<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1998 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 Identification No.)
incorporation or organization)
P. O. Box 3061
90l Frontenac Road
Naperville, Illinois 60566
- -------------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (630) 357-8500
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 1998
- ----- ---------------------------------
COMMON STOCK, $1.00 PAR VALUE 1,155,196 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
- -----------------------------------
(1) Portions of the Company's Interim Report to Shareholders for the Quarter
ended September 30, 1998 are incorporated by reference in Part I of this
Report.
<PAGE> 2
CHICAGO RIVET & MACHINE CO.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
<S> <C>
Consolidated Balance Sheets at September 30, 1998 and December 31, 1997. 2-3
Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 1998 and 1997. 4
Consolidated Statements of Retained Earnings for the Nine Months
Ended September 30, 1998 and 1997. 5
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997. 6
Notes to the Consolidated Financial Statements 7-8
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-12
PART II. OTHER INFORMATION 13-18
</TABLE>
1
<PAGE> 3
CHICAGO RIVET & MACHINE CO.
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
Assets September 30, December 31,
1998 1997
------------- ------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $2,909,054 $3,983,471
Certificates of deposit 750,254 2,867,715
Accounts receivable - net of allowances 5,979,727 5,662,538
Inventories:
Raw materials 2,105,798 1,901,419
Work in process 1,575,621 1,427,764
Finished goods 3,315,870 3,025,424
----------- -----------
Total inventories 6,997,289 6,354,607
----------- -----------
Deferred income taxes 851,346 764,588
Other Current Assets 752,793 360,448
----------- -----------
Total Current Assets 18,240,463 19,993,367
----------- -----------
Property, Plant and Equipment:
Land and improvements 1,008,901 1,008,901
Buildings and improvements 5,525,086 5,501,189
Production equipment, leased machines
and other 23,843,987 21,404,751
----------- -----------
30,377,974 27,914,841
Less - Accumulated Depreciation 16,015,085 14,960,748
----------- -----------
Net Property, Plant and Equipment 14,362,889 12,954,093
----------- -----------
Total Assets $32,603,352 $32,947,460
=========== ===========
</TABLE>
See Notes to the Consolidated Financial Statements
2
<PAGE> 4
CHICAGO RIVET & MACHINE CO.
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity September 30, December 31,
1998 1997
------------- ------------
(unaudited)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 1,525,669 $ 1,700,296
Contributions due profit sharing
and pension plans 444,391 707,747
Wages and salaries 1,140,962 772,247
Other accrued expenses 438,854 329,708
Unearned lease revenue 62,990 68,711
Current portion of note payable 1,800,000 1,800,000
Accrued interest expense 23,625 108,634
Federal and state income taxes 896,405 739,343
----------- -----------
Total Current Liabilities 6,332,896 6,226,686
Note Payable 3,600,000 4,950,000
Deferred Income Taxes 1,350,980 1,259,672
----------- -----------
Total Liabilities 11,283,876 12,436,358
----------- -----------
Shareholders' Equity:
Preferred stock, no par value:
authorized 500,000 shares - - -
none outstanding
Common stock, $1.00 par value:
authorized 4,000,000 shares-
issued and outstanding 1,155,196
and 1,169,296, respectively 1,155,196 1,169,296
Additional paid - in capital 453,848 459,388
Retained earnings 19,710,432 18,882,418
----------- -----------
Total Shareholders' Equity 21,319,476 20,511,102
----------- -----------
Commitments and Contingencies (Note 3) - -
----------- -----------
Total Liabilities and Shareholders' Equity $32,603,352 $32,947,460
=========== ===========
</TABLE>
See Notes to the Consolidated Financial Statements
3
<PAGE> 5
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Operations
For the Three and Nine Months Ended
September 30, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
----- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $10,232,653 $10,034,719 $32,537,377 $33,310,288
Lease revenue 98,714 87,633 289,470 275,511
----------- ----------- ----------- -----------
10,331,367 10,122,352 32,826,847 33,585,799
Cost of goods sold and costs
related to lease revenue 7,150,865 6,925,530 23,050,322 23,530,138
----------- ----------- ----------- -----------
Gross profit 3,180,502 3,196,822 9,776,525 10,055,661
Shipping, selling and
administrative expenses 1,822,202 1,729,429 5,385,139 5,320,769
Profit sharing and pension
expenses 130,000 110,000 390,299 450,000
----------- ----------- ----------- -----------
1,228,300 1,357,393 4,001,087 4,284,892
Other income and expenses:
Interest income from
U.S. Government securities
and certificates of deposit 55,107 61,637 196,441 143,235
Interest expense (74,592) (136,146) (283,139) (410,520)
Gain(loss) from sale/disposal of
leased machines and other equipment (1,482) (207,373) 12,858 (64,914)
Amortization expense - - - (8,348)
Other income, net of other expense 2,173 15,984 10,003 24,557
----------- ----------- ----------- -----------
Income before income taxes 1,209,506 1,091,495 3,937,250 3,968,902
Provision for income taxes 491,000 387,000 1,520,000 1,462,000
----------- ----------- ----------- -----------
Net income $ 718,506 $ 704,495 $2,417,250 $2,506,902
=========== =========== =========== ===========
Average common shares outstanding 1,155,535 1,170,896 1,161,426 1,171,276
=========== =========== =========== ===========
Per share data:
Net income per share $0.62 $0.60 $2.08 $2.14
=========== =========== =========== ===========
Cash dividends declared per share $0.18 $0.18 $0.94 $0.73
=========== =========== =========== ===========
</TABLE>
See Notes to the Consolidated Financial Statements
4
<PAGE> 6
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Retained Earnings
For the Nine Months Ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
September 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Retained earnings at beginning of period $18,882,418 $16,145,012
Net income for the nine months ended 2,417,250 2,506,902
Treasury stock retired at cost (495,373) (12,828)
Cash dividends declared in the period- (1,093,863) (855,083)
$.94 per share in 1998 and $.73 per share
in 1997.
----------- -----------
Retained earnings at end of period $19,710,432 $17,784,003
=========== ===========
</TABLE>
See Notes to the Consolidated Financial Statements
5
<PAGE> 7
CHICAGO RIVET & MACHINE CO.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1998 and 1997
(unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $2,417,250 $2,506,902
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,107,138 1,019,602
Net (gain) loss on the sale of properties (12,858) 64,915
Deferred income taxes 4,550 185,820
Changes in current assets and current liabilities:
Accounts receivable, net (317,189) (534,624)
Inventories (642,682) 754,039
Accounts payable (174,627) (36,946)
Accrued interest (85,009) -
Other accrued expense 109,146 269,927
Accrued wages and salaries 368,715 410,485
Accrued profit sharing (263,356) 47,385
Taxes payable 157,062 (38,702)
Other, net (398,067) (214,646)
---------- ----------
Net cash provided by operating activities 2,270,073 4,434,157
---------- ----------
Cash flows from investing activities:
Capital expenditures (2,523,616) (687,796)
Net proceeds from the sale of properties 20,541 310,507
Proceeds from held-to-maturity securities 5,231,753 3,277,581
Purchases of held-to-maturity securities (3,114,292) (3,471,987)
---------- ----------
Net cash used by investing activities (385,614) (571,695)
---------- ----------
Cash flows from financing activities:
Payments under term loan agreement (1,350,000) (1,800,000)
Purchase of treasury stock (515,013) (13,665)
Cash dividends (1,093,863) (855,083)
---------- ----------
Net cash used by financing activities (2,958,876) (2,668,748)
---------- ----------
Net increase (decrease) in cash and cash equivalents (1,074,417) 1,193,714
Cash and cash equivalents at beginning of period 3,983,471 3,215,688
---------- ----------
Cash and cash equivalents at end of period $2,909,054 $4,409,402
========== ==========
Cash paid during the period for:
Income taxes $1,358,491 $1,314,881
Interest $ 304,895 $ 347,015
</TABLE>
See Notes to the Consolidated Financial Statements
6
<PAGE> 8
CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the financial
position of the Company as of September 30, 1998 and December 31, 1997 and the
results of operations and changes in cash flow for the indicated periods.
The Company uses estimated gross profit rates to determine the cost of goods
sold during interim periods. Actual results could differ from those estimates
and will be adjusted, as necessary, following the Company's annual physical
inventory in the fourth quarter.
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. The results of operations for the three month period ending September 30,
1998 are not necessarily indicative of the results to be expected for the year.
3. 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
$33 million and $49 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 $83,000 related to these matters. The adequacy of this reserve
will be reviewed periodically as more definitive cost information becomes
available.
7
<PAGE> 9
CHICAGO RIVET & MACHINE CO.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CON'T.)
(Unaudited)
4. 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.
8
<PAGE> 10
CHICAGO RIVET & MACHINE CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
Sales and lease revenues during the third quarter of 1998 totaled
$10,331,367, which represents an increase of approximately 2.1% compared with
the third quarter of 1997. Revenues from the sale of rivets and cold formed
fasteners increased approximately 2.8% over the third quarter of 1997, while
revenues associated with the sale and lease of automatic rivet setting machines
and related tools and parts were approximately equal to those recorded during
the third quarter of 1997. Third quarter revenues have traditionally been
limited by the reduced work schedules associated with vacation shutdowns at
Chicago Rivet and at many of its major customers. In 1998, the impact of
vacations was exaggerated by the effects of the General Motors strike that
began during the second quarter. The strike was settled during the third
quarter, and we have enjoyed a significant, but temporary, increase in orders
as General Motors and its suppliers stepped up production to overcome product
shortages that were caused by the strike. The net effect was an increase in
third quarter revenues when compared with the previous year. The improvements
in the third quarter were insufficient to offset the weakness encountered
during the first half of the year, and year to date revenues of $32,826,847
trail 1997's nine month total by approximately 2.3%.
Due to increased revenues in the quarter, net income improved slightly to
$718,506, or $.62 per share on 1,155,535 average shares outstanding, compared
with $704,495, or $.60 per share on 1,170,896 average shares outstanding during
the third quarter of 1997. For the first nine months of 1998, net income
amounted to $2,417,250, or $2.08 per share on 1,161,426 average shares
outstanding. Despite a comparatively good third quarter, year to date earnings
are slightly below those reported for the first nine months of 1997. Reduced
volume has been the largest factor affecting year to date earnings. Third
quarter 1998 results include a gain of approximately $.06 per share from the
adjustment of certain cost of sales estimates. A similar adjustment, amounting
to $.10 per share was recorded during the third quarter of 1997. In both
years, the adjustment was the result of favorable, interim inventory
adjustments. Manufacturing costs are comparable to the prior year, and while
interest expense has been reduced, those savings have been offset by increased
administrative costs, including costs incurred in connection with
implementation of new data processing systems and increased reserves for
uncollectible accounts. During the third quarter, a certain customer began a
voluntary reorganization, and we have been advised that the reorganization plan
provides that unsecured trade creditors will only collect approximately one
third of the amounts owed. Accordingly, we have increased our reserves for
uncollectible accounts by approximately $160,000 to reflect this development.
We continue to extend credit to this customer, although on a very limited
basis. While we have no guarantee that the reorganization plan will be
approved by the majority of unsecured creditors, we believe that current
reserves for uncollectible accounts are adequate.
The Company's financial condition remains sound. During the third
quarter, capital expenditures amounted to approximately $1,117,000, including
investments in new manufacturing equipment totaling approximately $867,000, and
investments in new information technology of approximately $160,000.
Additional information concerning information technology investments is
included in the discussion of "Year 2000" issues included later in this report.
During the third quarter of 1998, the Company purchased 500 shares of
treasury stock, under the terms of its existing stock repurchase program, which
provides for the repurchase of an aggregate of 200,000 shares, with such
purchases to be made, from time to time, in the open market or in private
transactions. The total purchases made under the current program, through the
end of the third quarter of 1998, total 133,596 shares, at an average price of
$14.31 per share. It is management's intention to continue this program,
provided conditions are favorable and funding for such purchases is available.
Late in 1996, in connection with the purchase of H & L Tool, the Company
borrowed $9.0 million, on an unsecured basis, subject to certain customary
covenants. Under the terms of the note evidencing such debt, 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 LIBOR rate plus 80 basis
9
<PAGE> 11
points; or the lender's reference rate, less 75 basis points. The rate is
adjusted quarterly and at the end of the third quarter of 1998 was approximately
6.5% and the outstanding principal balance was $5.4 million. The $1.0 million
line of credit originally obtained in connection with the acquisition was
extended through May 1999, and at September 30, 1998, it remained unused. The
Company believes that its existing cash, cash equivalents, short-term
investments and existing borrowings will be sufficient to provide adequate
working capital through at least the next twelve months.
We are pleased to report that all of our fastener facilities have been
independently certified and registered with respect to the international
quality standard, ISO-9002, and also to the automotive variant of that standard
known as QS-9000. Attaining these certifications was essential to remaining a
viable supplier to the automotive industry and serves as independent
confirmation that our products are among the best in the world.
The Company continues to make ongoing assessments of its state of readiness
with respect to Year 2000 issues. This process can logically be segregated into
two major parts -- information technology and non-information technology. The
first category is concerned with computer equipment and software that are used
in operation of the business, the second category deals with all other aspects
of Year 2000 issues, including but not limited, to manufacturing equipment and
systems, supplier preparedness, customer preparedness and facility related
issues such as telecommunications equipment, HVAC systems and facility security.
With respect to information technology issues, the Company has previously
reported that its existing data processing software is not Year 2000 compliant
and has further determined that the current software will not meet the needs of
the organization going forward. Accordingly, we are in the process of
implementing a new, enterprise-wide data processing solution that will better
meet the operating needs of the Company. The implementation of this solution,
which involves installation of new computer hardware and software, is planned in
three phases. The first two phases encompass hardware and network installation,
and installation of application software relating to financial reporting,
inventory systems, order processing, purchasing, payroll and human resources.
The hardware installation is complete, network installation is nearly complete,
with only minor fine tuning currently required before the network is fully
operational. The software installation and training related to the first two
phases is in process, but is running slightly behind the original schedule but
is expected to be completed in the first quarter of 1999. The third phase is
the implementation of the manufacturing modules which is currently scheduled for
completion in the second quarter of 1999. The Company has piloted performance
of the software targeted for installation in the first quarter and believes that
it will function successfully. Piloting the manufacturing software will take
place before implementation in the second quarter of 1999. The software vendor
has certified that the software is fully compliant with all Year 2000 issues.
The Company also utilizes a number of personal computers. All of these
have been tested. Most are Year 2000 compliant, and the majority of those that
are not fully compliant will function in the Year 2000 if the internal clocks
are manually rolled over on 12/31/99. The only exception concerns software and
personal computers used to collect and analyze certain data in connection with
statistical process control. This system will be replaced by similar software
and hardware that is Year 2000 compliant. The system is an off-the-shelf
system that is tested and currently available and is planned for implementation
in early 1999.
The project described above is expected to resolve the fundamental Year
2000 issues, and the Company believes that it will also have significant
benefits to the organization in terms of more efficient operations, improved
information related to production control and inventory management and improved
customer service. It is not possible to separate the costs incurred purely in
connection with Year 2000 from those associated with the other benefits
anticipated from this project. The projected cost for information technology
investments, (including costs related to the Year 2000 problem) is expected to
total approximately $1.1 million. Actual expenditures related to this project
have amounted to approximately $564,000 to date. As previously indicated, the
information technology project described encompasses the solution to Year 2000
information technology issues as well as enterprise-wide improvements in
information systems. As such, nearly all of the information technology budget
is committed to this project. No other information technology projects have
been deferred because of resources allocated to this project. Funding for this
project is expected to be available from internal sources.
While management currently believes that the timetable for implementation
is realistic and attainable, it is not possible to be absolutely certain of
completion within the scheduled timeframe. The failure to correct a material
Year 2000 problem could result in an interruption in, or a failure of, certain
normal business activities or operations. Such failures could materially and
adversely affect the Company's results of operations, liquidity and financial
condition. However, manual systems currently exist for the essential functions
covered by this project, and such manual systems can be utilized on a
10
<PAGE> 12
temporary basis if the project falls substantially behind schedule. In many
instances, the systems currently utilized are essentially manual systems, so
the potential disruption resulting from a delay in implementation is expected
to be manageable.
With respect to non-information technology issues, the Company has
inventoried all productive and support equipment currently in use. The
majority of this equipment consists of machine tools that do not include
microprocessors or embedded microchips and, therefore, will not be affected by
the Year 2000 problems. Some newer machine tools do utilize microprocessors for
programmed operation or for monitoring purposes. In all cases, we have
contacted the manufacturer requesting information with respect to Year 2000
issues. For most of this equipment, we have received written confirmation that
the equipment is Year 2000 compliant. In other cases, we have verbal assurance
that the equipment is compliant but we are awaiting written confirmation and in
a limited number of situations, we are still awaiting a response from the
manufacturer, and we will follow up with the manufacturer to determine whether
this equipment will be impacted by Year 2000 issues. As of this date, we
believe that we have alternative equipment available that can be utilized if
the more modern equipment should fail unexpectedly. This eventuality would
cause disruptions in our production schedules as the older equipment is less
efficient than the newer equipment, and our manufacturing costs will be
adversely affected as well. At this time we are unable to quantify the
monetary impact of this disruption.
An in-house waste water pre-treatment facility utilizes a number of
controls that may include embedded micro-processors, and evaluation of this
equipment is pending, with completion expected during the first quarter of 1999.
Failure of this equipment would require that in-house electroplating operations
be suspended until waste treatment operations could be resumed. At this time,
the amount of modifications, if any, and the associated cost related to updating
this equipment is unknown. The Company can utilize a variety of third party
sources to provide electroplating services in the event that our internal
operations must be curtailed, and the Company is in the process of determining
the state of readiness of those services.
The Company has also requested that each of its major customers and
mission critical vendors advise the Company of their current state of
readiness with respect to Year 2000 issues. Those customers and vendors that
have not advised that their systems are currently compliant have been asked to
advise the date by which their systems are expected to be compliant. The
responses to this request have been varied. In general, most companies
contacted have advised that their systems are currently compliant, or if not
currently compliant, they are aware of the problems and have estimated
compliance will be achieved during 1999. Typically, larger firms are better
prepared than smaller concerns. A fairly large number of smaller customers
have not, as yet, responded to our inquiries. During the fourth quarter of
1998, follow up contacts will be made for all identified non-compliant business
partners to confirm that their compliance efforts are progressing in a timely
manner.
The Company's contingency plans related to these issues are not complete
at this time. Preliminary work in this area has focused upon information
technology issues and in-house manufacturing issues. While we continue to
evaluate the situation, based upon information available today, we anticipate
that we will be able to maintain core operations with existing manual systems
supplemented by scheduling overtime to make up for the reduced efficiency of
the manual systems. Contingency planning with respect to third parties is not
complete. Based upon information currently available, we cannot make a
reasonable estimate of the impact Year 2000 issues will have upon our customers
or suppliers. We are evaluating the desirability of purchasing additional
supplies of raw material and critical operating supplies during the second half
of 1999. However, if our customers' plans include a similar contingency, it is
possible that we will use any such safety stock to satisfy our customers'
requests that we, in turn, supply them with safety stock. We are also
evaluating what actions will be required to protect the Company's facilities
from the effects of cold weather in the event that utility service is
disrupted. To date, we have not received assurance from any public utility
that their systems will be fully functional in the Year 2000. As more
information concerning Year 2000 readiness becomes available, our plans will
become firmer.
Recently, the Company's Year 2000 compliance efforts were reviewed by one
of its major customers, who conducted an on-site assessment of our current
readiness and our plans. This assessment was primarily to evaluate the risks
our preparedness posed to their operations. The assessment resulted in a
subjective rating of risk, classified as either "Green, Yellow or Red." Chicago
Rivet was rated as a green risk, which the customer
11
<PAGE> 13
interpreted as not posing a significant risk. We recognize that this was a
subjective rating and does not represent an endorsement of our plans or
represent an assurance that we will not encounter difficulties.
Overall, we are pleased with operations during the first nine months.
Although revenue growth has not quite met our expectations, we have been
successful in controlling costs while improving our quality systems and our
productivity. Our outlook for the fourth quarter is positive. While economic
signals are mixed, policy makers seem poised to stimulate the economy as
needed, and we believe the Company remains well positioned to meet the needs of
its customers.
See the Company's Interim Report to Shareholders for the quarter ended
September 30, 1998 for additional information. This section is incorporated by
reference. The interim report is filed as an exhibit to this report.
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, fluctuations in general
economic conditions, consumer demand, the gain or loss of a key customer, the
price and availability of the Company's primary raw materials and disruptions
that are associated with "Year 2000" issues. Therefore, readers are cautioned
not to place undue reliance upon such forward-looking statements.
12
<PAGE> 14
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
19.1 Interim Report to Shareholders for the quarter ended
September 30, 1998.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the current period.
13
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHICAGO RIVET & MACHINE CO.
---------------------------
(Registrant)
Date: November 13, 1998
/s/ John A. Morrissey
---------------------------
John A. Morrissey
Chairman of the Board of Directors
and Chief Executive Officer
Date: November 13, 1998
/s/ John C. Osterman
---------------------------
John C. Osterman
President, Chief Operating
Officer and Treasurer (Principal
Financial Officer)
Date: November 13, 1998
/s/ Stephen D. Voss
---------------------------
Stephen D. Voss
Assistant Treasurer and Controller
14
<PAGE> 16
CHICAGO RIVET & MACHINE CO.
EXHIBITS
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Page
- ------ ----
<S> <C>
19.1 Interim Report to Shareholders for the
quarter ended September 30, 1998. 16 - 17
27.1 Financial Data Schedule 18
</TABLE>
15
<PAGE> 17
To Our Shareholders:
The comparative results of operations of Chicago Rivet & Machine Co. for
the third quarter and first nine months of 1998 and 1997 are summarized below.
Sales and lease revenues during the third quarter of 1998 totaled
$10,331,367, which represents an increase of approximately 2.1% compared with
the third quarter of 1997. Revenues from the sale of rivets and cold formed
fasteners increased approximately 2.8% over the third quarter of 1997, while
revenues associated with the sale and lease of automatic rivet setting machines
and related tools and parts were approximately equal to those recorded during
the third quarter of 1997. Third quarter revenues have traditionally been
limited by the reduced work schedules associated with vacation shutdowns at
Chicago Rivet and at many of its major customers. In 1998, the impact of
vacations was exaggerated by the effects of the General Motors strike that
began during the second quarter. The strike was settled during the third
quarter, and we have enjoyed a significant, but temporary, increase in orders
as General Motors and its suppliers stepped up production to overcome product
shortages that were caused by the strike. The net effect was an increase in
third quarter revenues when compared with the previous year. The improvements
in the third quarter were insufficient to offset the weakness encountered
during the first half of the year, and year to date revenues of $32,826,847
trail 1997's nine month total by approximately 2.3%.
Due to increased revenues in the quarter, net income improved slightly to
$718,506, or $.62 per share on 1,155,535 average shares outstanding, compared
with $704,495, or $.60 per share on 1,170,896 average shares outstanding during
the third quarter of 1997. For the first nine months of 1998, net income
amounted to $2,417,250, or $2.08 per share on 1,161,426 average shares
outstanding. Despite a comparatively good third quarter, year to date earnings
are slightly below those reported for the first nine months of 1997. Reduced
volume has been the largest factor affecting year to date earnings.
Manufacturing costs are comparable to the prior year, and while interest
expense has been reduced, those savings have been offset by increased
administrative costs, including costs incurred in connection with
implementation of new data processing systems and increased reserves for
uncollectible accounts.
We are pleased to report that all of our fastener facilities have been
independently certified and registered with respect to the international
quality standard, ISO-9002, and also to the automotive variant of that standard
known as QS-9000. Attaining these certifications was essential to remaining a
viable supplier to the automotive industry and serves as independent
confirmation that our products are among the best in the world.
Considerable attention has been directed toward the "Year 2000" issues.
We have been systematically reviewing all of our mission critical systems and
equipment and have been polling our critical vendors and suppliers as well.
Our primary area of concern has been internal data processing systems and we
are in the process of installing a new, enterprise wide data processing system
that encompasses new hardware and software. This project currently is slightly
behind schedule, but we remain confident that the system will be operational in
time to prevent any major problems related to year 2000 problems. Similarly,
our suppliers and customers report that they will be positioned to minimize any
disruptions related to the change of the century.
Overall, we are pleased with operations during the first nine months.
Although revenue growth has not quite met our expectations, we have been
successful in controlling costs while improving our quality systems and our
productivity. Our outlook for the fourth quarter is positive. While economic
signals are mixed, policy makers seem poised to stimulate the economy as needed
and we believe the Company remains well positioned to meet the needs of its
customers.
Respectfully yours,
John A. Morrissey John C. Osterman
Chairman President
October 28, 1998
16
<PAGE> 18
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, fluctuations in general
economic conditions, consumer demand, the gain or loss of a key customer, the
price and availability of the Company's primary raw materials. Therefore,
readers are cautioned not to place undue reliance upon such forward-looking
statements.
Chicago Rivet & Machine Co.
Summary of Consolidated Results of Operations
For the Three and Nine Months Ended September 30
<TABLE>
<CAPTION>
Third Quarter First Nine Months
--------------------------------- ----------------------------
1998 1997 1998 1997
------ ------- ------ ------
<S> <C> <C> <C> <C>
Net sales and lease revenue $10,331,367 $10,122,352 $32,826,847 $33,585,799
Income before taxes 1,209,506 1,091,495 3,937,250 3,968,902
Income after taxes 718,506 704,495 2,417,250 2,506,902
Net income per share .62 .60 2.08 2.14
Average shares outstanding 1,155,535 1,170,896 1,161,426 1,171,276
----------------------------------------------------------------------------------------------
</TABLE>
(All figures subject to year end audit)
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,909,054
<SECURITIES> 750,254
<RECEIVABLES> 6,330,118
<ALLOWANCES> 350,391
<INVENTORY> 6,997,289
<CURRENT-ASSETS> 18,240,463
<PP&E> 30,377,974
<DEPRECIATION> 16,015,085
<TOTAL-ASSETS> 32,603,352
<CURRENT-LIABILITIES> 6,332,896
<BONDS> 3,600,000
0
0
<COMMON> 1,155,196
<OTHER-SE> 20,164,280
<TOTAL-LIABILITY-AND-EQUITY> 32,603,352
<SALES> 32,537,377
<TOTAL-REVENUES> 32,826,847
<CGS> 23,050,322
<TOTAL-COSTS> 23,050,322
<OTHER-EXPENSES> 5,775,438
<LOSS-PROVISION> 177,500
<INTEREST-EXPENSE> 283,139
<INCOME-PRETAX> 3,937,250
<INCOME-TAX> 1,520,000
<INCOME-CONTINUING> 2,417,250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,417,250
<EPS-PRIMARY> 2.08
<EPS-DILUTED> 2.08
</TABLE>
