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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended DECEMBER 31, 2002
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OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission File Number: O-1837
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FEDERAL SCREW WORKS
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(Exact name of registrant as specified in its charter)
Michigan 38-0533740
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
20229 Nine Mile Road, St. Clair Shores, Michigan 48080
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, and area code (586) 443-4200
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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 require-
ments for the past 90 days. YES X NO
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At December 31, 2002, the Company had one class of common stock outstanding,
$1.00 par value common stock. There were 1,185,493 shares of such common stock
outstanding at that time.
(continued)
Part I FINANCIAL INFORMATION
FEDERAL SCREW WORKS
CONDENSED BALANCE SHEETS (UNAUDITED)
(Thousands of Dollars)
Dec. 31 June 30
2002 2002
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ASSETS
Current Assets:
Cash............................................ $ 176 $ 199
Accounts Receivable, Less Allowance of $50...... 13,007 14,970
Inventories:
Finished Products............................. 8,134 9,266
In-Process Products........................... 6,288 6,754
Raw Materials And Supplies.................... 1,546 1,507
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15,968 17,527
Prepaid Expenses And Other Current Accounts..... 390 434
Deferred Income Taxes........................... 847 815
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Total Current Assets......................... 30,388 33,945
Other Assets:
Intangible Asset................................ 96 96
Cash Value Of Life Insurance.................... 5,761 5,696
Prepaid Pension Cost............................ 7,138 7,210
Miscellaneous................................... 2,825 3,005
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Total Other Assets........................... 15,820 16,007
Property, Plant And Equipment..................... 118,983 116,725
Less Accumulated Depreciation................... 67,009 63,997
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Net Properties.................................. 51,974 52,728
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Total Assets...................................... $98,182 $102,680
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Part I FINANCIAL INFORMATION (Continued)
Dec. 31 June 30
2002 2002
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable....................................... $ 3,836 $ 5,287
Payroll And Employee Benefits.......................... 3,717 5,770
Dividends Payable...................................... 119 124
Federal Income Taxes................................... 99 479
Taxes, Other Than Income Taxes......................... 1,701 1,804
Accrued Pension Contributions.......................... 168 0
Other Accrued Liabilities.............................. 99 70
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Total Current Liabilities........................... 9,739 13,534
Long Term Liabilities:
Long-Term Debt......................................... 7,885 6,340
Deferred Employee Compensation......................... 2,353 2,808
Postretirement Benefits Other Than Pensions............ 15,673 14,834
Deferred Income Taxes.................................. 1,854 1,867
Employee Benefits...................................... 1,030 1,100
Other Liabilities...................................... 909 892
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Total Long-Term Liabilities......................... 29,704 27,841
Stockholders' Equity:
Common Stock, $1.00 Par Value, Authorized
2,000,000 Shares; 1,185,493 Shares Outstanding
at December 31, 2002 and 1,234,093 at June 30, 2002.... 1,185 1,234
Additional Capital..................................... 3,270 3,270
Retained Earnings...................................... 54,452 56,903
Accumulated Other Comprehensive Loss................... (168) (102)
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Total Stockholders' Equity.......................... 58,739 61,305
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Total Liabilities and Stockholders' Equity............... $98,182 $102,680
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See Accompanying Notes.
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FEDERAL SCREW WORKS
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Thousands of Dollars, Except Per Share)
Three Months Ended Six Months Ended
December 31 December 31
2002 2001 2002 2001
---- ---- ---- ----
Net Sales..................................................... $22,990 $22,243 $46,170 $43,761
Costs And Expenses:
Cost of Products Sold...................................... 21,190 21,216 42,008 41,257
Selling And Administrative Expenses........................ 1,479 1,641 3,021 2,970
Interest Expense .......................................... 68 72 132 109
Other Expenses (Income).................................... 72 (1,357) 140 (1,301)
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Total Costs and Expenses................................ 22,809 21,572 45,301 43,035
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Earnings Before Federal
Income Taxes............................................... 181 671 869 726
Federal Income Taxes ......................................... 59 229 286 247
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Net Earnings.................................................. $ 122 $ 442 $ 583 $ 479
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Per Share Of Common Stock:
Basic and Diluted Earnings Per Share.......................... $ 0.10 $ 0.34 $ 0.48 $ 0.37
======= ======= ======= =======
Cash Dividends Declared Per Share............................. $ 0.10 $ 0.10 $ 0.90 $ 0.90
======= ======= ======= =======
See Accompanying Notes.
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FEDERAL SCREW WORKS
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
Six Months
Ended
December 31
2002 2001
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Operating Activities
Net Earnings.................................................................... $ 583 $ 479
Adjustments to Reconcile Net Earnings to Net Cash
Provided By (Used In) Operating Activities:
Depreciation ............................................................... 3,228 2,808
Increase In Cash Value of Life Insurance.................................... (65) (64)
Change In Deferred Income Taxes............................................. (45) (123)
Employee Benefits........................................................... (70) 93
Other....................................................................... 586 861
Changes In Operating Assets And Liabilities:
Accounts Receivable......................................................... 1,963 206
Inventories And Prepaid Expenses............................................ 1,603 1,075
Accounts Payable And Accrued Expenses....................................... (3,791) (2,858)
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Net Cash Provided By Operating Activities......................................... 3,992 2,477
Investing Activities
Purchases of Property, Plant And Equipment-Net.................................. (2,474) (4,795)
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Net Cash Used In Investing Activities............................................. (2,474) (4,795)
Financing Activities
Additional Borrowings Under Credit Agreement.................................... 1,545 4,645
Purchase of Common Stock........................................................ (1,988) (1,159)
Dividends Paid.................................................................. (1,098) (1,157)
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Net Cash Provided By (Used In) Financing Activities............................... (1,541) 2,329
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Increase (Decrease) In Cash....................................................... (23) 11
Cash At Beginning Of Period....................................................... 199 98
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Cash At End Of Period............................................................. $ 176 $ 109
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See Accompanying Notes.
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FEDERAL SCREW WORKS
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial reporting. Application of these accounting principles
requires the Company's management to make estimates about the future resolution
of existing uncertainties. As a result, actual results could differ from these
estimates. In preparing these financial statements, management has made its best
estimates and judgements of the amounts and disclosures included in the
financial statements, giving due regard to materiality. The Company does not
believe there is a great likelihood that materially different amounts would be
reported under different conditions or using different assumptions pertaining to
the accounting policies described below. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The results of operations for the six
months ended December 31, 2002, are not necessarily indicative of the results to
be expected for the fiscal year ending June 30, 2003.
NOTE B - DEBT
On October 7, 2002, Comerica Bank approved a one year extension of the Company's
$25,000,000 Revolving Credit and Term Loan Agreement. Under the agreement the
Company has the option to convert borrowings thereunder (classified as long-term
debt) to a term note through October 31, 2005, the expiration date of the
agreement. Payments under the term note, if the conversion option is exercised,
would be made quarterly and could extend to October 31, 2007. As of December 31,
2002, there was $7,885,000 in outstanding borrowings under the Revolving Credit
and Term Loan Agreement.
NOTE C - DIVIDENDS
Cash dividends per share are based on the number of shares outstanding at the
respective dates of declaration.
NOTE D - INVESTMENTS
The Company has invested approximately $2,660,000 and $2,850,000 as of December
31, 2002, and June 30, 2002, respectively, which has been designated for payment
of certain liabilities related to deferred compensation plans. These amounts
were recorded in miscellaneous assets within the balance sheets. In accordance
with Statement of Financial Accounting Standards No. 115 ("FASB 115"), the
Company has classified all investments as "available-for-sale" because they are
freely tradable. As of December 31, 2002, the Company recorded an increase in
unrealized loss of $66,000, net of tax, from its investments, which is reflected
in the statements of shareholders' equity.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS: Net sales for the Company's second quarter ended December
31, 2002, increased $747,000, or 3.4%, compared with net sales for the second
quarter of the prior year. Net sales for the six month period ended December 31,
2002, increased $2,409,000 or 5.5%, compared with the six month period of the
prior year. The increase is attributable mainly to the increase in North
American automotive production.
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Gross profit for the three month period ended December 31, 2002, increased
$773,000, or 75.3%, as compared with the second quarter of the prior year. Gross
profit for the six month period ended December 31, 2002, increased $1,658,000,
or 66.2%, as compared with the six month period of the prior year. The increase
is attributable mainly to the increase in North American automotive sales and
production.
Selling and administrative expenses decreased $162,000, or (9.9%), for the
second quarter ended December 31, 2002, as compared with the second quarter of
the prior year. Selling and administrative expenses increased $51,000, or 1.7%,
as compared with the six month period ended December 31, 2001. The increase is
attributable mainly to increases in compensation and related expenses.
Other Expenses and Income in the second quarter of last year includes $1,450,000
($950,000 net of tax) received from the sale of stock acquired by the Registrant
in connection with the demutualization of an insurance company. The Registrant
has insurance with the company which was a mutual insurance company. The
insurance company converted from a mutual insurance company to a stock
insurance company and, in the conversion, the Registrant received stock of the
insurance company which it was entitled to sell. The Registrant sold all of the
stock resulting in the income.
The Registrant is dependent upon sales to the two largest U.S. automobile
manufacturers, a condition that has existed for at least fifty years. Although
the Registrant has purchase orders from such customers, such purchase orders
generally provide for supplying the customer's requirements for a particular
model or model year rather than for manufacturing a specific quantity of
products. The loss of any one of such customers or significant purchase orders
could have a material adverse effect on the Registrant. These customers are also
able to exert considerable pressure on component suppliers to reduce costs,
improve quality and provide additional design and engineering capabilities.
There can be no assurance that the additional costs of increased quality
standards, price reductions or additional capabilities required by such
customers will not have a material adverse effect on the financial condition or
results of operations of the Registrant.
DIVIDENDS: The Board of Directors, in October, 2002, declared a $0.10 per share
quarterly dividend paid January 3, 2003, to shareholders of record December 3,
2002.
LIQUIDITY AND CAPITAL RESOURCES: Working capital increased by $225,000 from
$20,410,000 at June 30, 2002, to $20,635,000 at December 31, 2002. The increase
is mainly attributable to the reduction in accounts payable, payroll and
employee benefits.
At December 31, 2002, the Company had available $17,115,000 under its bank
credit agreement.
Capital expenditures for the six month period ended December 31, 2002, were
approximately $2.5 million, and, for the year, are expected to approximate $6.8
million, of which approximately $4.5 million has been committed as of December
31, 2002.
There have been no material changes concerning environmental matters since those
reported in the Registrant's Report on Form 10-K for the fiscal year ended June
30, 2002.
FORWARD LOOKING STATEMENTS: The foregoing discussion and analysis with regard to
the Registrant's expected capital expenditures contains a "forward looking
statement" within the meaning of the Securities Act of 1933 and the Securities
Exchange Act of 1934, both as amended, with respect to expectations for future
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periods which are subject to various uncertainties, including the loss of, or
reduction in business with, the Company's principal customers, work stoppages,
strikes and slowdowns at the Company's facilities and those of its customers;
adverse changes in economic conditions generally and those of the automotive
industry, specifically.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk is limited to interest rate risk on its
revolving credit and term loan agreement. At December 31, 2002, the carrying
amounts reported in the balance sheets for cash, accounts receivable, accounts
payable, debt and investments approximate fair value. Accordingly, management
believes this risk is not material.
Item 4. Controls and Procedures
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Rule 13a-15 of the
Securities Exchange Act of 1934. Based upon that evaluation, the Company's Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company required to be disclosed in the
Company's periodic SEC reports. There have been no significant changes in the
Company's internal controls or in other factors which could significantly affect
internal controls subsequent to the date the Company carried out its evaluation.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth at the conclusion of the Liquidity and
Capital Resources discussion in Item 2 of Part I concerning environmental
matters is incorporated by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) A Form 8-K Report was filed November 14, 2002, to furnish the SEC the
Certifications of the Company's Chief Executive Officer and Chief
Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002
relating to the Company's Quarterly Report on Form 10-Q filed the same
day.
(b) There were no unusual charges or credits to income,
nor a change in independent accountants.
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.
FEDERAL SCREW WORKS
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Date February 14, 2003 /s/ W. T. ZurSchmiede, Jr.
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W. T. ZurSchmiede, Jr.
Chairman of the Board and
Chief Financial Officer
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Thomas ZurSchmiede, certify that:
1) I have reviewed this Quarterly Report on Form 10-Q of Federal Screw
Works.
2) Based on my knowledge, this Quarterly Report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
Quarterly Report.
3) Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all material
respects the financial condition, results of operation and cash flows of the
Registrant as of, and for, the periods presented in this Quarterly Report.
4) The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant, and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the Registrant is made
known to us by others within the Registrant particularly
during the period in which this Quarterly Report is being
prepared;
b. evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this Quarterly Report; and
c. presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based
on the required evaluation as of that date.
5) The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Registrant's auditors and the Audit
Committee of the Registrant's Board of Directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls.
6) The Registrant's other certifying officers and I have indicated in
this Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Thomas ZurSchmiede
----------------------
Thomas ZurSchmiede
President and
Chief Executive Officer -
Principal Executive Officer
Dated: February 6, 2003
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CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, W. Tom ZurSchmiede, Jr., certify that:
1) I have reviewed this Quarterly Report on Form 10-Q of Federal Screw
Works.
2) Based on my knowledge, this Quarterly Report does not contain any
untrue statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
Quarterly Report.
3) Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all material
respects the financial condition, results of operation and cash flows of the
Registrant as of, and for, the periods presented in this Quarterly Report.
4) The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the Registrant is made
known to us by others within the Registrant particularly
during the period in which this Quarterly Report is being
prepared;
b. evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this Quarterly Report; and
c. presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based
on the required evaluation as of that date.
5) The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Registrant's auditors and the Audit
Committee of the Registrant's Board of Directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls.
6) The Registrant's other certifying officers and I have indicated in
this Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ W. T. ZurSchmiede, Jr.
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W. T. ZurSchmiede, Jr.
Chairman of the Board,
Chief Financial Officer -
Principal Financial Officer
Dated: February 6, 2003
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10-Q EXHIBIT INDEX
EX-99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002