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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 quarterly period ended: DECEMBER 31, 2004
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________________ to ________________________
Commission File Number: O-1837
FEDERAL SCREW WORKS
(Exact name of registrant as specified in its charter)
MICHIGAN 38-0533740
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20229 NINE MILE ROAD, ST. CLAIR SHORES, MICHIGAN 48080
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (586) 443-4200
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES[X] NO[ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES[ ] NO [X]
At February 1,2005, the registrant had one class of common stock outstanding,
$1.00 par value common stock. There were 1,381,595 shares of such common stock
outstanding at that time.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
FEDERAL SCREW WORKS
CONDENSED BALANCE SHEETS
(Thousands of Dollars)
December 31 June 30
2004 2004
----------- --------
(unaudited)
ASSETS
Current Assets:
Cash ........................................... $ 142 $ 157
Accounts Receivable, Less Allowance of $50 ..... 13,461 15,244
Inventories:
Finished Products ............................ 6,337 4,624
In-Process Products .......................... 8,409 9,027
Raw Materials And Supplies ................... 2,487 2,076
-------- --------
17,233 15,727
Prepaid Expenses And Other ..................... 2,227 841
Deferred Federal Income Taxes .................. 687 750
-------- --------
Total Current Assets ........................ 33,750 32,719
-------- --------
Other Assets:
Intangible Pension Asset ....................... 397 397
Cash Value Of Life Insurance ................... 6,014 5,951
Prepaid Pension Costs .......................... 8,394 8,990
Investments and Other .......................... 4,500 4,539
-------- --------
Total Other Assets .......................... 19,305 19,877
-------- --------
Property, Plant And Equipment .................... 132,862 129,430
Less Accumulated Depreciation .................. 78,522 75,253
-------- --------
Net Properties ................................. 54,340 54,177
-------- --------
Total Assets ..................................... $107,395 $106,773
======== ========
- 2 -
December 31 June 30
2004 2004
----------- -----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable ................................... $ 4,303 $ 5,782
Payroll And Employee Benefits ...................... 2,028 4,087
Dividends Payable .................................. 140 142
Federal Income Taxes ............................... - 247
Taxes, Other Than Income Taxes ..................... 1,614 1,563
Other Accrued Liabilities .......................... 31 61
-------- --------
Total Current Liabilities ....................... 8,116 11,882
-------- --------
Long-Term Liabilities:
Long-Term Debt ..................................... 15,465 8,260
Deferred Employee Compensation ..................... 3,901 4,063
Postretirement Benefits Other Than Pensions ........ 19,738 18,925
Deferred Federal Income Taxes ...................... 2,605 2,487
.. Employee Benefits .................................. 951 974
Other Liabilities .................................. 1,070 1,014
-------- --------
Total Long-Term Liabilities ..................... 43,730 35,723
-------- --------
Stockholders' Equity:
Common Stock, $1.00 Par Value: Authorized
2,000,000 Shares; 1,381,595 Shares Outstanding
at December 31,2004 and 1,411,595 at June 30, 2004 . 1,381 1,411
Additional Capital ................................. 3,270 3,270
Retained Earnings .................................. 50,730 54,393
Accumulated Other Comprehensive Income ............. 168 94
-------- --------
Total Stockholders' Equity ...................... 55,549 59,168
-------- --------
Total Liabilities and Stockholders' Equity ........... $107,395 $106,773
======== ========
See Accompanying Notes.
- 3 -
FEDERAL SCREW WORKS
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Thousands of Dollars, Except Per Share)
Three Months Ended Six Months Ended
December 31 December 31
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net Sales $ 20,455 $ 21,842 $ 40,423 $ 42,229
----------- ----------- ----------- -----------
Costs And Expenses:
Cost of Products Sold 20,914 20,057 40,873 38,785
Selling And Administrative Expenses ......................... 1,466 1,543 2,899 3,100
Interest Expense ............................................ 88 39 120 69
Other Expenses .............................................. 25 49 66 103
----------- ----------- ----------- -----------
Total Costs and Expenses ................................. 22,493 21,688 43,958 42,057
----------- ----------- ----------- -----------
Earnings (Loss) Before Federal Income Taxes .................... (2,038) 154 (3,535) 172
Federal Income Taxes (Benefit) ................................. (672) 51 (1,166) 57
----------- ----------- ----------- -----------
Net Earnings (Loss) $ (1,366) $ 103 $ (2,369) $ 115
=========== =========== =========== ===========
Per Share of Common Stock:
Basic and Diluted Earnings (Loss) Per Share .................... $ ( .98) $ .07 $ (1.69) $ 0.08
=========== =========== =========== ===========
Cash Dividends Declared Per Share .............................. $ .10 $ .10 $ .20 $ 0.50
=========== =========== =========== ===========
Weighted Average Shares Outstanding ............................ 1,394,965 1,438,120 1,403,280 1,443,886
=========== =========== =========== ===========
See Accompanying Notes.
- 4 -
FEDERAL SCREW WORKS
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
Six Months
Ended
December 31
2004 2003
------- -------
Operating Activities
Net Earnings (Loss) .................................. $(2,369) $ 115
Adjustments to Reconcile Net Earnings (Loss) to
Net Cash Provided By (Used In) Operating Activities:
Depreciation ..................................... 3,397 3,262
Increase In Cash Value of Life Insurance ......... (63) (65)
Change In Deferred Federal Income Taxes .......... 181 (433)
Employee Benefits ................................ 790 820
Other ............................................ 589 (24)
Changes In Operating Assets And Liabilities:
Accounts Receivable .............................. 1,783 1,409
Inventories And Prepaid Expenses ................. (2,892) (415)
Accounts Payable And Accrued Expenses ............ (3,764) (2,369)
------- -------
Net Cash Provided by (Used In) Operating Activities .... (2,348) 2,300
------- -------
Investing Activities
Purchases of Property, Plant And Equipment-Net ....... (3,547) (2,617)
------- -------
Net Cash Used In Investing Activities .................. (3,547) (2,617)
------- -------
Financing Activities
Additional Borrowings Under Credit Agreement ......... 7,205 1,455
Purchase of Common Stock ............................. (1,044) (573)
Dividends Paid ....................................... (281) (726)
------- -------
Net Cash Provided By Financing Activities .............. 5,880 156
------- -------
Decrease In Cash ....................................... (15) (161)
Cash At Beginning Of Period ............................ 157 416
------- -------
Cash At End Of Period .................................. $ 142 $ 255
======= =======
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 of
America 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 interim condensed 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 six months ended December 31, 2004
are not necessarily indicative of the results to be expected for the fiscal year
ending June 30, 2005.
NOTE B - DEBT
On October 19, 2004, 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, 2007, 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, 2009. As of December 31, 2004, there was $15,465,000 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 $4,364,000 and $4,390,000 as of December
31, 2004 and June 30, 2004, respectively, which has been designated for payment
of certain liabilities related to deferred compensation plans. These amounts are
recorded in Investments and Other 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 unrealized gain of
$74,000, net of tax, for the six-month period ended December 31, 2004 from its
investments, which is reflected in Accumulated Other Comprehensive Income.
- 6 -
NOTE E - COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) are as follows:
Three Months Ended Six Months Ended
December 31 December 31
2004 2003 2004 2003
------- -------- ------- -------
Net earnings (loss) $(1,366) $ 103 $(2,369) $ 115
Unrealized gains on
securities available-for-sale, net of tax 109 97 74 105
------- -------- ------- ------
Total comprehensive income (loss) $(1,257) $ 200 $(2,295) $ 220
======= ======== ======= ======
The components of accumulated other comprehensive income are as follows:
December 31 June 30
2004 2004
----------- -------
Unrealized gains on securities
available-for-sale, net of tax $ 168 $ 94
=========== =======
NOTE F- EMPLOYEE BENEFIT PLANS
The Company sponsors three defined benefit plans covering substantially all
employees. Benefits under two of the plans are based on negotiated rates times
years of service. Under the remaining plan, benefits are based on compensation
during the years immediately preceding retirement and years of service. It is
the Company's policy to make contributions to these plans sufficient to meet
minimum funding requirements of the applicable laws and regulations, plus such
additional amounts, if any, as the Company's actuarial consultants advise to be
appropriate.
The components of net periodic benefit cost are as follows:
Three Months Ended Six Months Ended
December 31 December 31
2004 2003 2004 2003
------- ------- ------- -------
Service cost $ 223 $ 207 $ 446 $ 415
Interest cost 486 472 972 945
Expected return on plan assets (609) (533) (1,217) (1,067)
Amortization of transition asset - (30) - (60)
Amortization of prior service cost 53 57 105 113
Amortization of unrecognized loss 145 156 290 312
------- ------- ------- -------
Net periodic benefit cost $ 298 $ 329 $ 596 $ 658
======= ======= ======= =======
The Company did not contribute any funds to the defined benefit plans in the
quarter ended December 31, 2004, and is required to contribute approximately
$11,000 to one of the plans in fiscal 2005. The Company may elect to increase
contributions to the plans based on the actual return on the plan assets through
the measurement date of March 31, 2005.
- 7 -
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis sets forth information for the three
months ended December 31, 2004, compared to the three months ended December 31,
2003. Also discussion and analysis sets forth information for the six months
ended December 31, 2004, compared to the six months ended December 31, 2003.
This information should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the financial
statements and notes thereto contained in the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 2004.
OVERVIEW: The Company is a domestic manufacturer of machined, cold formed,
hardened and/or ground metal industrial component parts fabricated from metal
rod and bar. The Company's products are used in the manufacture of light duty
trucks and passenger cars made principally by the two largest North American
automobile companies. These parts are either shipped directly to automakers or
to large automotive component producers, who then supply automakers with their
components. North American consumer demand for cars and trucks from these two
principal automobile manufacturers therefore largely defines the general market
for the Company's products. In the quarter and six months just ended, weaker
consumer demand reduced automotive production schedules in comparison with the
year previous, adversely affecting the Company's sales and earnings.
The principal reason for the Company's loss this quarter and in the first six
months of this fiscal year is the dramatic increase in the price of steel, a
major cost component of the Company's operations. The cost of steel increased in
the current quarter over the first quarter of this fiscal year which resulted in
a larger loss in the second quarter. Increased steel prices continue to be
fueled by strong global demand and the Company's management does not believe
they show any sign of abating. During the first six months of this fiscal year,
efforts by the Company to recapture these costs have generally been
unsuccessful. The future impact of the increased steel prices cannot be
quantified at this time due to the market volatility of steel. The Company's
management must reemphasize its deep concern with both the magnitude and
persistence of ongoing increased steel prices.
RESULTS OF OPERATIONS: The following table sets forth the percent relationship
of certain items to net sales for the periods indicated:
Three Months Ended Six Months Ended
December 31 December 31
2004 2003 2004 2003
----- ---- ---- ----
Net Sales 100% 100% 100% 100%
Gross Profit (Loss) (2.3) 8.2 (1.1) 8.1
Selling & Administrative Expenses 7.2 7.1 7.2 7.3
Interest Expense 0.4 0.2 0.3 0.2
Other Expenses 0.1 0.2 0.1 0.2
Earnings (Loss) Before Federal Income Taxes (10.0) 0.7 (8.7) 0.4
Net Earnings (Loss) (6.7) 0.5 (5.9) 0.3
- 8 -
REVENUE: Net sales for the Company's second quarter ended December 31, 2004
decreased $1,387,000, or (6.4)%, compared with net sales for the second quarter
of the prior year. Net sales for the six-month period ended December 31, 2004,
decreased $1,806,000, or (4.3)%, compared with the six-month period of the prior
year. The decreases are attributable to the decreased demand from Ford and
General Motors due to their decreased vehicle production during the periods.
Gross profit for the three-month period ended December 31, 2004 decreased
$2,244,000 or (125.7)%,as compared with the second quarter of the prior year.
Gross profit for the six-month period ended December 31, 2004, decreased
$3,894,000 or (113.1)%, compared with the six-month period of the prior year.
The decreases are principally attributable to higher steel prices described
above and also the decreases in net sales. The steel price increases are largely
caused by higher scrap charges incurred by steel suppliers and passed on to the
Company in the form of surcharges. These surcharges were the primary component
of a 10.4% increase in the cost of products sold (as a percent of net sales) in
the quarter just ended, as compared to the same quarter of the prior year.
Selling and administrative expenses decreased $77,000, or (5.0)%, for the second
quarter ended December 31, 2004, as compared with the second quarter of the
prior year. Selling and administrative expenses decreased $201,000, or (6.5)%,
as compared with the six-month period ended December 31, 2003. These decreases
are attributable mainly to the reduction of $135,000 in the bonus accruals due
to the decrease in earnings, and the reduction of $80,000 in sales commissions
primarily the result of the retirement of a manufacturing sales representative.
Interest expense increased by $49,000, or 125.6%, for the second quarter ended
December 31, 2004, as compared with the second quarter of the prior year.
Interest expense increased by $51,000, or 73.9%, as compared with the six-month
period ended December 31, 2003. The increase in mainly due to higher short-term
interest rates and an increase in borrowing under the Company's Revolving Credit
and Term Loan Agreement due to the decrease in sales and earnings.
Other expenses decreased $24,000, or (49.0)%, for the three-month period ended
December 31, 2004, as compared with the second quarter of the prior year. Other
expenses for the six-months ended December 31, 2004, decreased $37,000, or
(36.0%), as compared with the six months ended December 31, 2003. These
decreases are primarily the result of an increase in investment income and a
gain on the sale of equipment.
The Company is dependent upon sales to its 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 customers' 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 would not have
a material adverse effect on the financial condition or results of operations of
the Company. Due to recent competitive pressures, the Company has been unable to
pass increased costs on to its customers.
DIVIDENDS: The Board of Directors, in October 2004, declared a $.10 per share
quarterly cash dividend, which was paid January 4, 2005 to shareholders of
record on December 1, 2004. Dividends declared for the six-month period ended
December 31, 2004 totaled $.20 per share. This compares to aggregate cash
dividends declared in the six-month period of the 2004 fiscal year of $0.50 per
share. This decrease is attributable to lower earnings.
- 9 -
LIQUIDITY AND CAPITAL RESOURCES: Working capital increased in the first six
months of the current fiscal year by $4,797,000 from $20,837,000 at June 30,
2004 to $25,634,000 at December 31, 2004. The increase is attributable to the
reduction in payroll and employee benefits liabilities 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. Inventories increased by
$1,506,000 from $15,727,000 at June 30, 2004, to $17,233,000 at December 31,
2004, due principally to the increased steel prices previously discussed and
increased quantities necessary to safeguard against any steel shortages.
Accounts receivable decreased by $1,783,000 from $15,244,000 at June 30, 2004 to
$13,461,000 at December 31, 2004. The decrease is the result of reduced sales in
December, 2004 because most of the Company's customers cease production during
the holiday period.
Prepaid expenses and other increased $1,386,000 mainly due to refundable income
taxes of $1,166,000.
Accounts payable decreased $1,479,000 for the six-month period ended December
31, 2004, when compared to June 30, 2004, due to reduced production activity in
December 2004.
Borrowings under the Revolving Credit and Term Loan Agreement were $15,465,000
at December 31, 2004. As of that date, the Company had available an additional
$9,535,000 under the agreement and was in compliance with all financial
covenants.
Capital expenditures for the six-month period ended December 31, 2004 were
approximately $3.6 million, and for the year are expected to approximate $7.7
million, of which approximately $5.7 million has been committed as of December
31, 2004.
On December 3, 2003, the Board of Directors authorized the Company to repurchase
up to 185,000 shares, or approximately 12.9%, of the Company's then outstanding
common stock. Under the repurchase program, the Company has the authority to
repurchase stock through the open market, block purchases, or in negotiated
private transactions on an ongoing basis. The repurchases will be subject to the
availability of stock, general market conditions, the trading price of the
stock, alternative uses for capital, and the Company's financial performance.
The Board of Directors believes that the repurchase program will allow the
Company to be in technical compliance with the Controlled Company exemption from
certain new director independence and board committee requirements for companies
traded on the Nasdaq Stock Market, Inc. The purchases are expected to be
financed from cash generated from operations and additional borrowing capacity
under the Revolving Credit and Term Loan Agreement.
CRITICAL ACCOUNTING POLICIES: The accompanying financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America. 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 bases its estimates on
historical experience and on various assumptions that are believed to be
reasonable under the circumstances. On an on-going basis, the Company evaluates
its estimates and underlying assumptions. In the event estimates or underlying
assumptions prove to be different from actual amounts, adjustments are made in
the subsequent period to reflect more current information. The Company believes
that the following significant accounting policies involve management's most
difficult, subjective judgments or involve the greatest uncertainty.
- 10 -
INVESTMENTS AND MARKETABLE SECURITIES - The Company accounts for certain of its
investments under SFAS No. 115 as securities available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of stockholders'
equity. Realized gains and losses and declines in value judged to be other than
temporary on available-for-sale securities are included in investment income or
loss. The cost of securities sold is based on the specific identification
method. Interest and dividends on securities classified as available-for-sale
are included in investment income. The fair value of marketable securities is
based on quoted market value. The Company reviews its investments to determine
if the value shows a decline that has been deemed other than temporary. The use
of different judgments could negatively affect the Company's results of
operations for the period.
REVENUE RECOGNITION - The Company recognizes revenue from product sales when
goods are shipped and title has transferred to the customer. An estimated
reserve is recorded for anticipated returns and credit memos which will be
issued on sales recognized to date. The use of different estimates could
negatively affect the Company's results of operations. The Company has several
product lines, but only one reportable segment. Providing revenues from each
product line or each group of product lines is impracticable. The SEC's Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," provides guidance on
the application of accounting principles generally accepted in the United States
of America to selected revenue recognition issues. The Company has concluded its
revenue recognition policy is appropriate and in accordance with accounting
principles generally accepted in the United States of America and SAB No. 101.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS RECEIVABLE - Accounts receivable have been
reduced by an allowance for amounts that may become uncollectible in the future.
This estimated allowance is based primarily on management's evaluation of the
financial condition of the customer and historical experience. Also, the Company
monitors its accounts receivable and charges to expense an amount equal to its
estimate of potential credit losses. The Company considers a number of factors
in determining its estimates, including the length of time its trade accounts
receivable are past due, the Company's previous loss history, and the customer's
current ability to pay its obligation and the condition of the general economy
and the industry as a whole. The use of different estimates could negatively
affect the Company's results of operations for the period.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost,
determined by the last-in, first-out method, is used for certain raw material
inventories; the remaining inventories are costed using the first-in, first-out
method. Provision is made to reduce inventories to net realizable value for
excess and/or obsolete material. The Company periodically reviews its inventory
levels in order to identify obsolete and slow-moving inventory. The Company
estimates excess or obsolete inventory based principally upon contemplated
future customer demand for the Company's products. The use of different
assumptions in determining slow-moving and obsolete inventories would result in
different charges to cost of sales in each period presented and could negatively
affect the Company's results of operations.
WORKERS' COMPENSATION RESERVE - The Company is self-insured for workers'
compensation claims for up to $400,000 per claim. The Company has excess
liability insurance with an outside insurance carrier to minimize its risks to
catastrophic claims. Losses are accrued based on an estimate of the ultimate
aggregate liability for claims incurred, using certain assumptions based on the
Company's experience under this program. Factors considered in estimating our
reserves are the nature of outstanding claims, estimated costs to settle
existing claims and loss history. Significant changes in the factors described
above could have a material adverse impact on future operating results.
FORWARD LOOKING STATEMENTS: Certain information in this Form 10-Q contains
"forward looking statements" within the meaning of the Securities Act of 1933
and
- 11 -
the Securities Exchange Act of 1934, both as amended, 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. These uncertainties include, but are not limited to:
- increased costs for steel used to manufacture the Company's
products;
- diversion of business from our customers to overseas manufacturers;
- increased costs incurred due to recently enacted and proposed
changes in securities laws and regulations, as well as recently
enacted rules of The NASDAQ Stock Market;
- increased healthcare, energy and other costs;
- increased competition;
- inability of the Company to expand its range of technical
capabilities through the production of more sophisticated, complex
parts, yielding higher, more durable margins;
- the loss of, or reduction in business with, the Company's principal
customers;
- fluctuations in demand for the Company's products;
- the impact of additional costs of increased quality standards, price
reductions or additional capabilities required by the Company's
principal customers;
- the ability of the Company to pass cost increases on to its
customers;
- changes in expected capital expenditures;
- work stoppages, strikes and slowdowns at the Company's facilities
and those of its customers; and
- 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, 2004, the carrying amounts
reported in the balance sheet for cash, accounts receivable, accounts payable,
debt and investments approximate fair value. Accordingly, management believes
this risk is not material. Borrowings under the Revolving Credit and Term Loan
Agreement are subject to variable interest rates. A one hundred basis point
increase in interest rates would have resulted in additional interest expense of
approximately $51,000 for the six months ended December 31, 2004.
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
Securities Exchange Act of 1934. Based upon that evaluation, the Company's Chief
Executive Officer and Chief Financial Officer concluded that, as of December 31,
2004, the Company's disclosure controls and procedures were effective in timely
alerting them to material information relating to the Company required to be
disclosed in the Company's periodic reports filed with the SEC. There have been
no changes in the Company's internal controls over financial reporting during
the quarter ended December 31, 2004 identified in connection with the Company's
evaluation that has materially affected, or is reasonably likely to materially
affect, the Company's internal controls over financial reporting.
- 12 -
PART II OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes the Company's stock repurchases for the quarter
ended December 31, 2004:
TOTAL NUMBER
OF SHARES MAXIMUM NUMBER
PURCHASED AS OF SHARES THAT
TOTAL NUMBER PART OF MAY YET BE
OF SHARES PUBLICLY PURCHASED
PURCHASED AVERAGE PRICE ANNOUNCED UNDER THE
PERIOD (a) PAID PER SHARE PROGRAM PROGRAM
- ---------- ------------ -------------- ------------ ---------------
Oct., 2004 10,000 $36.40 10,000 148,930
Nov., 2004 15,000 $33.94 15,000 133,930
Dec., 2004 5,000 $34.10 5,000 128,930
- ---------- ------ ------ ------ -------
Total 30,000 $34.79 30,000 128,930
(a) All shares repurchased by the Company during the six months ended
December 31, 2004 were purchased through its publicly announced
stock repurchase program. For a description of the program, see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on October 28,
2004. The only matter voted on at the meeting was the election of four
directors. The following table sets forth the results of that vote. All
director nominees were elected.
Election of Director Nominees:
Broker
Votes For Votes Against Abstained Non-Votes
--------- ------------- --------- ---------
David W. Ayriss Sr. 1,338,957 0 9,806 0
Frank S. Galgan 1,336,082 0 12,681 0
F. D. Tennent 1,317,269 0 31,494 0
W. T. ZurSchmiede Jr. 1,317,338 0 31,425 0
Item 6. Exhibits
The exhibits included with this Form 10-Q are set forth on the Index to
Exhibits.
- 13 -
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: February 11, 2005 /s/ W. T. ZurSchmiede, Jr.
--------------------------
W. T. ZurSchmiede, Jr.
Chairman of the Board and
Chief Financial Officer
Exhibit Index:
Exhibit 31.1 Certification of the Chief Executive Officer of the
Company dated February 11, 2005 relating to the
Company's Quarterly Report on Form 10-Q for the period
ended December 31, 2004.
Exhibit 31.2 Certification of the Chief Financial Officer of the
Company dated February 11, 2005 relating to the
Company's Quarterly Report on Form 10-Q for the period
ended December 31, 2004.
Exhibit 32.1 Certification of the 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 the 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.