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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 SEPTEMBER 30, 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: 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 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
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES NO X
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At September 30, 2003, the Company had one class of common stock outstanding,
$1.00 par value common stock. There were 1,442,165 shares of such common stock
outstanding at that time.
Part I FINANCIAL INFORMATION
FEDERAL SCREW WORKS
CONDENSED BALANCE SHEETS (UNAUDITED)
(Thousands of Dollars)
September 30 June 30
2003 2003
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ASSETS
Current Assets:
Cash.............................................. $ 272 $ 416
Accounts Receivable, Less Allowance of $50........ 14,230 14,096
Inventories:
Finished Products............................... 6,497 6,619
In-Process Products............................. 7,761 6,777
Raw Materials And Supplies...................... 953 1,176
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15,211 14,572
Prepaid Expenses And Other........................ 929 566
Deferred Income Taxes............................. 890 859
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Total Current Assets........................... 31,532 30,509
Other Assets:
Intangible Pension Asset.......................... 1,702 1,702
Cash Value Of Life Insurance...................... 5,857 5,825
Prepaid Pension Cost.............................. 738 832
Miscellaneous..................................... 3,717 3,700
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Total Other Assets................................ 12,014 12,059
Property, Plant And Equipment....................... 122,961 122,069
Less Accumulated Depreciation..................... 71,456 70,176
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Net Properties.................................... 51,505 51,893
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Total Assets........................................ $95,051 $94,461
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Part I FINANCIAL INFORMATION (Continued)
September 30 June 30
2003 2003
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable....................................... $ 4,292 $ 4,318
Payroll And Employee Benefits.......................... 2,856 5,447
Dividends Payable...................................... 580 146
Federal Income Taxes................................... 146 0
Taxes, Other Than Income Taxes......................... 1,237 1,600
Accrued Pension Contributions.......................... 283 0
Other Accrued Liabilities.............................. 123 94
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Total Current Liabilities........................... 9,517 11,605
Long Term Liabilities:
Long-Term Debt......................................... 8,880 5,680
Deferred Employee Compensation......................... 3,208 3,208
Postretirement Benefits Other Than Pensions............ 16,792 16,347
Deferred Income Taxes.................................. 434 544
Employee Benefits...................................... 1,000 1,035
Other Liabilities...................................... 954 927
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Total Long-Term Liabilities......................... 31,268 27,741
Stockholders' Equity:
Common Stock, $1.00 Par Value, Authorized
2,000,000 Shares; 1,442,165 Shares Outstanding at
September 30, 2003 and 1,450,465 at June 30, 2003.... 1,442 1,451
Additional Capital..................................... 3,270 3,270
Retained Earnings...................................... 54,667 55,515
Accumulated Other Comprehensive Loss................... (5,113) (5,121)
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Total Stockholders' Equity.......................... 54,266 55,115
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Total Liabilities and Stockholders' Equity............... $95,051 $94,461
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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 Three Months Ended
September 30 September 30
2003 2002
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Net Sales .................................... $ 20,387 $ 23,180
Costs And Expenses:
Cost of Products Sold ..................... 18,728 20,818
Selling And Administrative Expenses........ 1,557 1,542
Interest Expense .......................... 30 64
Other Expenses (Income) ................... 54 68
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Total Costs and Expenses ............... 20,369 22,492
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Earnings Before Federal
Income Taxes .............................. 18 688
Federal Income Taxes ......................... 6 227
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Net Earnings ................................. $ 12 $ 461
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Per Share Of Common Stock:
Basic and Diluted Earnings Per Share.......... $ 0.01 $ 0.30
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Cash Dividends Declared Per Share ............ $ 0.40 $ 0.64
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Weighted Average Shares Outstanding .......... 1,449,653 1,521,537
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The above per share amounts for the quarter ended September 30, 2002, 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, paid April 1, 2003.
See Accompanying Notes.
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FEDERAL SCREW WORKS
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
Three Months
Ended
September 30
2003 2002
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Operating Activities
Net Earnings .................................... $ 12 $ 461
Adjustments to Reconcile Net Earnings to Net Cash
Provided By (Used In) Operating Activities:
Depreciation and Amortization ............... 1,620 1,598
Increase In Cash Value of Life Insurance .... (33) (33)
Change In Deferred Income Taxes ............. (141) (33)
Employee Benefits ........................... (35) (36)
Other ....................................... 556 138
Changes In Operating Assets And Liabilities:
Accounts Receivable ......................... (134) (118)
Inventories And Prepaid Expenses .......... (1,001) (709)
Accounts Payable And Accrued Expenses ..... (2,522) (4,069)
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Net Cash Used In Operating Activities ............. (1,678) (2,801)
Investing Activities
Purchases of Property, Plant And Equipment-Net .. (1,232) (1,495)
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Net Cash Used In Investing Activities ............. (1,232) (1,495)
Financing Activities
Additional Borrowings Under Bank Credit Agreement 3,200 5,275
Purchase of Common Stock ........................ (289) (807)
Dividends Paid .................................. (145) (123)
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Net Cash Provided By Financing Activities ......... 2,766 4,345
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Increase (Decrease) In Cash ....................... (144) 49
Cash At Beginning Of Period ....................... 416 199
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Cash At End Of Period ............................. $ 272 $ 248
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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 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 three months
ended September 30, 2003, are not necessarily indicative of the results to be
expected for the fiscal year ending June 30, 2004.
NOTE B - DEBT
On October 17, 2003, 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, 2006, 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, 2008. As of September 30, 2003, there was $8,880,000 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. 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.
NOTE D - INVESTMENTS
The Company has invested approximately $3,549,000 and $3,532,000 as of September
30, 2003, and June 30, 2003, 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 a decrease in unrealized loss of $8,000,
net of tax, for the three month period ended September 30, 2003, from its
investments, which is reflected in Accumulated
Other Comprehensive Loss.
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NOTE E - COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) are as follows:
Three Months Ended
September 30
2003 2002
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Net earnings $ 12 $ 461
Unrealized gains and (losses) on securities
available-for-sale, net of taxes 8 0
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Total comprehensive income (loss) $ 20 $ 461
The components of accumulated comprehensive
loss are as follows:
September 30 June 30
2003 2003
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Unrealized loss on securities available-
for-sale, net of taxes $ 33 $ 41
Minimum pension liability, net of taxes 5,080 5,080
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Accumulated other comprehensive loss $5,113 $5,121
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS: Net sales for the Company's first quarter ended September
30, 2003, decreased $2,793,000, or (12.1%), compared with net sales for the
first quarter of the prior year. The decrease is attributable to decreased
demand from U.S. based automobile manufacturers due to their decreased
production during the period. The Company's customers are primarily U.S. based
automobile manufacturers and their suppliers.
Gross profit for the three month period ended September 30, 2003, decreased
$703,000, or (29.8%), as compared with the first quarter of the prior year. The
decrease is attributable to the decrease in net sales, resulting from a decrease
in North American automotive sales and production.
Selling and administrative expenses increased $15,000, or 1.0%, for the first
quarter ended September 30, 2003, as compared with the first quarter of the
prior year. The increase is attributable to the increase in the cost of
insurance and related expenses.
Other expenses decreased $14,000 for the three month period ended September 30,
2003, as compared with the first quarter of the prior year.
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
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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 August 2003, declared a $.10 per share
quarterly dividend, and an extra $.30 per share dividend, both payable October
1, 2003, to shareholders of record September 5, 2003.
LIQUIDITY AND CAPITAL RESOURCES: Working capital increased by $3,110,000 from
$18,904,000 at June 30, 2003, to $22,014,000 at September 30, 2003. The increase
is attributable to the reduction in payroll and employee benefits resulting from
payments made under the Company's bonus and profit sharing programs for the
prior year, and a reduction in the current year accruals.
At September 30, 2003, the Company had available $16,120,000 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 three month period ended September 30, 2003, were
approximately $1.2 million, and, for the year, are expected to approximate $5.6
million, of which approximately $5.3 million has been committed as of September
30, 2003.
The Company's management has determined that a material loss resulting from
environmental 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; changes
in expected capital expenditures; 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 September 30, 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
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
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Securities Exchange Act of 1934. Based upon that evaluation, the Company's Chief
Executive Officer and Chief Financial Officer concluded that, as of September
30, 2003, 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 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) On August 11, 2003, the Company furnished information
regarding its financial results for the quarter and year ended
June 30, 2003, under Items 7 and 9 of Form 8-K.
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
Date November 13, 2003 /s/ W. T. ZurSchmiede, Jr.
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W. T. ZurSchmiede, Jr.
Chairman of the Board
and Chief Financial Officer
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10-Q EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
Exhibit 10.1. One Year Extension of Revolving Credit and
Term Loan Agreement By And Between Registrant and
Comerica Bank Dated October 17, 2003.
Exhibit 31.1 Certification of the Chief Executive Officer
of the Company dated November 13, 2003, relating
to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 2003.
Exhibit 31.2 Certification of the Chief Financial Officer
of the Company dated November 13, 2003, relating
to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 2003.
Exhibit 32.1 Certification of Chief Executive Officer,
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, filed herewith.
Exhibit 32.2 Certification of Chief Financial Officer,
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, filed herewith.