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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d)
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of the Securities Exchange Act of 1934
For the fiscal year ended October 31, 1999
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Commission file number 0-6056
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Transition report pursuant to Section 13 or 15(d)
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of the Securities Exchange Act of 1934
For the transition period from to
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MICHIGAN RIVET CORPORATION
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(Exact name of registrant as specified in its charter)
Michigan 38-1887153
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification No.)
13201 Stephens Road, Warren, Michigan 48089
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (810) 754-5100
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
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<S> <C>
Common Stock, $1.00 Par Value None
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</TABLE>
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 periods 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 .
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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]
The aggregate market value of the voting stock held by nonaffiliates (127,293)
of the registrant as of December 3, 1999 was $2,163,981.
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The number of shares outstanding of the registrant's common stock as of December
3, 1999 was 638,525.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the 2000 Annual Meeting of Shareholders are
incorporated by reference into Items 10, 11, 12 and 13.
PART I
Item 1. BUSINESS
Michigan Rivet Corporation ("MRC") manufactures steel fasteners, principally
rivets and hinge pins, which are, in general, sold as original equipment to the
automotive industry. The fasteners range in size from a diameter of 1/8 of an
inch to 5/8 of an inch and are manufactured to customers' designs and
specifications through wire drawing, cold extrusion, cold heading and certain
secondary machining operations.
A wholly owned subsidiary of MRC, The McLaughlin Company ("McL"), manufactures a
wide variety of specialized steel nuts, nut and washer assemblies and special
fasteners which are sold as original equipment to the automotive industry and as
standard products to a wide variety of manufacturers. The nuts range in size up
to 1 inch across the flats and are manufactured through cold extrusion, cold
heading, stamping, tapping and certain other secondary operations.
Both MRC's and McL's (collectively referred to as "Company") business is
entirely within a single industry segment.
Manufacturing and Machining Operations
MRC purchases pickled and lubricated cold rolled steel rod ranging in diameter
from 7/32 of an inch to 45/64 of an inch. Charter Steel and American Steel and
Wire are the primary sources for raw material with a normal six week
availability. The steel rod is forced through a wire drawer consisting of one or
more dies, each of a smaller diameter than the preceding die. The rod is thereby
converted into cold rolled wire.
The cold rolled wire is then fed into a cold header, either directly or after
being forced through another wire drawer attached to the header. In the header
the wire is first cut into slugs, which may vary in length from 1/4 of an inch
to approximately five inches. These slugs are then forced or "hit" into one or
more dies to produce formed steel parts. The cold headers owned by MRC generally
cut and force or "hit" the slugs to size at rates of 60 to 300 "hits" per
minute. The drawing and heading operations are conducted with the steel rod and
wire at room temperature. Hence, the process is called "cold" heading.
Some of MRC's fasteners require secondary machining operations, which include
drilling, broaching, annealing (to soften the part), tumbling (to remove burrs
and other irregularities), trimming, pointing, grooving, thread-rolling,
knurling and assembly. Other secondary
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operations, such as plating and heat-treating, are performed on some of MRC's
products by outside suppliers of such services.
McL's operations are very similar to those of MRC. Instead of purchasing cold
rolled steel rod and converting it into wire through the drawing process, McL
purchases the wire in a form ready to be fed into a cold header, principally
from Super Steel Treating Company. McL also purchases coiled flat stock which is
used in presses to manufacture floating cage nuts, clinch nuts, and washers for
the nut and washer assemblies.
While MRC's manufacturing process produces little waste, McL's process produces
slugs from the nut forming operation, offal from stampings and turnings from
tapping. Besides tapping, other secondary operations performed by McL are
washing, tumbling, locking and staking. All products manufactured by the Company
are subjected to quality control review through the various stages of
production.
Management believes that the Company is in substantial compliance with all
existing laws and regulations pertaining to protection of the environment and
does not anticipate that continued compliance will have any material effect on
the Company or its operations.
Customers and Marketing
The Industry Information, which includes the names of the Company's major
customers, set forth in Note 1 to the consolidated financial statements included
in Item 8 of this report is incorporated herein by reference. The loss of any
major domestic automobile producer as a customer would have a materially adverse
effect upon the Company's business.
The production of motor vehicles is generally reduced during July and August of
each year while retooling occurs to accommodate design changes for the
forthcoming model year. To this extent, the automotive industry, upon which the
Company is primarily dependent for its business, can be characterized as
seasonal in nature. However, the Company's production of automotive parts
reflects, in large part, periodic releases against customers' purchase orders
that are usually spaced throughout the automotive industry's model year (July to
July). A majority of the Company's orders are in the form of blanket purchase
orders (some covered under long-term contracts), which allows the Company to
manufacture in advance of releases knowing the product is salable for the
current model year. The nature of releases against open orders make it
impossible to determine the value of backlog orders.
The Company sells its fasteners primarily through its own salaried personnel
sales staff and, to a lesser extent, through independent manufacturers'
representatives compensated on a commission basis. The Company also markets
through national distribution centers acting as distributors for standard
products and agents for specialized products.
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Competition
The Company operates in a highly competitive industry. The Company has no
knowledge of its relative position in the general automotive parts industry.
There are a number of cold heading and cold extrusion companies in Michigan
which supply the automotive industry with parts similar to those produced by the
Company and which are larger and have greater resources than the Company. The
Company must also compete with domestic and foreign companies which manufacture
similar parts for the automobile industry by methods other than cold heading and
cold extrusion. There is no dominant supplier in the Company's segment of the
industry. Additionally, the three major domestic automobile manufacturers have
equipment in some of their plants with which they manufacture similar parts for
themselves by cold heading and other methods.
Quality and price are the major factors in supplying parts to the automotive
industry. Quality indexes must be maintained to be a viable source, and the
Company, to date, has been able to compete successfully with other sources of
the automotive parts which it makes. While the Company does not believe that it
is in danger of losing any significant portion of its business to these
automotive customers, no representation can be made that certain parts now made
by the Company may not in the future be made by an automobile manufacturer or by
a competitor of the Company, some by the methods employed by the Company.
Employees
As of December 13, 1999, the Company had approximately 306 employees, of
whom 85 were salaried. Hourly employees are represented by the
International Union, United Automobile, Aerospace and Agricultural
Implement Workers of America.
Other
The success of the Company's business is not dependent upon any material
patents, trademarks, licenses, franchises or concessions held by it. The dollar
amount spent during each of the last two fiscal years on research activities
relating to the development of new products or services or the improvement of
existing products or services is deemed by management to be insignificant. The
Company's export sales were approximately 10.3% of net sales in Fiscal Year
1999.
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Item 2. PROPERTIES
MRC's manufacturing plant and executive offices are located at 13201 Stephens
Road, Warren, Michigan, a suburb of Detroit. There are approximately 150,000
square feet of floor space at the plant, of which 120,000 are devoted to
manufacturing. The warehouse and shipping operations encompass approximately
20,000 square feet with the remainder devoted to office and administration
purposes. The building, and the 7.5 acre parcel on which it is situated, are
owned by MRC subject to an outstanding mortgage in the amount of $2,041,482 at
October 31, 1999.
McL's manufacturing plant and executive offices are located at 1701 Standish
Avenue, Petoskey, Michigan, a city 260 miles north of Detroit. There are
approximately 79,000 square feet of floor space at the plant, of which 76,000
are devoted to manufacturing with the remainder being used for office and
administration purposes. The building and the 5.5 acre parcel on which it is
situated are owned by McL.
The Company owns all of its manufacturing plant and equipment and believes that
all such plant and equipment is well maintained and suited for the purposes
intended. The Company has adequate manufacturing capacity for current operations
and excess capacity for future growth.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a party
or of which any of its property is the subject.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year to a vote
of security holders.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The registrant's common stock is traded over-the-counter. The prices shown for
the fiscal years ended October 31, 1999 and 1998 were obtained from a
Detroit-area stock brokerage firm that effects transactions of Company stock
from time to time. Quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission and may not necessarily represent actual
transactions. Trading in the registrant's stock is limited and sporadic and
should not be deemed to constitute an established public trading market.
<TABLE>
<CAPTION>
Year Ended Year Ended
Oct. 31, 1999 Oct. 31, 1998
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Bid Ask Bid Ask
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<S> <C> <C> <C> <C>
First quarter 13 18 8 11
Second quarter 15 20 11 14
Third quarter 18 20 11 15
Fourth quarter 17 20 14 18
</TABLE>
As of December 3, 1999, there were approximately 284 holders of record of the
common stock of MRC.
The Company paid dividends in Fiscal Year 1999 as follows:
Declared: December 17, 1998 Paid: January 25, 1999 20(cent)per share
February 17, 1999 March 29, 1999 12(cent)per share
May 18, 1999 June 21, 1999 12(cent)per share
August 25, 1999 September 30, 1999 12(cent)per share
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended October 31
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1999 1998 1997 1996 1995
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(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $46,269 $45,287 $43,013 $41,597 $39,211
Net earnings 2,392 2,037 1,527 1,333 1,630
Total assets 26,675 25,760 22,540 21,300 20,655
Long-term debt 1,720 2,059 2,531 3,747 4,437
Per share of common stock:
Net earnings 3.75 3.19 2.39 2.09 2.55
Cash dividends .56 .48 .48 .37 .24
</TABLE>
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This financial review presents management's discussion and analysis of financial
condition and results of operations. This discussion should be read in
conjunction with the consolidated financial statements.
Forward-Looking Statements
This discussion and analysis of financial condition and results of operations,
contain forward-looking statements that are based on management's beliefs,
assumptions, current expectations, estimates and projections. These statements
are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict with regard to
timing, extent, likelihood and degree of occurrence. Therefore, actual results
and outcomes may materially differ from what may be expressed or forecasted in
such forward-looking statements.
1999 vs. 1998
Results of Operations
Net sales increased to $46,269,000 in Fiscal Year 1999, a two percent (2%)
increase from net sales of $45,287,000 in Fiscal Year 1998. The net profit for
Fiscal Year 1999 was $2,392,000 vs. a $2,037,000 profit for Fiscal Year 1998.
The growth in sales resulted from a combination of new products and change in
product mix. Sales to Ford, General Motors, DaimlerChrysler and their suppliers
as a percent to total sales was 90% for both Fiscal Years 1999 and 1998.
Cost of sales as a percentage of net sales was 83% for Fiscal Year 1999 and 84%
for the prior year.
Some major cost changes were as follows:
- - A reduction of 1.4% for raw material costs due to product mix and changes
in types used which amounted to $264,000.
- - A reduction of 3.0% for perishable tooling costs due to design changes
which amounted to $144,000.
- - An increase of 2.9% for plant labor costs due to contractual agreements
which amounted to $193,000.
- - An increase of 17% for depreciation due to purchases of new and used
equipment which amounted to $193,000.
Selling, general and administrative expenditures as a percentage of net sales
were 8.2% of sales for Fiscal Year 1999 and 8.3% for Fiscal Year 1998. The
dollar amount was an increase of $22,000 from the prior year. This was primarily
a result of increased sales commissions, bonus provision and directors fees.
Proceeds received from the sale of obsolete and excess equipment were $155,000
in Fiscal Year 1999 and $696,000 in Fiscal Year 1998.
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Interest expense decreased $86,000 from the prior year due to lower average
balances in short-term notes and interest rates from the bank. Average
outstanding balance in short-term notes in 1999 was $656,000 and for 1998 was
$813,000.
Liquidity and Capital Resources
The interest rate on $2,041,000 of the Company's Mortgage and Long Term
Equipment Loan Agreements with the Company's lending institution, Comerica Bank,
was at .50% below the bank's prime rate. The Revolving Credit available remains
at $5,000,000 with the interest rate at equal to 75 basis points below the
bank's prime rate. The Company is in compliance with all the covenants of the
lending agreement.
The Company's cash increased $7,000 from the beginning of the Fiscal Year 1999.
Cash flow from operating activities was $3,208,000 in Fiscal Year 1999, due
primarily to earnings and non-cash expenses for depreciation. Cash of $2,843,000
plus proceeds on sale of equipment was used to acquire equipment and pay short
and long term debt. Cash of $358,000 was used to pay dividends to shareholders.
As of October 31, 1999, the Company had $4,584,000 available under its revolving
line of credit. Expenditures for additional equipment during Fiscal year 2000
are presently expected to approximate $2,000,000 which are projected to be
financed from cash generated from operations and cash from the revolving credit
line.
The Company is continuing to review the costs of all parts and when necessary
request price adjustments from our customers. The Company has had some success,
about ten percent of current parts, in attaining a few price adjustments. The
Company will continue its long range capital improvements plan to upgrade major
production equipment on an orderly, as needed basis and, to evaluate all current
outside operations. There can be no assurance that the Company's projections
will be realized.
Sales to all domestic and foreign customers are quoted at U.S. dollar currency
rates, therefore eliminating any foreign currency risks.
YEAR 2000
The Company experienced no system failures or miscalculations as a result of
Y2K. The Company is not aware of any failures attributable to the Y2K problem at
its customers or suppliers which threaten to have an adverse impact on the
Company's business at this time.
Dividends
Dividends totaling fifty-six cents ($.56) per share were paid in Fiscal Year
1999.
1998 vs. 1997
Results of Operations
Net sales increased to $45,287,000 in Fiscal Year 1998, a five percent (5%)
increase from net sales of $43,013,000 in Fiscal Year 1997. The net profit for
Fiscal Year 1998 was $2,037,000 vs. a $1,527,000 profit for Fiscal Year 1997.
The growth in sales resulted from a combination
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of new products, increased volume, and change in product mix. Sales to Ford,
General Motors, DaimlerChrysler and their suppliers as a percent to total sales
was 90% in Fiscal Year 1998 and 91% for Fiscal Year 1997.
Cost of sales as a percentage of net sales was 84% for Fiscal Year 1998 and 86%
for the prior year.
Some major cost changes were as follows:
- - A reduction of $350,000 for FAS 106 accrual due to contractual and
personnel changes.
- - A reduction of 23% for excess freight costs to customers and 3.4% lower
tooling costs which totaled $158,000.
- - A reduction of 3.3% for raw material costs due to changes in some types
used and product mix which amounted to $400,000.
Selling, general and administrative expenditures as a percentage of net sales
remained at 8.3% of sales for Fiscal Year 1998 and 1997. The dollar amount was
an increase of $175,000 from the prior year. This was primarily a result of
increased bonus provision and write off of uncollectible accounts.
Proceeds received from the sale of obsolete and excess equipment were $696,000
in Fiscal Year 1998 and $179,000 in Fiscal Year 1997.
Interest expense decreased $13,000 from the prior year due to lower short-term
notes and interest rates from the bank.
Liquidity and Capital Resources
The interest rate on $2,340,000 of the Company's Mortgage and Long Term
Equipment Loan Agreements with the Company's lending institution, Comerica Bank,
was at the bank's prime rate. The Revolving Credit available remains at
$5,000,000 with the interest rate at equal to 25 basis points below the bank's
prime rate. The Company is in compliance with all the covenants of the lending
agreement.
The Company's cash decreased $568,000 from the beginning of the Fiscal Year
1998. Cash flow from operating activities was $2,153,000 in Fiscal Year 1998,
due primarily to earnings, non-cash expenses for depreciation and accrued
postretirement benefits. Cash of $3,110,000 was used to acquire equipment and
pay short and long term debt. Cash of $306,000 was used to pay dividends to
shareholders. As of October 31, 1998, the Company had $3,952,000 available under
its revolving line of credit. Expenditures for additional equipment during
Fiscal year 1999 are presently expected to approximate $2,300,000 which are
projected to be financed from cash generated from operations and cash from the
revolving credit line.
The Company is continuing to review the costs of all parts and when necessary
request price adjustments from our customers. The Company has had some success,
about ten percent, in attaining a few price adjustments. The Company will
continue its long range capital improvements plan to upgrade major production
equipment on an orderly,
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as needed basis and, to evaluate all current outside operations. There can be no
assurance that the Company's projections will be realized.
Sales to all domestic and foreign customers are quoted at U.S. dollar currency
rates, therefore eliminating any foreign currency risks.
YEAR 2000
The Year 2000 issue ("Y2K") exists because some computer programs use two digits
rather that four to define the applicable year. For instance, these programs
record the year 1998 as "98." Any date-sensitive software may interpret a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including a
temporary inability to engage in normal business activities.
Readiness
The Company has conducted an inventory and assessment of its information
technology ("IT") systems and non-IT systems (such as building facilities, voice
mail, telephone and other systems containing embedded microprocessors). The
inventory was completed during 1997. The remediation phase and testing phases
were completed during 1998.
The Company's material internal IT systems principally consist of accounting and
manufacturing software applications. The Company has tested these systems and
are assured that all applications are Y2K compliant.
The Company purchases products and services from third parties. The Company has
sought written assurances from its material vendors and suppliers that there
will be no interruption of service or acceptable product as a result of the Y2K
issue. Based in part on the assurances received or not received, throughout
calendar 1999 the Company will resource work to mitigate the negative effects on
the Company in the event the Y2K issue results in the unavailability of products
or services. The Company cannot assure that any contingency plans will prevent
product or service interruption by one or more of the Company's third party
vendors or suppliers from having a material adverse effect on the Company.
Cost
The Company expects the costs directly associated with its Y2K efforts to be
minor and under $50,000 total.
Risks
The Company may be at risk from external infrastructure failures, including
electrical power, telephone, and transportation, among others. Investigation and
assessment of infrastructures is beyond the scope and resources of the Company.
Among the risks arising from these sources are the Company's inability to
conduct business in its offices that lose electrical power or experience failure
of elevator, security, HVAC or other building systems, and disruption to Company
business if telephone or cellular communication is unavailable.
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Contingencies
The Company has developed contingency plans in regard to its internal systems,
vendor/supplier issues or any of the more global infrastructure issues. The plan
is to create a complete back-up file of all data and if necessary to manually
transact all functions until problem is corrected.
Forward-Looking Statements
The estimates regarding the costs of the Company's Y2K efforts, as well as
statements regarding the potential effect of Y2K issues on the Company and the
Company's plans to deal with issues or contingencies raised by Y2K issues, are
forward-looking statements. These statements are subject to a number of risks
and uncertainties which could cause actual costs, effects or plans to differ
from the discussion above. Among these risks or uncertainties are the following:
- - difficulty in successfully identifying all hardware, software and systems
which may be affected by Y2K problems or which may contain microprocessors
affected by those problems;
- - difficulty in identifying all third parties whose inability to process Y2K
date information may affect the Company;
- - the fact that the Company will have no control over the efforts of material
vendors, suppliers and other providers to address their Y2K issues; and
- - the effect of general economic conditions on the willingness of third
parties to make the expenditures necessary to address Y2K problems which
may affect the Company.
Dividends
Dividends totaling forty-eight cents ($.48) per share were paid in Fiscal Year
1998.
1997 vs. 1996
Results of Operations
Net sales increased to $43,013,000 in Fiscal Year 1997, a three percent (3%)
increase from net sales of $41,597,000 in Fiscal Year 1996. The net profit for
Fiscal Year 1997 was $1,527,000 vs. a $1,333,000 profit for Fiscal Year 1996.
The growth in sales resulted from a combination of new products, increased
volume, and change in product mix. Sales to Ford, General Motors, Chrysler and
their suppliers as a percent to total sales was 91% in Fiscal Year 1997 and 92%
for Fiscal Year 1996.
Cost of sales as a percentage of net sales remained the same for Fiscal Year
1997 and 1996.
Some major cost changes were as follows:
- - A ten percent (10%) increase in hourly labor due to contractual rate
increases and lower efficiencies.
- - Higher tooling costs due to increased costs and new job set ups.
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- - Outside secondary costs were lower due to bringing operations inside at an
overall savings.
- - Cost to acquire QS-9000 certification was $75,000.
Selling, general and administrative expenditures as a percentage of net sales
decreased to 8.3% of sales in Fiscal Year 1997 from 8.6% in Fiscal Year 1996.
The dollar amount was an increase of $28,000 from the prior year. This was
primarily a result of increased commissions, salary wages and bonus provision.
Proceeds received from the sale of obsolete and excess equipment were $179,000
in Fiscal Year 1997 and $78,000 in Fiscal Year 1996.
Interest expense decreased $145,000 from the prior year due to lower short-term
notes and interest rates from the bank.
Liquidity and Capital Resources
The interest rate on $2,900,000 of the Company's Mortgage and Long Term
Equipment Loan Agreements was lowered by 50 basis points to equal the bank's
prime rate. The Revolving Credit available remains at $5,000,000 with the
interest rate reduced 25 basis points to a rate equal to 25 basis points below
the bank's prime rate. The Company is in compliance with all the covenants of
the lending agreement.
The Company's cash increased $119,000 from the beginning of the Fiscal Year
1997. Cash flow from operating activities increased to $3,633,000 in Fiscal Year
1997, due primarily to earnings, non-cash expenses for depreciation and accrued
postretirement benefits and other current liabilities. Cash of $2,959,000 was
used to acquire equipment and pay short and long term debt. Cash of $311,000 was
used to pay dividends to shareholders. As of October 31, 1997, the Company had
$4,800,000 available under its revolving line of credit. Expenditures for
additional equipment during Fiscal year 1998 are presently expected to
approximate $2,300,000 which are projected to be financed from cash generated
from operations and cash from the revolving credit line.
The Company is continuing to review the costs of all parts and when necessary
request price adjustments from our customers. The Company has had some success,
about ten percent, in attaining a few price adjustments. The Company will
continue its long range capital improvements plan to upgrade major production
equipment on an orderly, as needed basis and, to evaluate all current outside
operations. There can be no assurance that the Company's projections will be
realized.
Dividends
Dividends totaling forty-eight cents ($.48) per share were paid in Fiscal Year
1997 for an increase of 30% over amounts paid in Fiscal Year 1996.
Impact of Inflation
The Company maintains data on its costs which allows it to monitor the impact of
changes due in part to inflation and also to other factors
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such as technological change. Periodically, usually on a part-by-part basis,
increases in costs are reviewed and are, to the extent allowed by the Company's
customers and permitted by competition, passed along as price increases.
The Company is party to an agreement with one of its major customers which
requires automatic price decreases in future contract years. Although this
provision will prevent the Company from passing along increases in costs related
to the project, the Company believes that it will be able to absorb any such
increases due to increased production efficiencies currently planned.
The Company continues to monitor controllable costs in the areas of labor, raw
material, work-in-process and finished goods inventory, as well as other
suppliers of goods or services so that assets are used more productively and
margins are improved.
Other
The volatility of the domestic automotive industry and the Company's reliance on
this important customer base for sales causes the reported information not to be
necessarily indicative of future operating results or future financial
conditions for the Company.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As of the end of the fiscal year, the Company had no material exposure to market
risks related to currency, interest rates or otherwise.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this
report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
The information called for by the items within this part is included in the
Company's 2000 Proxy Statement, and is incorporated herein by reference, as
follows
Caption(s) in 2000 Proxy Statement
Item 10. DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT.........."Election of Directors"
Item 11. EXECUTIVE COMPENSATION...................."Executive Compensation"
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT...."Security Ownership of
Management"
Item 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS................"Certain Relationships and
Related Transactions"
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
(a) Financial Statements, Schedules and Exhibits
(1) and (2)--The response to this portion of Item 14 is submitted as a
separate section of this report.
(3) Listing of exhibits
3.1--Articles of Incorporation - Previously filed as Exhibit 3 to the
registrant's Annual Report on Form 10K for the year ended October
31, 1982 and incorporated herein by reference.
3.2--Bylaws - Previously filed as Exhibit 3 to the registrant's Annual
Report on Form 10K for the year ended October 31, 1976 and
incorporated herein by reference.
21--Subsidiaries of Registrant
(b) No reports on Form 8-K were filed during the last quarter of the
Company's fiscal year ended October 31, 1999.
(c) Exhibits:
See Item 14(a)(3) above.
(d) Financial Statement Schedules:
The response to this portion of Item 14 is submitted as a separate section
of this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MICHIGAN RIVET CORPORATION
/s/ William B. Stade
--------------------------------------
William B. Stade
President
1-21-00
--------------------------------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of this registrant and
in the capacities indicated on the 21st day of January 2000.
/s/ William B. Stade /s/ William P. Lianos
- ---------------------------- --------------------------------------
William B. Stade William P. Lianos
Chairman of the Board, Exec. V. P. & Treasurer and Director
President and Director (Principal Financial &
Accounting Officer)
/s/ Anthony W. Livorine /s/ Clark V. Stevens
- ---------------------------- --------------------------------------
Anthony W. Livorine Clark V. Stevens
Director Director
/s/ Kermit L. Knuppenburg /s/ Charles E. Blank
- ---------------------------- --------------------------------------
Kermit L. Knuppenburg Charles E. Blank
Director Director
/s/ Anthony J. Caputo /s/ Howard W. Burdett
- ---------------------------- --------------------------------------
Anthony J. Caputo Howard W. Burdett
Director Director
/s/ Earl T. O'Loughlin
- ----------------------------
Gen. Earl T. O'Loughlin
Director
15
<PAGE> 16
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1), (2), and (d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED OCTOBER 31, 1999
MICHIGAN RIVET CORPORATION
WARREN, MICHIGAN
16
<PAGE> 17
FORM 10-K--ITEM 14(a)(1) and (2)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
MICHIGAN RIVET CORPORATION AND SUBSIDIARIES
The following consolidated financial statements of Michigan Rivet Corporation
and subsidiaries are included in Item 8:
Consolidated balance sheets--Years ended October 31, 1999, 1998 and
1997
Consolidated statements of operations and retained earnings--Years
ended October 31, 1999, 1998 and 1997
Consolidated statements of cash flows--Years ended October 31, 1999,
1998 and 1997
Notes to consolidated financial statements--Years ended October 31,
1999, 1998, and 1997
The following consolidated financial statement schedule of Michigan Rivet
Corporation and subsidiaries is included in Item 14(d):
Schedule VIII--Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
17
<PAGE> 18
[PLANTE & MORAN, LLP LETTERHEAD]
Independent Auditor's Report
To the Board of Directors and Stockholders
Michigan Rivet Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of Michigan Rivet
Corporation and subsidiaries as of October 31, 1999, 1998 and 1997 and the
related consolidated statements of income and changes in retained earnings and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Michigan Rivet Corporation and subsidiaries at October 31, 1999, 1998 and 1997
and the consolidated results of their operations and their cash flows for the
years then ended, in conformity with generally accepted accounting principles.
Plante & Moran, LLP
Troy, Michigan
December 9, 1999 except for Note 2,
as to which the date is January 14, 2000
18
<PAGE> 19
MICHIGAN RIVET CORPORATION AND SUBSIDIARIES
================================================================================
<TABLE>
<CAPTION>
Ocotober 31
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 99,220 $ 92,125 $ 660,398
Accounts receivable - Less allowance of
$50,000 in 1999, 1998 and 1997 6,004,635 6,575,512 5,687,051
Inventories:
Finished products 2,231,376 1,636,774 1,722,457
In process 3,744,229 3,773,479 2,708,403
Raw materials 865,879 677,551 722,270
----------- ----------- -----------
Total inventories 6,841,484 6,087,804 5,153,130
Deferred federal income taxes (Note 3) 805,000 647,639 597,639
Prepaid expenses and other current assets 232,501 253,734 252,792
----------- ----------- -----------
Total current assets 13,982,840 13,656,814 12,351,010
OTHER ASSETS (Notes 3 and 4) 1,012,210 1,048,662 1,004,594
PROPERTY, PLANT AND EQUIPMENT
Land 125,000 125,000 125,000
Buildings and improvements 5,947,671 5,656,030 5,435,779
Machinery and equipment 21,767,242 20,515,966 19,455,410
----------- ----------- -----------
Total property, plant and equipment 27,839,913 26,296,996 25,016,189
Less accumulated depreciation 16,160,459 15,242,603 15,831,463
----------- ----------- -----------
Net carrying amount 11,679,454 11,054,393 9,184,726
----------- ----------- -----------
Total assets $26,674,504 $25,759,869 $22,540,330
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements. 19
<PAGE> 20
================================================================================
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
October 31
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES
Notes payable to bank (Note 2) $ 216,000 $ 848,000 $ -
Accounts payable 4,387,141 5,053,695 4,441,194
Payroll and employees' benefits 1,634,937 1,431,337 1,121,649
Other accrued expenses 897,628 710,639 602,709
Current portion of long-term debt (Note 2) 324,026 299,061 369,163
----------- ----------- -----------
Total current liabilities 7,459,732 8,342,732 6,534,715
LONG-TERM DEBT - Net of current portion (Note 2) 1,720,167 2,058,572 2,531,337
ACCRUED POSTRETIREMENT BENEFITS (Note 4) 4,068,780 3,967,643 3,813,570
STOCKHOLDERS' EQUITY
Common stock - $1 par value:
Authorized - 1,000,000 shares
Issued and outstanding - 638,525 shares 638,525 638,525 638,525
Paid-in capital 117,403 117,403 117,403
Retained earnings 13,333,964 10,634,994 8,904,780
----------- ----------- -----------
Total stockholders' equity 14,089,892 11,390,922 9,660,708
----------- ----------- -----------
Total liabilities and
stockholders' equity $27,338,571 $25,759,869 $22,540,330
=========== =========== ===========
</TABLE>
20
<PAGE> 21
MICHIGAN RIVET CORPORATION AND SUBSIDIARIES
================================================================================
CONSOLIDATED STATEMENT OF INCOME AND CHANGES IN RETAINED EARNINGS
<TABLE>
<CAPTION>
Year Ended October 31
------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $ 46,268,939 $ 45,287,313 $ 43,013,303
COSTS AND EXPENSES
Cost of products sold 38,624,525 37,929,455 36,790,532
Selling, administrative and general 3,782,349 3,760,448 3,585,020
Interest 224,588 310,703 323,853
------------ ------------ ------------
Total costs and expenses 42,631,462 42,000,606 40,699,405
------------ ------------ ------------
INCOME - Before federal income taxes 3,637,477 3,286,707 2,313,898
FEDERAL INCOME TAXES (Note 3) 1,245,000 1,250,000 787,000
------------ ------------ ------------
NET INCOME 2,392,477 2,036,707 1,526,898
RETAINED EARNINGS - Beginning of year 10,941,487 8,904,780 7,688,951
DIVIDENDS ($.56, $.48 and $.48 per share for the
years ended October 31, 1999, 1998 and 1997,
respectively) (357,574) (306,493) (311,069)
------------ ------------ ------------
RETAINED EARNINGS - End of year $ 13,333,964 $ 10,941,487 $ 9,215,849
============ ============ ============
NET INCOME PER SHARE $ 3.75 $ 3.19 $ 2.39
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements. 21
<PAGE> 22
MICHIGAN RIVET CORPORATION AND SUBSIDIARIES
================================================================================
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended October 31
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,392,477 $ 2,036,707 $ 1,526,898
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 1,338,448 1,089,390 1,044,186
Gain on sale of equipment (65,850) (239,236) (68,354)
Provision for deferred income taxes (87,361) (65,000) (355,000)
Provision for postretirement benefits 101,137 154,073 534,430
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable 570,877 (888,461) 464,024
Increase in inventories (753,682) (934,674) (448,828)
Increase in prepaid expenses
and other assets (12,315) (30,010) (85,633)
Increase (decrease) in accounts payable
and other accrued expenses (275,964) 1,030,119 1,021,147
----------- ----------- -----------
Net cash provided by
operating activities 3,207,767 2,152,908 3,632,870
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (2,052,867) (3,415,595) (1,428,360)
Proceeds from sale of equipment 155,210 695,774 178,500
----------- ----------- -----------
Net cash used in investing
activities (1,897,657) (2,719,821) (1,249,860)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) under short-term credit line (632,000) 848,000 0
Payments on long-term debt (313,441) (542,867) (1,530,915)
Payment of dividends (357,574) (306,493) (311,069)
----------- ----------- -----------
Net cash used in financing
activities (1,303,015) (1,360) (1,841,984)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 7,095 (568,273) 541,026
CASH - Beginning of year 92,125 660,398 119,372
----------- ----------- -----------
CASH - End of year $ 99,220 $ 92,125 $ 660,398
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements. 22
<PAGE> 23
MICHIGAN RIVET CORPORATION AND SUBSIDIARIES
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Michigan Rivet Corporation and subsidiaries
(collectively, the "Company"). Upon consolidation, significant
intercompany accounts and transactions are eliminated.
DESCRIPTION OF BUSINESS - The Company is a domestic manufacturer of
cold headed steel fasteners, nuts and components, principally for the
automotive industry. Sales to General Motors Corporation, Ford Motor
Company and Daimler Chrysler Corporation, including their suppliers,
are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
General Motors Corporation 35% 33% 33%
Ford Motor Company 40% 41% 39%
DaimlerChrysler Corporation 15% 16% 19%
</TABLE>
The Company generally does not require collateral from its customers.
Credit losses from automobile and related manufacturers have been
minimal and within management's expectations.
INVENTORIES - Inventories are stated at the lower of cost or market.
Cost is determined by the last-in, first-out (LIFO) method for certain
inventories (approximately 24 percent, 24 percent and 26 percent of
consolidated inventories at October 31, 1999, 1998 and 1997,
respectively) and the first-in, first-out (FIFO) method for all other
inventories.
Current cost exceeded the balance sheet carrying amount of LIFO
inventories by $415,000, $468,000 and $403,000 in 1999, 1998 and 1997,
respectively.
USE OF 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 revenue and expenses during the reporting period.
Actual results could differ from those estimates.
23
<PAGE> 24
MICHIGAN RIVET CORPORATION AND SUBSIDIARIES
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY, PLANT AND EQUIPMENT - Properties are stated at cost and
include expenditures that materially increase the useful lives of
existing buildings and equipment. Expenditures for normal repairs,
maintenance and production tooling are charged to operations as
incurred. Depreciation is computed principally by the straight-line
method over the estimated useful lives of the related assets.
INCOME TAXES - Under Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes, the liability method is used in
accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws in effect. A valuation allowance
for deferred tax assets would be provided if, in management's judgment,
it is more likely than not the benefit of these future tax deductions
could not be realized. Current taxes payable or refundable are based on
amounts on tax returns for the year.
EMPLOYEE POSTRETIREMENT BENEFITS - The Company provides health care and
life insurance benefits for certain retired employees. This plan is
unfunded and benefits are paid when they are incurred by the retiree.
These benefits are recognized as an expense as employees render
service.
RECLASSIFICATION - Certain prior year amounts have been reclassified to
conform to the current year presentation.
NOTE 2 - DEBT
Notes payable to bank represent borrowings for working capital purposes
under a $5,000,000 short-term revolving line of credit, which is
renewed quarterly and bears interest at the lending institution's prime
rate less .25 percent (prime was 8.25 percent at October 31, 1999). The
weighted average interest rate for 1999, 1998 and 1997 was 8.08
percent, 8.47 percent and 8.59 percent, respectively. Available
borrowings under this agreement are based on a percentage of eligible
accounts receivable.
24
<PAGE> 25
MICHIGAN RIVET CORPORATION AND SUBSIDIARIES
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
NOTE 2 - DEBT (CONTINUED)
Long-term debt consists of obligations:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Mortgage note $2,041,483 $2,340,101 $2,580,972
Equipment notes payable -- -- --
Other 2,710 17,532 30,846
---------- ---------- ----------
Total 2,044,193 2,357,633 2,900,500
Less current portion 324,026 299,061 369,163
---------- ---------- ----------
Long-term portion $1,720,167 $2,058,572 $2,531,337
========== ========== ==========
</TABLE>
Future maturities on long-term year ending as follows:
<TABLE>
<S> <C>
2000 $ 324,026
2001 346,259
2002 373,140
2003 402,108
2004 598,660
-----------
Total $ 2,044,193
===========
</TABLE>
The mortgage note at October 31, 1999 was scheduled to mature on
February 1, 2000. On January 14, 2000, the Company refinanced the note
at .50 percent below the prime rate. The new mortgage note is payable
in monthly installments of $38,627 including interest, and matures
April 1, 2005. The amount outstanding at October 31, 1999 has been
classified based on the new mortgage terms. The financing agreements
include covenants that require minimum levels of working capital,
tangible net worth and debt to equity ratios. The agreement also
requires the lender's approval before cash dividends may be declared or
paid.
25
<PAGE> 26
MICHIGAN RIVET CORPORATION AND SUBSIDIARIES
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
NOTE 2 - DEBT (CONTINUED)
As of October 31, 1999, substantially all of the Company's assets were
mortgaged or otherwise pledged as collateral for the various debt
agreements.
Cash payments for interest were $233,104, $283,074 and $326,493 in
1999, 1998 and 1997, respectively.
NOTE 3 - FEDERAL INCOME TAXES
The provision for income tax expense is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current expense $ 1,332,361 $ 1,315,000 $ 1,142,000
Deferred benefit (87,361) (65,000) (355,000)
----------- ----------- -----------
Total income tax expense $ 1,245,000 $ 1,250,000 $ 787,000
=========== =========== ===========
Income tax payments $ 1,280,000 $ 1,275,000 $ 905,000
=========== =========== ===========
The details of the net deferred tax asset are as follows:
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Deferred tax liabilities - Depreciation $1,094,058 $ 964,164 $ 935,465
Deferred tax assets:
Employee benefits 1,596,424 1,562,884 1,549,855
Inventory valuation 636,664 479,351 398,524
Other 40,970 14,568 14,725
---------- ---------- ----------
Total deferred tax assets 2,274,058 2,056,803 1,963,104
Valuation allowance -- -- --
---------- ---------- ----------
Net deferred tax asset $1,180,000 $1,092,639 $1,027,639
========== ========== ==========
</TABLE>
26
<PAGE> 27
MICHIGAN RIVET CORPORATION AND SUBSIDIARIES
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
NOTE 3 - FEDERAL INCOME TAXES (CONTINUED)
The principal components of deferred federal income tax credits are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Employee benefits $ (33,540) $ (13,029) $(293,459)
Accelerated tax depreciation 129,894 28,699 (27,015)
Inventory valuation (157,313) (80,827) (69,675)
Other (26,402) 157 35,149
--------- --------- ---------
Total $ (87,361) $ (65,000) $(355,000)
========= ========= =========
</TABLE>
NOTE 4 - RETIREMENT BENEFITS
PENSION PLANS - Certain employees of the Company who are members of
collective bargaining units are covered by a noncontributory defined
benefit pension plan. The plan provides benefits that are based on a
stated amount for each year of service plus a frozen vested accrued
severance benefit calculated as of August 26, 1977 for eligible
employees on that date. The Company's funding policy is to make at
least the minimum annual contribution required by applicable
regulations.
A summary of the components of pension income for the union plan
follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost for benefits earned during
the period $ 110,589 $ 89,587 $ 82,164
Interest cost of projected benefit
obligation 305,475 299,215 291,878
Expected return on plan assets (404,002) (380,560) (351,988)
Amortization of net asset at transition (56,164) (56,164) (56,164)
Amortization of prior service cost 10,554 10,554 10,554
--------- --------- ---------
Net pension income $ (33,548) $ (37,368) $ (23,556)
========= ========= =========
</TABLE>
Assumptions used in accounting for the plan were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Weighted average discount rate 7.5% 6.5% 7.25%
Expected long-term rate of return on
assets 7.0% 7.0% 7.0%
</TABLE>
27
<PAGE> 28
MICHIGAN RIVET CORPORATION AND SUBSIDIARIES
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
NOTE 4 - RETIREMENT BENEFITS (CONTINUED)
The following table sets forth the funded status and amounts recognized
in the consolidated balance sheet for the union plan:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning
of year $ 4,796,768 $ 4,272,033 $ 3,818,023
Service cost 110,589 89,587 82,164
Interest cost 305,475 299,215 291,878
Actuarial (gain) loss (487,461) 362,675 297,328
Benefits paid (247,821) (226,742) (217,360)
----------- ----------- -----------
Benefit obligation at end of year 4,477,550 4,796,768 4,272,033
Change in plan assets:
Fair value of plan assets at
beginning of year 6,416,565 6,306,504 5,617,523
Actual return on assets 629,067 336,803 906,341
Benefits paid (247,821) (226,742) (217,360)
----------- ----------- -----------
Fair value of plan assets at
end of year 6,797,811 6,416,565 6,306,504
----------- ----------- -----------
Funded status: 2,320,261 1,619,797 2,034,471
Unrecognized net asset at transition (411,960) (468,124) (524,288)
Unrecognized prior service cost 136,673 147,227 157,781
Unrecognized net gain (1,407,764) (695,238)
----------- ----------- -----------
Net pension asset recognized
in the consolidated balance sheet $ 637,210 $ 603,662 $ 566,294
=========== =========== ===========
</TABLE>
Plan assets are invested primarily in pooled equity investment funds,
obligations of the U.S. government and its agencies and certain other
investments.
During 1997, the plan was amended to increase the benefit levels
resulting in an increase in the unrecognized prior service cost.
28
<PAGE> 29
MICHIGAN RIVET CORPORATION AND SUBSIDIARIES
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
NOTE 4 - RETIREMENT BENEFITS (CONTINUED)
Certain employees participate in a Company-sponsored savings plan.
Under the plan, the Company contributes a defined amount to individual
employee accounts based on the respective employee's contribution. The
Company contributed approximately $127,000, $120,000 and $60,000 to
this plan in 1999, 1998 and 1997, respectively.
In 1998, certain employees began participating in a multiemployer
defined benefit plan. The Company contributed approximately $82,000 and
$70,000 to the plan during the years ended October 31, 1999 and 1998,
respectively. The plan allows for withdrawal from the plan, without
penalty or future liability, during the first three years of
participation.
POSTRETIREMENT BENEFITS - As discussed in Note 1, the Company provides
health care and life insurance benefits for certain retired employees.
The Company adopted the provisions of SFAS 106 effective November 1,
1993. The Company elected to recognize the transition obligation over
20 years.
Subsequent to 1993, the Company and its collective bargaining unit
agreed to modifications to the postretirement benefit plan. These
modifications primarily related to a cap on future retiree medical
insurance benefits and a change in the limit of the Company's subsidy
and resulted in a reduction of the accumulated postretirement benefit
obligation. This reduction was used to reduce the transition
obligation, the balance of which is being recognized prospectively over
the remaining amortization period allowed by SFAS 106.
The Company recognized an expense related to postretirement benefits
consisting of service cost, interest cost and transition amortization
in 1999, 1998 and 1997, as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost of benefits earned
during the period $ 126,801 $ 119,835 $ 176,150
Interest cost of projected benefit
obligation 256,447 261,975 347,471
Amortization of net obligation at transition 211,266 211,266 223,979
Amortization of net gain (190,437) (213,412) (10,731)
--------- --------- ---------
Total net periodic
postretirement benefit cost $ 404,077 $ 379,664 $ 736,869
========= ========= =========
</TABLE>
29
<PAGE> 30
MICHIGAN RIVET CORPORATION AND SUBSIDIARIES
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
NOTE 4 - RETIREMENT BENEFITS (CONTINUED)
The amounts reported on the consolidated balance sheet at October 31,
1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning
of year $ 3,993,569 $ 4,716,386 4,414,305
Service cost 126,801 119,835 176,150
Interest cost 256,447 261,975 347,471
Actuarial gain (398,515) (878,627) (19,540)
Benefits paid (253,000) (226,000) (202,000)
----------- ----------- -----------
Benefit obligation at end of year 3,725,302 3,993,569 4,716,386
Unrecognized net obligation
at transition (2,274,376) (2,485,642) (2,696,908)
Unrecognized net gain 2,867,854 2,659,716 1,994,092
----------- ----------- -----------
Accrued postretirement
benefit cost $ 4,318,780 $ 4,167,643 4,013,570
=========== =========== ===========
</TABLE>
The Company has not funded any portion of its accumulated
postretirement benefit obligation except for benefits being paid as
incurred by participants. The Company's estimate of the current portion
of this accrued benefit is shown as a current liability.
The significant actuarial assumptions used to determine the cost to the
Company at October 31, 1999 are as follows:
<TABLE>
<S> <C>
Discount rate 7.50%
Health care trend rates - Medical Approximately 8.7% per annum grading
down to 5.5% in 2005 and all years
thereafter
Health care trend rates - Prescription Approximately 10.70% per annum
grading down to 5.5% in 2005 and all
years thereafter
</TABLE>
30
<PAGE> 31
MICHIGAN RIVET CORPORATION AND SUBSIDIARIES
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
NOTE 4 - RETIREMENT BENEFITS (CONTINUED)
A 1.0 percent increase in the health care trend rate assumptions would
increase the October 31, 1999 accumulated postretirement benefit
obligation by 1.0 percent and would increase the aggregate of the 1999
service and interest cost components of the net periodic postretirement
benefit cost by 1.4 percent.
NOTE 5 - CONTINGENCIES
The Company is self-insured for purposes of workers' compensation
insurance. Under the plan, the Company has specific stop-loss insurance
for occurrences exceeding $300,000 per individual claim. The Company's
authority for self-insurance is renewed yearly by the State of Michigan
on January 1. The Company currently has a standby letter of credit of
$200,000 pledged for potential future claims. Workers' compensation
claims totaled approximately $292,000, $351,000 and $301,000 for the
years ended October 31, 1999, 1998 and 1997, respectively.
NOTE 6 - FAIR VALUES OF FINANCIAL INSTRUMENTS
A summary of the fair values of financial instruments, as well as the
methods and significant assumptions used to estimate fair values, is as
follows:
SHORT-TERM FINANCIAL INSTRUMENTS - The fair values of short-term
financial instruments, including cash, accounts receivable, accounts
payable and accrued liabilities, approximate the carrying amounts in
the accompanying consolidated financial statements due to the short
maturity of such instruments.
LONG-TERM DEBT - The fair value of long-term debt approximates the
carrying amount based on the current borrowing rates offered for such
instruments since the current rates reflect market rates.
31
<PAGE> 32
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------------------
(2) Charged
Balance at (1) Charged to Other
Beginning of to Costs and Accounts- Deductions- Balance at
DESCRIPTION Period Expenses Describe Describe End of Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended October 31, 1999:
Valuation allowance for $ 50,000 $ (66,817) A $(66,817) $ 50,000
accounts receivable
Reserve for inventory 870,000 312,000 1,182,000
-------- --------- -------- ----------
obsolescence
TOTALS $920,000 $ 245,183 $(66,817) $1,232,000
======== ========= ======== ==========
Year Ended October 31, 1998:
Valuation allowance for $ 50,000 $ 189,592 A $189,592 $ 50,000
accounts receivable
Reserve for inventory 790,000 80,000 870,000
-------- --------- -------- ----------
obsolescence
TOTALS $840,000 $ 269,592 $189,592 $ 920,000
======== ========= ======== ==========
Year Ended October 31, 1997:
Valuation allowance for $ 50,000 $ 51,874 A $ 51,874 $ 50,000
accounts receivable
Reserve for inventory 663,000 127,000 790,000
-------- --------- -------- ----------
obsolescence
TOTALS $713,000 $ 178,874 $ 51,874 $ 840,000
======== ========= ======== ==========
</TABLE>
A - Represents uncollectible accounts charged off, net of recoveries.
32
<PAGE> 33
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
21 Subsidiaries of Registrant
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 21--SUBSIDIARIES OF REGISTRANT
MICHIGAN RIVET CORPORATION AND SUBSIDIARIES
Information with respect to registrant's subsidiaries is set forth below:
Name: The McLaughlin Company
State of incorporation: Michigan
Percentage owned by registrant: 100%
Name: Rivmac Distribution, Inc.
State of incorporation: Michigan
Percentage owned by registrant: 100%
33
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-K.
</LEGEND>
<CIK> 0000065666
<NAME> MICHIGAN RIVET CORP.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<CASH> 99,220
<SECURITIES> 0
<RECEIVABLES> 6,054,635
<ALLOWANCES> 50,000
<INVENTORY> 6,841,484
<CURRENT-ASSETS> 13,982,840
<PP&E> 27,839,913
<DEPRECIATION> 16,160,459
<TOTAL-ASSETS> 26,674,504
<CURRENT-LIABILITIES> 7,459,732
<BONDS> 1,720,167
0
0
<COMMON> 638,525
<OTHER-SE> 13,451,367
<TOTAL-LIABILITY-AND-EQUITY> 27,338,571
<SALES> 46,268,939
<TOTAL-REVENUES> 46,268,939
<CGS> 38,624,525
<TOTAL-COSTS> 38,624,525
<OTHER-EXPENSES> 3,782,349
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 224,588
<INCOME-PRETAX> 3,637,477
<INCOME-TAX> 1,245,000
<INCOME-CONTINUING> 2,392,477
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,392,477
<EPS-BASIC> 3.75
<EPS-DILUTED> 3.75
</TABLE>
