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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 MARCH 31, 2003
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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: 0-1837
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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 of (I.R.S. Employer
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
----- -----
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2) of the Exchange Act. YES NO X
----- -----
At March 31, 2003, the Registrant had one class of common stock outstanding,
$1.00 par value common stock. There were 1,475,465 shares of such common stock
outstanding at that time.
Part I FINANCIAL INFORMATION
FEDERAL SCREW WORKS
CONDENSED BALANCE SHEETS (UNAUDITED)
(Thousands of Dollars)
March 31 June 30
2003 2002
-------- -------
ASSETS
Current Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . $ 179 $ 199
Accounts Receivable, Less Allowance of $50 . . . 15,257 14,970
Inventories:
Finished Products. . . . . . . . . . . . . . . 8,345 9,266
In-Process Products. . . . . . . . . . . . . . 5,388 6,754
Raw Materials And Supplies . . . . . . . . . . 1,444 1,507
------ ------
15,177 17,527
Prepaid Expenses And Other Current Accounts. . . 276 434
Deferred Income Taxes . . . . . . . . . . . . . 872 815
------ ------
Total Current Assets. . . . . . . . . . . . . 31,761 33,945
Other Assets:
Intangible Assets. . . . . . . . . . . . . . . . 96 96
Cash Value Of Life Insurance . . . . . . . . . . 5,794 5,696
Prepaid Pension Cost . . . . . . . . . . . . . . 7,185 7,210
Miscellaneous. . . . . . . . . . . . . . . . . . 3,051 3,005
------ ------
Total Other Assets. . . . . . . . . . . . . . 16,126 16,007
Property, Plant And Equipment. . . . . . . . . . . 121,259 116,725
Less Accumulated Depreciation. . . . . . . . . . 68,655 63,997
------ ------
Net Properties . . . . . . . . . . . . . . . . . 52,604 52,728
------ ------
Total Assets . . . . . . . . . . . . . . . . . . . $100,491 $102,680
======= =======
- 2 -
Part I FINANCIAL INFORMATION (Continued)
March 31 June 30
2003 2002
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable . . . . . . . . . . . . . . . . . . $ 4,941 $ 5,287
Payroll And Employee Benefits . . . . . . . . . . . 4,750 5,770
Dividends Payable . . . . . . . . . . . . . . . . . 148 124
Federal Income Taxes . . . . . . . . . . . . . . . . 383 479
Taxes, Other Than Income Taxes . . . . . . . . . . . 1,424 1,804
Accrued Pension Contributions . . . . . . . . . . . 293 0
Other Accrued Liabilities . . . . . . . . . . . . . 112 70
------ ------
Total Current Liabilities . . . . . . . . . . . . 12,051 13,534
Long Term Liabilities:
Long-Term Debt . . . . . . . . . . . . . . . . . . . 6,820 6,340
Deferred Employee Compensation . . . . . . . . . . . 2,353 2,808
Postretirement Benefits Other Than Pensions. . . . . 16,039 14,834
Deferred Income Taxes. . . . . . . . . . . . . . . . 2,008 1,867
Employee Benefits . . . . . . . . . . . . . . . . . 1,038 1,100
Other Liabilities . . . . . . . . . . . . . . . . . 918 892
------ ------
Total Long Term Liabilities . . . . . . . . . . . 29,176 27,841
Stockholders' Equity:
Common Stock, $1.00 Par Value, Authorized
2,000,000 Shares; 1,475,465 Shares Outstanding
at March 31, 2003 and 1,529,065 as restated at
June 30, 2002 (Note C) . . . . . . . . . . . . . 1,475 1,234
Additional Capital . . . . . . . . . . . . . . . . . 3,270 3,270
Retained Earnings . . . . . . . . . . . . . . . . . 54,712 56,903
Accumulated Other Comprehensive Loss . . . . . . . . (193) (102)
------ ------
Total Stockholders' Equity. . . . . . . . . . . . 59,264 61,305
------ ------
Total Liabilities and Stockholders' Equity . . . . . . $100,491 $102,680
======= =======
See Accompanying Notes.
- 3 -
FEDERAL SCREW WORKS
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Thousands of Dollars, Except Per Share)
Three Months Ended Nine Months Ended
March 31 March 31
2003 2002 2003 2002
---- ---- ---- ----
Net Sales . . . . . . . . . . . . . . . $25,146 $24,910 $71,316 $68,671
Costs And Expenses:
Cost of Products Sold. . . . . . . . . 21,999 21,257 64,007 62,514
Selling And Administrative Expenses. . 1,682 1,802 4,703 4,772
Interest Expense . . . . . . . . . . . 46 55 178 164
Other Expenses (Income). . . . . . . . 64 (659) 204 (1,960)
------ ------ ------ ------
Total Costs and Expenses. . . . . . 23,791 22,455 69,092 65,490
------ ------ ------ ------
Earnings Before Federal
Income Taxes . . . . . . . . . . . . . 1,355 2,455 2,224 3,181
Federal Income Taxes . . . . . . . . . . 447 834 733 1,081
------ ------ ------ ------
Net Earnings . . . . . . . . . . . . . . $ 908 $ 1,621 $ 1,491 $ 2,100
====== ====== ====== ======
Per Share Of Common Stock:
Basic and Diluted Earnings Per Share . . $ 0.61 $ 1.04 $ 1.00 $ 1.34
====== ====== ====== ======
Cash Dividends Declared Per Share. . . . $ 0.10 $ 0.08 $ 0.82 $ 0.80
====== ====== ====== ======
Weighted Average Shares Outstanding. . . 1,477,909 1,552,859 1,496,420 1,569,843
========= ========= ========= =========
The above per share amounts have been adjusted to retroactively give effect to a
5 for 4 stock split declared by the Company's Board of Directors on February 14,
2003, payable April 1, 2003.
See Accompanying Notes.
- 4 -
FEDERAL SCREW WORKS
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
Nine Months
Ended
March 31
2003 2002
---- ----
Operating Activities
Net Earnings . . . . . . . . . . . . . . . . . . . . $ 1,491 $ 2,100
Adjustments to Reconcile Net Earnings to Net Cash
Provided By (Used In) Operating Activities:
Depreciation . . . . . . . . . . . . . . . . . . 4,873 4,358
Increase In Cash Value of Life Insurance . . . . (98) (97)
Change In Deferred Income Taxes. . . . . . . . . 84 (146)
Employee Benefits. . . . . . . . . . . . . . . . (63) 44
Other. . . . . . . . . . . . . . . . . . . . . . 665 947
Changes In Operating Assets And Liabilities:
Accounts Receivable. . . . . . . . . . . . . . . (287) 90
Inventories And Prepaid Expenses . . . . . . . . 2,508 533
Accounts Payable And Accrued Expenses . . . . . (1,507) (656)
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Net Cash Provided By Operating Activities . . . . . . 7,666 7,173
Investing Activities
Purchases of Property, Plant And Equipment-Net . . . (4,750) (6,407)
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Net Cash Used In Investing Activities . . . . . . . . (4,750) (6,407)
Financing Activities
Additional Borrowings Under Credit Agreement . . . . 480 2,725
Purchase of Common Stock . . . . . . . . . . . . . . (2,199) (1,778)
Dividends Paid . . . . . . . . . . . . . . . . . . . (1,217) (1,284)
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Net Cash Used In Financing Activities. . . . . . . . . (2,936) (337)
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Increase (Decrease) In Cash. . . . . . . . . . . . . . (20) 429
Cash At Beginning Of Period. . . . . . . . . . . . . . 199 98
----- ------
Cash At End Of Period . . . . . . . . . . . . . . . . $ 179 $ 527
====== ======
See Accompanying Notes.
- 5 -
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 judgments 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 nine months
ended March 31, 2003, 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 March 31,
2003, there was $6,820,000 in outstanding borrowings under the Revolving Credit
and Term Loan Agreement.
NOTE C - DIVIDENDS AND STOCK SPLIT
Cash dividends per share are based on the number of shares outstanding at the
respective dates of declaration. The Board of Directors, in February 2003,
declared a 5 for 4 split of the common stock of the Company to be distributed
April 1, 2003, to shareholders of record March 3, 2003. The stock split resulted
in the distribution of one share of common stock for each four shares of common
stock held on the record date.
The stock split has been retroactively reflected in the accompanying financial
statements for all amounts referring to shares, share prices and per share
amounts.
NOTE D - INVESTMENTS
The Company has invested approximately $2,865,000 and $2,850,000 as of March 31,
2003, 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. The Company recorded an increase in unrealized loss of $24,000 and
$91,000 for the three and nine month periods ended March 31, 2003, respectively,
from its investments, which is reflected in Accumulated Other Comprehensive
Loss.
- 6 -
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS: Net sales for the Company's third quarter ended March 31,
2003, increased $236,000, or 0.9%, compared with net sales for the third quarter
of the prior year. Net sales for the nine month period ended March 31, 2003,
increased $2,645,000, or 3.9%, compared with the nine month period of the prior
year. The increase is attributable to increased demand from U.S. based
automobile manufacturers due to their increased production during the period.
The Company's customers are primarily U.S. based automobile manufacturers and
their suppliers. Increased net sales for the nine month period ended March 31,
2003, were partially impacted by decreased automobile sales and production
during the same period a year ago caused by the events of September 11, 2001.
Gross profit for the three month period ended March 31, 2003, decreased
$506,000, or (13.9%), as compared with the third quarter of the prior year.
Gross profit for the nine month period ended March 31, 2003, increased
$1,152,000, or 18.7%, as compared with the nine month period of the prior year.
The decrease for the three month period ended March 31, 2003, is attributable
primarily to decreased production due to an effort to reduce inventories and, to
a lesser extent, price reductions and increased health care costs. The increase
for the nine month period ended March 31, 2003, is attributable to the increase
in net sales resulting from an increase in North American automotive sales and
production.
Selling and administrative expenses decreased $120,000, or (6.7%), for the third
quarter ended March 31, 2003, as compared with the third quarter of the prior
year. Selling and administrative expenses decreased $69,000, or (1.4%), as
compared with the nine month period ended March 31, 2002. The decrease is
attributable to decreases in bonus accruals due to the reduction in profit.
Other income decreased $723,000 and $2,164,000 for the three month and nine
month periods ended March 31, 2003, respectively, as compared to the same
periods of the prior year. Other Expenses and Income for the third quarter of
last year include $730,000 ($480,000 net of tax) received from the sale of stock
acquired by the Company in connection with the demutualization of an insurance
company in the third quarter of 2002. In the demutualization, the Registrant
received stock of the insurance company, which it sold in the third quarter of
2002. Other Expenses and Income for the nine month period ended March 31, 2002,
also include another cash gain of $1,450,000 ($950,000 net of tax) as a result
of the sale of stock acquired in connection with the demutualization of another
insurance company. The total gain for the nine month period ended March 31,
2002, was $2,180,000 ($1,430,000 net of tax).
The Company is dependent upon sales to the two largest U.S. based automobile
manufacturers, a condition that has existed for over fifty years. Although the
Company 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 Company. 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 Company.
DIVIDENDS: The Board of Directors, in February, 2003, declared a $.10 per
share quarterly dividend paid April 1, 2003, to shareholders of record as of
March 3, 2003. In addition, on February 14, 2003, the Board of Directors
declared a 5 for 4 stock split paid April 1, 2003, to shareholders of record
March 3, 2003.
- 7 -
LIQUIDITY AND CAPITAL RESOURCES: Working capital decreased by $700,000 from
$20,410,000 at June 30, 2002, to $19,710,000 at March 31, 2003. The decrease is
attributable to a reduction in inventories of $2,350,000 offset by a reduction
in current liabilities of $1,484,000.
At March 31, 2003, the Company had available $18,180,000 under its bank credit
agreement. As of that date, the Company was in compliance with all financial
covenants under its bank credit agreement.
Capital expenditures for the nine month period ended March 31, 2003, were
approximately $4.8 million, and, for the year, are expected to approximate $6.0
million, of which approximately $5.1 million has been committed as of March 31,
2003.
The Company's management has reviewed the environmental matters reported in the
Company's Report on Form 10-K for the fiscal year ended June 30, 2002, and has
determined that a material loss resulting from these matters is not reasonably
possible.
FORWARD LOOKING STATEMENTS: Certain information in this Form 10-Q contains
"forward looking statements" within the meaning of the Securities Act of 1933
and the Securities Exchange Act of 1934, both as amended, including with respect
to expectations for future periods, which are subject to various uncertainties
which could cause actual results to differ materially from those in the forward
looking statements, including but not limited to increased competition; the loss
of, or reduction in business with, the Company's principal customers; the impact
of additional costs of increased quality standards, price reductions or
additional capabilities required by 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 March 31, 2003, 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.
- 8 -
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits included with this Form 10-Q are set forth as on the
Index to Exhibits.
(b) A Form 8-K Report was filed February 14, 2003, 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.
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 May 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, 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 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/ W. T. ZurSchmiede, Jr.
------------------------------------
W. T. ZurSchmiede, Jr.
Chairman of the Board,
Chief Financial Officer -
Principal Financial Officer
Dated: May 14, 2003
CERTIFICATION OF PRINCIPAL FINANCIAL 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 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: May 14, 2003
INDEX TO EXHIBITS
EX-99.1 Certification of the Chief Executive Officer of Registrant, dated
May 14, 2003, relating to the Registrant's Quarterly Report on
Form 10-Q for the period ending March 31, 2003.
EX-99.2 Certification of the Chief Financial Officer of Registrant, dated
May 14, 2003, relating to the Registrant's Quarterly Report on
Form 10-Q for the period ending March 31, 2003.