1995, and
$653,748 in 1994.

LIQUIDITY AND CAPITAL RESOURCES

The Company's financial condition continues to be sound. Working
capital at year end amounted to approximately $12.0 million, a slight decrease
from one year earlier. The Company's ratio of current assets to current
liabilities stood at approximately 3.3, which, although lower than 1995, was
still well above the norm for our industry. The change in current ratio and
working capital reflects the inclusion in current liabilities of $1.8 million,
which is the current portion of long term debt incurred in connection with the
purchase of the assets of H & L Tool. In connection with this acquisition, the
Company borrowed $9.0 million on an unsecured basis, subject to certain
customary covenants. Under the terms of the note, the Company will repay the
principal in 20 quarterly installments of $450,000, plus interest computed on
the unpaid balance at a variable rate that is calculated under one of two
methods: the London Interbank Offering Rate, plus 80 basis points; or the
lender's reference rate, less 75 basis points. This rate is adjusted quarterly
and at year end was approximately 6.30%. Inventories increased by $2.8 million,
with nearly all of the change attributable to H & L Tool. Similarly, the
acquisition of H & L Tool is reflected in the increase in property, plant and
equipment, net of depreciation, of approximately $8.5 million. Cash and
short-term investments decreased by approximately $4.3 million, primarily due
to the use of available cash to fund the acquisition. The change in accounts
receivable is also primarily attributable to the H & L acquisition.
Although management believes that operations can be adequately funded without
additional borrowing, a $1.0 million line of credit was obtained from the Bank
of America in connection with the acquisition. There was no charge for this
facility, and as of December 31, 1996 it was unused. The facility will expire
on May 30, 1997.

CONTINGENCIES

NEW ACCOUNTING STANDARDS

In March 1995, the FASB issued Statement No. 121 "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets Being Disposed Of"
effective for the Company's year ended December 31, 1996. The adoption of this
Statement did not have a significant effect upon the Company's financial
condition.

In October 1996, the AICPA issued Statement of Position 96-1
"Environmental Remediation Liability" effective for the Company's year ending
December 31, 1997. Adoption of this Statement is not expected to have a
significant effect upon the Company's financial condition.

In February 1997, the FASB issued Statement No. 128 " Earnings per Share"
effective for the Company's year ending December 31, 1997. The adoption of this
Statement is not expected to have any effect on the Company's reporting of
earnings per share.

<PAGE> 10
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STOCK PURCHASE PROGRAM

In February 1990, the Board of Directors authorized the repurchase of up
to 50,000 shares of the Company's outstanding common shares. This authorization
was subsequently amended to allow for the repurchase of an aggregate of 100,000
shares, with such purchases to be made from time to time, in the open market or
in private transactions, at prices deemed reasonable by management. Purchases
under the current repurchase authorization have amounted to 58,598 shares at an
average price of $22.77 per share. Compliance with SEC regulations related to
insider trading effectively prevented any purchases during 1996 due to the
ongoing nature of negotiations related to the acquisition of the assets of H & L
Tool. It is management's intention to continue this program, provided market
conditions are favorable and funding for repurchases is available.

OUTLOOK FOR 1997

1996 was a year of solid accomplishment and we would like to take this
opportunity to commend all of our employees whose efforts and dedication
contributed to the Company's success and to thank our shareholders for their
continued support and confidence.

We begin 1997 with a sense of guarded enthusiasm. Our established operations
continue to be profitable, and the addition of H & L Tool is expected to
significantly enhance our product offerings and strengthen our position with key
customers. We anticipate that this acquisition will yield positive changes in
both revenues and earnings and that H & L Tool's integration into Chicago Rivet
will continue to go smoothly. However, we also recognize that certain other
factors are less positive. Although the general economy continues one of the
longest periods of expansion in this century, Chicago Rivet's traditional
markets are not as strong as we would like. Demand for our products trailed the
prior year throughout 1996 and that trend has continued thus far into 1997.
Recently, several major automobile producers have reduced their manufacturing
projections for the second quarter and this change should, in turn, be reflected
throughout the supply base, including Chicago Rivet. At this time, however,
backlogs for all products are adequate to sustain normal operations for the near
term and we continue our efforts to build market share on a profitable basis.
The Company's financial condition remains strong, its reputation in the
marketplace is excellent, and our workforce is both highly skilled and dedicated
to providing the best products available. Those factors, combined with the
continued support and loyalty of our customers and our shareholders, leaves the
Company well positioned to meet the challenges that lie ahead and to take
advantage of the opportunities that will exist in our markets.

ITEM 8 - FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

See the sections entitled "Consolidated Financial Statements" and
"Financial Statement Schedule" which appear on pages 14 through 16 of this
report.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

There have been no changes in or disagreements with accountants
requiring disclosure herein.

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information with respect to the Board of Directors' nominees for
directors that is not related to security ownership, which is set forth in the
section entitled "Election of Directors" on pages 4 through 7 of the Company's
1997 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
at the end of the section entitled "Additional Information Concerning the Board
of Directors and Committees" on pages 7 and 8 of the 1997 Proxy Statement, is
incorporated herein by reference. The 1997 Proxy Statement is to be filed with
the Securities and Exchange Commission in
<PAGE> 11

-11-

connection with the Company's 1997 Annual Meeting of Shareholders. The
information called for with respect to executive officers of the Company is
included in Part I of this Report on Form 10-K under the caption "Executive
Officers of the Registrant."

ITEM 11 - EXECUTIVE COMPENSATION

The information set forth in the section entitled "Executive
Compensation" which appears on pages 8 through 10 of the Company's 1997 Proxy
Statement and the information relating to compensation of directors set forth
in the last paragraph of the section entitled "Additional Information
Concerning the Board of Directors and Committees" which appears on pages 7
and 8 of the Company's 1997 Proxy Statement is incorporated herein by reference.
The 1997 Proxy Statement is to be filed with the Securities and Exchange
Commission in connection with the Company's 1997 Annual Meeting of
Shareholders.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

The information set forth in the section entitled "Principal
Shareholders" on pages 3 and 4 of the Company's 1997 Proxy Statement and the
information with respect to security ownership of the Company's directors and
officers set forth in the section entitled "Election of Directors" on pages 4
through 7 of the Company's 1997 Proxy Statement is incorporated herein by
reference. The 1997 Proxy Statement is to be filed with the Securities and
Exchange Commission in connection with the Company's 1997 Annual Meeting of
Shareholders.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information relating to the law firm of Morrissey & Robinson set
forth in the penultimate sentence of footnote (2) on page 6 of the Company's
1997 Proxy Statement is incorporated herein by reference. The 1997 Proxy
Statement is to be filed with the Securities and Exchange Commission in
connection with the Company's 1997 Annual Meeting of Shareholders.

PART IV

ITEM 14 - 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 14 of this report.
<PAGE> 12

-12-

2. Financial statement schedule and supplementary information
required to be submitted.

See the section entitled "Financial Statement Schedule" which
appears on pages 15 and 16 of this report.

3. Exhibits:

See the section entitled "Exhibits" which appears on pages 19
through 37 of this report.

(b) Reports on Form 8-K

1. The Company filed a Current Report on Form 8-K on
April 23, 1996 announcing the Company entered into a
conditional agreement to purchase substantially all
of the assets and assume certain liabilities of H & L
Tool Company, Inc.

2. The Company filed a Current Report on Form 8-K on
September 24, 1996 announcing that it had executed a
purchase and sale agreement to acquire substantially
all of the assets and assume certain liabilities of
H & L Tool Company, Inc.

3. The Company filed a Current Report on Form 8-K on
December 16, 1996 disclosing the acquisition of
substantially all of the assets and assumption of
certain liabilities of H & L Tool Company, Inc.
<PAGE> 13

-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

Date March 26, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:

/s/ John A. Morrissey Chairman of the Board of
------------------------ Directors, Chief Executive
John A. Morrissey Officer and Member of the
Executive Committee March 26, 1997
--------------

/s/ John C. Osterman President, Chief Operating
------------------------ Officer, Treasurer (Chief
John C. Osterman Financial Officer), Member of the
Executive Committee and Director
March 26, 1997
--------------

/s/ Robert K. Brown Director and Member of
------------------------ the Executive Committee March 26, 1997
Robert K. Brown --------------

/s/ Walter W. Morrissey Director, Member of
------------------------ Executive Committee
Walter W. Morrissey and Member of Audit
Committee March 26, 1997
--------------

/s/ Stephen D. Voss Assistant Treasurer and
------------------------ Controller (Principal Accounting
Stephen D. Voss Officer) March 26, 1997
--------------
<PAGE> 14

-14-

CHICAGO RIVET & MACHINE CO.

CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements, together with the notes thereto
and the report thereon of Price Waterhouse LLP dated March 7, 1997, appearing on
pages 4 to 11 of the accompanying 1996 Annual Report, and the section entitled
"Quarterly Financial Data (Unaudited)" appearing on page 12 of the accompanying
1996 Annual Report are incorporated herein by reference. With the exception of
the aforementioned information and the information incorporated in Items 1, 3,
5, 6 and 7 herein, the 1996 Annual Report is not to be deemed filed as part of
this Form 10-K Annual Report.

Consolidated Financial Statements from 1996 Annual Report (Exhibit 13 hereto):

<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets (pages 4 & 5 of 1996 Annual Report) 25 & 26

Consolidated Statements of Operations (page 6 of 1996 Annual Report) 27

Consolidated Statements of Retained Earnings (page 6 of 1996 Annual
Report) 27

Consolidated Statements of Cash Flows (page 7 of 1996 Annual Report) 28

Notes to Consolidated Financial Statements (pages 8, 9 and 10 of 1996
Annual Report) 29, 30 & 31

Report of Independent Accountants (page 11 of 1996 Annual Report) 32

Quarterly Financial Data (Unaudited)
(page 12 of 1996 Annual Report) 33
</TABLE>
<PAGE> 15

-15-

FINANCIAL STATEMENT SCHEDULE

1996, 1995 AND 1994

The following financial statement schedule should be read in
conjunction with the consolidated financial statements and the notes thereto in
the 1996 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.

<TABLE>
<CAPTION>
Page
-----
<S> <C>
Financial statement schedule:

Valuation and Qualifying Accounts (Schedule VIII) 16

Report of Independent Accountants on
Financial Statement Schedule 17
</TABLE>
<PAGE> 16
- 16 -

CHICAGO RIVET & MACHINE CO.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
Additions
Balance charged to Balance
at beginning costs and Other at end
Classification of year expenses Deductions adjustments of year
- -------------- -------------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
1996
Allowance for doubtful
accounts, returns and
allowances $ 166,634 $ 30,000 $ 34,042 (1) $ (53,940) (2) $ 108,652
========= ========= ======== ======== ========

1995
Allowance for doubtful
accounts, returns and
allowances $ 120,000 $ 64,000 $ 17,366 (1) $ $ 166,634
========= ========= ======== ======== ========

1994
Allowance for doubtful
accounts, returns and
allowances $ 80,000 $ 52,468 $ 12,468 (1) $ 120,000
========= ========= ======== ======== ========
</TABLE>

(1) Accounts receivable written off, net of recoveries.
(2) Reduction of allowance.
<PAGE> 17

- 17 -

Report of Independent Accountants on
Financial Statement Schedule

To the Board of Directors
of Chicago Rivet & Machine Co.

Our audits of the consolidated financial statements referred to in our report
dated March 7, 1997 appearing in the 1996 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 14(a) 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.

PRICE WATERHOUSE LLP

Chicago, Illinois
March 7, 1997
<PAGE> 18

-18-

CHICAGO RIVET & MACHINE CO.

EXHIBITS

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number Page
- ------ ----
<S> <C> <C>
2.1 Purchase and Sale Agreement dated February 18,
1993. Incorporated by reference to Company's
Current Report on Form 8-K, dated May 7, 1993.

2.2 Purchase and Sale Agreement dated September 18,
1996. Incorporated by reference from Company's
Current Report on Form 8-K, dated December 16,
1996.

3.1 Article 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, dated January
20, 1997. Incorporated by reference from
Company's report on Form 8-K,
dated January 24, 1997.

*13 Annual Report to Shareholders for the year
ended December 31, 1996. 20 through 35

27.1 Financial Data Schedule.
</TABLE>

* Only the portions of this exhibit which are specifically incorporated
herein by reference shall be deemed to be filed herewith.

<PAGE> 1

CHIGAGO RIVET LOGO

- --------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEETS
ASSETS

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
December 31 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>

Current Assets

Cash and Cash Equivalents (Note 1)........................ $ 3,215,688 $ 1,349,093

Certificate of Deposit.................................... 705,407 4,568,212

U.S. Government Securities (Note 1)....................... 396,815 2,703,533

Accounts Receivable--Less allowances
of $108,652 and $166,634, respectively (Note 1)........ 5,028,885 2,379,497

Inventories (Notes 1 and 4)............................... 6,898,603 4,102,406

Deferred Income Taxes (Notes 1 and 5)..................... 813,000 806,227

Other Current Assets...................................... 271,973 231,957
----------- -----------

Total Current Assets...................................... 17,330,371 16,140,925
----------- -----------

Goodwill, net of amortization............................... 8,348 33,344
----------- -----------

Property, Plant and Equipment (Notes 1 and 9)

Land and Improvements..................................... 982,635 347,676

Buildings and Improvements................................ 5,464,355 3,715,915

Production Equipment, Leased Machines and Other........... 21,221,316 14,233,135
----------- -----------

27,668,306 18,296,726

Less Accumulated Depreciation............................. 13,680,473 13,115,856
----------- -----------

Net Property, Plant and Equipment......................... 13,987,833 5,180,870
----------- -----------

Total Assets................................................ $31,326,552 $21,355,139
=========== ===========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

- --------------------------------------------------------------------------------

4
<PAGE> 2

CHIGAGO RIVET LOGO
- --------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts Payable.......................................... $ 1,257,704 $ 877,871

Contributions Due Profit Sharing and Pension Plans (Note
6)..................................................... 522,278 572,864

Wages and Salaries........................................ 754,791 623,790

Other Accrued Expenses (Note 7)........................... 435,019 744,410

Unearned Lease Revenue (Note 1)........................... 53,411 70,120

Accrued Interest Expense (Note 3)......................... 47,250 --

Current Portion of Note Payable (Note 3).................. 1,800,000 --

Federal and State Income Taxes (Notes 1 and 5)............ 419,339 541,045
----------- -----------

Total Current Liabilities................................. 5,289,792 3,430,100

Note Payable (Note 3)....................................... 7,200,000 --

Deferred Income Taxes (Notes 1 and 5)....................... 1,060,000 1,041,930
----------- -----------

Total Liabilities......................................... 13,549,792 4,472,030
----------- -----------

Shareholders' Equity

Preferred Stock, No Par Value--Authorized
500,000 Shares--None Outstanding....................... -- --

Common Stock, $2.00 Par Value:
Authorized 2,000,000 Shares
Issued and Outstanding 585,748 (Note 8)................ 1,171,496 1,171,496

Additional Paid-in Capital................................ 460,252 460,252

Retained Earnings, Per Accompanying Statement............. 16,145,012 15,251,361
----------- -----------

Total Shareholders' Equity................................ 17,776,760 16,883,109
----------- -----------

Commitments and Contingencies (Note 11)

Total Liabilities and Shareholders' Equity.................. $31,326,552 $21,355,139
=========== ===========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

- --------------------------------------------------------------------------------

5
<PAGE> 3

CHIGAGO RIVET LOGO

- --------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
For the Years Ended December 31 1996 1995 1994
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales and Lease Revenue (Notes 1 and 9)....... $22,510,953 $23,717,410 $23,012,730
Cost of Goods Sold and Costs Related to Lease
Revenue......................................... 14,938,997 15,036,303 14,952,716
----------- ----------- -----------
Gross Profit...................................... 7,571,956 8,681,107 8,060,014
Selling and Administrative Expenses............... 4,757,440 5,347,049 5,034,472
Other Income, Net of Other Expenses (Note 10)..... 359,485 311,157 214,339
----------- ----------- -----------
Income Before Income Taxes........................ 3,174,001 3,645,215 3,239,881
Provision for Income Taxes (Notes 1 and 5)........ 1,226,000 1,410,000 1,331,000
----------- ----------- -----------
Net Income........................................ $ 1,948,001 $ 2,235,215 $ 1,908,881
=========== =========== ===========
Net Income Per Share.............................. $ 3.33 $ 3.81 $ 3.25
=========== =========== ===========
</TABLE>

CONSOLIDATED STATEMENTS OF
RETAINED EARNINGS

<TABLE>
<S> <C> <C> <C>
Retained Earnings at Beginning of Year............ $15,251,361 $14,067,745 $13,081,301
Net Income for the Year........................... 1,948,001 2,235,215 1,908,881
Cancellation of Treasury Stock (Note 8)........... -- (25,175) (12,357)
Cash Dividends Declared,
$1.80 Per Share in 1996, $1.75 Per Share in 1995
and $1.55 Per Share in 1994..................... (1,054,350) (1,026,424) (910,080)
----------- ----------- -----------
Retained Earnings at End of Year.................. $16,145,012 $15,251,361 $14,067,745
=========== =========== ===========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

- --------------------------------------------------------------------------------

6
<PAGE> 4

CHIGAGO RIVET LOGO

- --------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
For the Years Ended December 31 1996 1995 1994
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income................................................ $ 1,948,001 $ 2,235,215 $ 1,908,881
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation and Amortization........................... 734,674 671,452 678,744
Net Gain on the Sale of Properties...................... (54,376) (8,599) (16,058)
Deferred Income Taxes................................... 11,297 (77,000) 37,000
Changes in Current Assets and Current Liabilities,
net of the effects of the acquisition of H&L Tool:
Accounts Receivable, Net.............................. 770,288 493,065 349,435
Inventories........................................... (10,553) 242,130 (937,811)
Accounts Payable...................................... 168,876 (266,658) (126,502)
Accrued Interest...................................... 47,250 -- --
Other Accrued Expenses................................ (349,391) 142,216 57,918
Accrued Wages and Salaries............................ (301,362) (14,775) 76,997
Taxes Payable......................................... (121,706) 128,676 77,034
Other, Net............................................ (50,383) 293,469 (14,763)
----------- ----------- -----------
Net Cash Provided by Operating Activities........ 2,792,615 3,839,191 2,090,875
----------- ----------- -----------
Cash Flows from Investing Activities:
Acquisition of H&L Tool, net of cash acquired of $4.8
million............................................... (14,294,470) -- --
Capital Expenditures.................................... (861,128) (231,340) (383,354)
Net Proceeds from the Sale of Properties................ 114,403 83,434 165,434
Proceeds from Held-to-Maturity Securities............... 7,921,447 8,394,335 7,404,805
Proceeds from Available-for-Sale Securities............. 2,209,513 -- --
Purchases of Held-to-Maturity Securities................ (3,766,410) (9,924,908) (8,025,181)
Purchases of Available-for-Sale Securities.............. (195,025) (1,982,957) --
----------- ----------- -----------
Net Cash Used by Investing Activities............ (8,871,670) (3,661,436) (838,296)
----------- ----------- -----------
Cash Flows from Financing Activities:
Borrowings under Term Loan Agreement.................... 9,000,000 -- --
Purchase of Treasury Stock.............................. -- (27,683) (13,750)
Cash Dividends.......................................... (1,054,350) (1,026,424) (910,080)
----------- ----------- -----------
Net Cash Used by Financing Activities............ 7,945,650 (1,054,107) (923,830)
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents...... 1,866,595 (876,352) 328,749
Cash and Cash Equivalents at Beginning of Year............ 1,349,093 2,225,445 1,896,696
----------- ----------- -----------
Cash and Cash Equivalents at End of Year.................. $ 3,215,688 $ 1,349,093 $ 2,225,445
=========== =========== ===========
Cash Paid During the Year for:
Income Taxes.......................................... $ 1,337,427 $ 1,358,324 $ 1,216,756
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.

- --------------------------------------------------------------------------------

7
<PAGE> 5

CHIGAGO RIVET LOGO

- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION--The Consolidated Financial Statements include the
accounts of the Chicago Rivet & Machine Co. and its wholly-owned subsidiary. All
significant intercompany accounts and transactions have been eliminated.

OPERATIONS--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. Rivets, cold-formed fasteners, and
screw machine product sales represented the following percentage of net sales
and lease revenue from operations: 50% in 1996, 44.9% in 1995 and 47.7% in 1994.

INCOME PER SHARE--Income per share of common stock is based on the weighted
average number of shares outstanding of 585,748 in 1996, 586,472 in 1995 and
587,061 in 1994.

CASH AND CASH EQUIVALENTS--The Company considers all highly liquid investments
with an original 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, certificates of
deposit and U.S. government securities approximate fair value because of the
immediate or short-term maturity of these financial instruments. The carrying
amount reported for the note payable approximates fair market value because the
underlying instrument is at a rate similar to current rates offered to the
Company for notes with the same remaining maturities.

GOVERNMENT SECURITIES--Effective January 1, 1994, the Company adopted Statement
of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain
Investments in Debt and Equity Securities," designating all investment
securities as held-to-maturity. On December 31, 1995, management reassessed this
classification and transferred, at fair value, certain debt securities from
held-to-maturity to available-for-sale in consideration of projected future
liquidity requirements. In accordance with SFAS 115, securities classified as
held-to-maturity are reported at amortized cost, and available-for-sale
securities are reported at fair market value with unrealized gains and losses,
where material, included in Shareholders' Equity. Realized gains and losses on
available-for-sale securities were not significant in 1996 or 1995. At December
31, 1996 the Company has recorded all U.S. government securities as
held-to-maturity. At December 31, 1995, the Company had recorded $682,483 of
U.S. government securities as held-to-maturity and $2,021,050 of U.S. government
securities as available-for-sale.

INVENTORIES--Inventories are stated at the lower of cost or net realizable
value, cost being determined principally by the first-in, first-out (FIFO)
method.

LEASE INCOME--Automatic rivet setting machines are available to customers on
either a sale or lease basis. The leases, generally for a one-year term, are
cancelable at the option of the Company or the customer and are accounted for
under the operating method which recognizes lease revenue over the term of the
lease. Rentals are billed in advance, and revenues attributable to future
periods are shown as Unearned Lease Revenue in the consolidated balance sheets.
Costs related to lease revenue, other than the cost of the machines, are
expensed as incurred.

PURCHASE OF COMPANY COMMON STOCK--The Company is required by its state of
incorporation to retire any common stock it purchases. The excess of cost over
par value is charged proportionately to Additional Paid-in Capital and Retained
Earnings.

CREDIT RISK--The Company extends credit primarily on the basis of 30 day terms
to various companies doing business primarily in the automotive and appliance
industries. The Company has a concentration of credit risk primarily within the
automotive industry and in the Midwestern United States.

PROPERTY, PLANT AND EQUIPMENT--Properties are stated at cost and, for additions
prior to 1981, are depreciated over their estimated useful lives using either
the straight-line or accelerated methods for financial reporting purposes.
Beginning in 1981, property additions are depreciated using the straight-line
method. Accelerated methods of depreciation are used for income tax purposes,
and deferred taxes are provided on the difference between financial and tax
depreciation. The estimated useful lives by asset category are:

Asset category Estimated useful life
- ------------------------------------------------------------

<TABLE>
<S> <C>
Land improvements........................... 15 to 25 years
Buildings and improvements.................. 10 to 35 years
Machinery and equipment..................... 9 to 12 years
Automatic rivet setting machines on lease... 10 years
Other equipment............................. 3 to 15 years
</TABLE>

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
which 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.

ESTIMATES--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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

2--ACQUISITIONS--On December 3, 1996, the Company acquired substantially all of
the assets and assumed certain liabilities of H & L Tool Company, Inc. (H & L
Tool) of Madison Heights, Michigan in a transaction accounted for as a purchase.
The purchase price was approximately $19.1 million, including $0.3 million of
acquisition costs, and was financed through a $4.8 million credit in
consideration of the seller's retention of all cash and marketable securities,
an unsecured loan of $9.0 million and approximately $5.3 million of available
cash. The purchase price was allocated to the fair market value of the assets
acquired, including all of H & L Tool's production equipment and its facilities
in Madison Heights, inventories, accounts receivable, and other operating
assets. The consolidated financial statements for the year ended December 31,
1996, reflect the operations of H & L Tool since the date of acquisition.

- --------------------------------------------------------------------------------

8
<PAGE> 6

CHIGAGO RIVET LOGO
- --------------------------------------------------------------------------------

The following represents the unaudited pro forma results of operations, as
if the acquisition occurred on January 1, 1995 (in thousands, except per share
data).

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net sales and lease revenue....... $ 42,957 $ 46,003
Net income........................ 1,856 2,921
Net income per share.............. 3.17 4.99
</TABLE>

The unaudited pro forma financial information is not necessarily indicative
of, and does not include all adjustments management considers necessary to
reflect, the results of operations that would have been obtained if the
acquisition had taken place at the beginning of the periods presented or of
future results of operation.

3--NOTE PAYABLE--On November 25, 1996, in connection with the acquisition of H &
L Tool, the Company entered into (i) a five-year unsecured term loan agreement
(the Term Loan) in the principal amount of $9 million, and (ii) a $1 million
line of credit agreement (the Line of Credit) available through May 30, 1997.
The Term Loan bears interest, payable quarterly, at (i) the reference rate of
the financial institution less 75 basis points, or (ii) the LIBOR rate plus 80
basis points. Repayments of principal are made quarterly in the amount of
$450,000 through October 1, 2001. The Line of Credit remains unused at December
31, 1996.

4--INVENTORIES--Inventories at December 31, 1996 and 1995 consisted of the
following:

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Raw materials..................... $1,715,685 $ 697,010
Work in process................... 2,318,535 901,040
Finished goods.................... 2,864,383 2,504,356
---------- ----------
Total............................. $6,898,603 $4,102,406
========== ==========
</TABLE>

5--INCOME TAXES--The provision for income tax expense consists of the following:

<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current
Federal............... $ 993,703 $ 1,232,000 $ 1,077,000
State................. 221,000 255,000 217,000
Deferred................ 11,297 (77,000) 37,000
----------- ----------- -----------
$ 1,226,000 $ 1,410,000 $ 1,331,000
=========== =========== ===========
</TABLE>

The deferred tax liabilities and assets are comprised of the following:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Depreciation.................... $(1,087,073) $(1,061,493)
----------- -----------
Inventory valuations............ 343,194 218,283
Environmental accruals.......... 113,606 255,550
Accrued vacation................ 182,413 150,254
Unearned rental revenue......... 21,364 28,048
Doubtful accounts............... 69,687 66,654
Other, net...................... 109,809 107,001
----------- -----------
840,073 825,790
----------- -----------
$ (247,000) $ (235,703)
=========== ===========
</TABLE>

The following is a reconciliation of the statutory federal income tax rate
to the actual effective tax rate:

<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ----------------
Amount % Amount % Amount %
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Expected tax at U.S.
statutory rate....... $1,079,160 34.0 $1,239,373 34.0 $1,101,560 34.0
State taxes, net of
federal benefit...... 145,860 4.6 168,300 4.6 155,500 4.8
Other, net............ 980 -- 2,327 .1 -- --
Adjustment to prior
year accrual......... -- -- -- -- 73,940 2.3
---------- ---- ---------- ---- ---------- ----
Income tax expense.... $1,226,000 38.6 $1,410,000 38.7 $1,331,000 41.1
========== ==== ========== ==== ========== ====
</TABLE>

6--PENSIONS--The Company has a noncontributory profit sharing plan and insurance
annuity plans covering substantially all employees. Total expenses relating to
the profit sharing plan amounted to approximately $327,000 in 1996, $373,000 in
1995 and $265,000 in 1994.

The Company's funding policy for the insurance annuity plans is to
contribute annually the amounts necessary to satisfy ERISA funding standards.
Net pension expense relating to these plans is not significant. The fair value
of the plans' assets was $551,917 and $584,495 at December 31, 1996 and 1995,
respectively, and the vested, accumulated and projected benefit obligation was
approximately $583,000 and $701,000 at the end of 1996 and 1995, respectively.
The assumed discount (settlement) rate used in determining the actuarial present
value of the projected benefit obligation was 6.5% and 6% for 1996 and 1995,
respectively.

7--OTHER ACCRUED EXPENSES--Accrued expenses consist of the following:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Environmental costs................... $250,015 $638,875
Property taxes........................ 95,037 60,137
Payroll taxes......................... 35,543 45,819
All other items....................... 54,424 (421)
-------- --------
$435,019 $744,410
======== ========
</TABLE>

8--TREASURY STOCK TRANSACTIONS--The Company did not purchase any shares in 1996.
In 1995 and 1994 the Company purchased 900 and 500 shares of its common stock
for $27,683 and $13,750, respectively.

All stock purchased was retired, the excess of cost over par value was
charged proportionately to Additional Paid-in Capital and Retained Earnings.

9--LEASED MACHINES--Lease revenue amounted to $414,129 in 1996, $502,847 in 1995
and $572,358 in 1994. 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:

<TABLE>
<CAPTION>
1996 1995
--------- -----------
<S> <C> <C>
Cost................................ $828,545 $1,011,394
Accumulated depreciation............ 664,468 776,002
-------- ----------
Carrying value...................... $164,077 $ 235,392
======== ==========
</TABLE>

- --------------------------------------------------------------------------------

9
<PAGE> 7

CHIGAGO RIVET LOGO
- --------------------------------------------------------------------------------

10--OTHER INCOME, NET--Other income consists of the following:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Gain on sale of properties
and equipment.............. $ 54,376 $ 8,599 $ 16,058
Interest income.............. 362,158 324,563 190,806
Interest expense............. (47,250) -- --
Amortization expense......... (24,996) (24,996) (24,996)
Other........................ 15,197 2,991 32,471
--------- --------- ---------
$ 359,485 $ 311,157 $ 214,339
========= ========= =========
</TABLE>

11--COMMITMENTS AND CONTINGENCIES--The Company recorded rent expense aggregating
approximately $8,547 $52,233 and $41,061 for 1996, 1995 and 1994, respectively.
Total future minimum rentals at December 31, 1996 are not significant.

The Company is, from time to time involved in litigation, including
environmental claims, in the normal course of business. With regard to
environmental claims the Company has been named by state and/or federal
government agencies as a "potentially responsible party" with respect to certain
waste disposal sites. As a potentially responsible party, the Company may be
considered jointly and severally liable, along with other potentially
responsible parties, for the cost of remediation of these waste sites. The
actual cost of remediation is presently unknown; however, estimates currently
available suggest that the cost of remediation at these sites will be between
$47 million and $85 million. Despite the joint and several nature of the
liability, these proceedings are frequently resolved on the basis of the
quantity and type of waste disposed by the parties. The actual amount of
liability for the Company is unknown due to disagreement concerning the
allocation of responsibility, uncertainties regarding the amount of contribution
that will be available from other parties and uncertainties related to insurance
coverage. After investigation of the quantities and type of waste disposed at
these sites, it is management's opinion that any liability will not be material
to the Company's financial condition. Nevertheless, it is unlikely that the
Company will not incur significant costs associated with these proceedings and
accordingly the Company has recorded a liability of approximately $250,000
related to these matters. The adequacy of this reserve will be reviewed
periodically as more definitive cost information becomes available.

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.

12--OTHER UNUSUAL ITEMS OF INCOME AND EXPENSE--Fourth quarter net income
includes the net favorable effect of certain adjustments related to inventory,
accruals and allowances of $.73, $.31 and $.21 per share, for 1996, 1995 and
1994, respectively. The 1996 amount includes $.26 per share related to a
reduction in environmental reserves recorded in connection with the favorable
resolution, in late 1996, of certain environmental claims and revised liability
estimates.

- --------------------------------------------------------------------------------

10
<PAGE> 8

CHIGAGO RIVET LOGO

- --------------------------------------------------------------------------------

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Chicago Rivet & Machine Co.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of retained earnings, and of cash flows
present fairly, in all material respects, the financial position of Chicago
Rivet & Machine Co. at December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
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
generally accepted auditing standards 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 the opinion expressed
above.

Price Waterhouse LLP

Price Waterhouse LLP
Chicago, Illinois
March 7, 1997

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales and Lease Revenue $22,510,953 $23,717,410 $23,012,730 $20,390,304 $15,757,704
- -------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 3,174,001 3,645,215 3,239,881 2,291,845 1,545,618
- -------------------------------------------------------------------------------------------------------------------------------
Net Income 1,948,001 2,235,215 1,908,881 1,402,845 951,618
- -------------------------------------------------------------------------------------------------------------------------------
Net Income Per Share 3.33 3.81 3.25 2.39 1.62
- -------------------------------------------------------------------------------------------------------------------------------
Dividends Declared Per Share 1.80 1.75 1.55 1.30 1.20
- -------------------------------------------------------------------------------------------------------------------------------
Average Common Shares Outstanding 585,748 586,472 587,061 587,348 587,522
- -------------------------------------------------------------------------------------------------------------------------------
Net Working Capital 12,040,579 12,710,825 10,968,607 9,434,565 10,221,304
- -------------------------------------------------------------------------------------------------------------------------------
Total Assets 31,326,552 21,355,139 19,923,085 18,597,383 16,770,307
- -------------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity 17,776,760 16,883,109 15,702,000 14,716,949 14,085,786
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------

11
<PAGE> 9

CHIGAGO RIVET LOGO

- --------------------------------------------------------------------------------

QUARTERLY FINANCIAL DATA (UNAUDITED):

<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1996
Net Sales and Lease
Revenue.............. $5,323,632 $6,162,712 $4,807,028 $6,217,581
Gross Profit.......... 1,718,656 1,908,693 1,594,397 2,350,210
Net Income............ 350,629 433,227 381,773 782,372
Per Share Data:
Net Income Per
Share.............. .60 .74 .65 1.34
Average Common Shares
Outstanding........ 585,748 585,748 585,748 585,748

1995
Net Sales and Lease
Revenue.............. $6,458,657 $6,982,747 $4,991,360 $5,284,646
Gross Profit.......... 2,242,434 2,460,751 1,600,927 2,376,995
Net Income............ 589,243 668,908 334,831 642,233
Per Share Data:
Net Income Per
Share.............. 1.00 1.14 .58 1.09
Average Common Shares
Outstanding........ 586,648 586,645 586,548 586,052
</TABLE>

<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>

1994
Net Sales and Lease
Revenue.............. $5,860,647 $5,907,264 $5,243,111 $6,001,708
Gross Profit.......... 2,015,678 2,070,011 1,586,242 2,388,083
Net Income............ 499,491 456,612 322,121 630,657
Per Share Data:
Net Income Per
Share.............. .85 .78 .55 1.07
Average Common Shares
Outstanding........ 587,148 587,110 587,048 586,943
</TABLE>

INFORMATION ON COMPANY'S COMMON STOCK

The Company's common stock is traded on the American Stock Exchange. The
following chart shows the dividends declared and the quarterly high and low
prices of the common stock for the last two years.

<TABLE>
<CAPTION>
-----Dividends-Declared----------Market-Range--------
Quarter 1996 1995 1996 1995
------- ---- ---- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
First................ $.90* $.85* $35 7/8 $29 1/4 $29 1/4 $25 3/4
Second............... .30 .30 $36 1/2 $ 31 $30 1/4 $26 3/4
Third................ .30 .30 $35 1/2 $31 5/8 $34 7/8 $29 7/8
Fourth............... .30 .30 $32 1/4 $30 3/4 $32 7/8 $28 1/8
</TABLE>

- ---------------

* Includes an extra dividend of $.60 and $.55 per share for 1996 and 1995,
respectively.

- --------------------------------------------------------------------------------

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,215,688
<SECURITIES> 1,102,222
<RECEIVABLES> 5,137,537
<ALLOWANCES> 108,652
<INVENTORY> 6,898,603
<CURRENT-ASSETS> 17,330,371
<PP&E> 27,668,306
<DEPRECIATION> 13,680,473
<TOTAL-ASSETS> 31,326,552
<CURRENT-LIABILITIES> 5,289,792
<BONDS> 7,200,000
0
0
<COMMON> 1,171,496
<OTHER-SE> 16,605,264
<TOTAL-LIABILITY-AND-EQUITY> 31,326,552
<SALES> 22,096,824
<TOTAL-REVENUES> 22,510,953
<CGS> 14,938,997
<TOTAL-COSTS> 19,696,437
<OTHER-EXPENSES> 4,757,440
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 47,250
<INCOME-PRETAX> 3,174,001
<INCOME-TAX> 1,226,000
<INCOME-CONTINUING> 1,948,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,948,001
<EPS-PRIMARY> 3.33
<EPS-DILUTED> 3.33

</TABLE>