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, 1998
---------------------------------
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.)
535 Griswold Street, Suite 2400, Detroit Michigan 48226
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, and area code (313) 963-2323
-------------------------------
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 _____
At December 31, 1998, the Company had one class of common stock outstanding,
$1.00 par value common stock. There were 1,086,412 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
1998 1998
------- -------
ASSETS
Current Assets:
Cash ........................................... $ 373 $ 975
Accounts Receivable, Less Allowance of $50 ..... 12,950 11,816
Inventories:
Finished Products .............................. 4,944 4,642
In-Process Products ............................ 6,103 6,065
Raw Materials And Supplies ..................... 1,283 2,377
------- -------
12,330 13,084
Prepaid Expenses And Other Current Accounts .... 264 737
Deferred Income Taxes .......................... 1,080 946
------- -------
Total Current Assets ........................ 26,997 27,558
Other Assets:
Intangible Pension Asset ....................... 961 961
Cash Value Of Life Insurance ................... 5,244 5,190
Prepaid Pension Cost ........................... 3,002 3,051
Miscellaneous .................................. 420 324
------- -------
9,627 9,526
Property, Plant And Equipment .................... 90,373 87,156
Less Accumulated Depreciation .................. 51,589 49,374
------- -------
38,784 37,782
------- -------
Total Assets ..................................... $75,408 $74,866
======= =======
-2-
Part I FINANCIAL INFORMATION (Continued)
Dec. 31 June 30
1998 1998
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable ................................... $ 3,982 $ 4,812
Payroll And Employee Benefits ...................... 5,153 7,559
Dividends Payable .................................. 109 109
Federal Income Taxes ............................... 239 1,171
Taxes, Other Than Income Taxes ..................... 2,272 1,396
Accrued Pension Contributions ...................... 0 65
Other Accrued Liabilities .......................... 144 66
Current Maturities Of Long-Term Debt ............... 400 400
-------- --------
Total Current Liabilities ....................... 12,299 15,578
Long Term Liabilities:
Long-Term Debt ..................................... 2,850 450
Postretirement Benefits Other Than Pensions ........ 9,037 8,211
Deferred Income Taxes .............................. 2,071 2,197
Employee Benefits .................................. 1,037 1,017
Other Liabilities .................................. 833 634
-------- --------
Total Long-Term Liabilities ..................... 15,828 12,509
Stockholders' Equity:
Common Stock, $1.00 Par Value, Authorized
2,000,000 Shares; 1,086,412 Shares Outstanding
at December 31, 1998 and at June 30, 1998 ........ 1,086 1,086
Additional Capital ................................. 3,215 3,210
Retained Earnings .................................. 43,571 43,074
Accumulated Other Comprehensive Income ............. (591) (591)
-------- --------
Total Stockholders' Equity ...................... 47,281 46,779
-------- --------
Total Liabilities and Stockholders' Equity ........... $ 75,408 $ 74,866
======== ========
<FN>
See Accompanying Notes.
- 3 -
FEDERAL SCREW WORKS
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Thousands of Dollars, Except Per Share)
Three Months Ended Six Months Ended
------------------ -----------------
Dec. 31 Dec. 31 Dec. 31 Dec. 31
l998 1997 1998 1997
-------- ------- ------- -------
Net Sales ............................ $29,515 $25,384 $54,983 $50,100
Costs And Expenses:
Cost of Products Sold ............. 25,174 21,930 47,402 43,524
Selling And Administrative
Expenses ........................ 1,791 1,363 3,424 3,024
Interest Expense .................. 68 56 110 76
------- ------- ------- -------
Total Costs and Expenses ....... 27,033 23,349 50,936 46,624
------- ------- ------- -------
Earnings Before Federal
Income Taxes ...................... 2,482 2,035 4,047 3,476
Federal Income Taxes ................. 845 692 1,377 1,181
------- ------- ------- -------
Net Earnings ......................... $ 1,637 $ 1,343 $ 2,670 $ 2,295
======= ======= ======= =======
Per Share Of Common Stock:
Basic and Diluted Earnings
Per Share .......................... $ 1.51 $ 1.23 $ 2.46 $ 2.11
======= ======= ======= =======
Cash Dividends Per Share ............. $ .10 $ .10 $ 2.00 $ 1.80
======= ======= ======= =======
<FN>
See Accompanying Notes.
- 4 -
FEDERAL SCREW WORKS
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
Six Months
Ended
December 31
---------------
1998 1997
---- ----
Operating Activities
Net Earnings ................................... $ 2,670 $ 2,295
Adjustments to Reconcile Net Earnings
to Net Cash Provided By (Used In) Operating
Activities:
Depreciation and Amortization .............. 2,215 1,997
Increase In Cash Value of Life Insurance ... (54) (54)
Change In Deferred Income Taxes ............ (260) 170
Employee Benefits .......................... 20 (40)
Amortization of Restricted Stock ........... 0 0
Other ...................................... 984 614
Changes In Operating Assets And Liabilities:
Accounts Receivable ....................... (1,134) 173
Inventories And Prepaid Expenses .......... 1,227 1,484
Accounts Payable And Accrued Expenses ..... (3,280) (5,587)
------- -------
Net Cash Provided By Operating Activities ........ 2,388 1,052
Investing Activities
Purchases of Property, Plant And
Equipment-Net ................................ (3,217) (2,631)
Financing Activities
Proceeds and Repayments on Bank Borrowings ..... 2,400 2,680
Principal Payments on Lease Purchase
Obligations .................................. 0 (200)
Dividends Paid ................................. (2,173) (1,956)
------- -------
Net Cash Provided By Financing Activities ........ 227 524
------- -------
Decrease In Cash ................................. (602) (1,055)
Cash At Beginning Of Period ...................... 975 1,176
------- -------
Cash At End Of Period ............................ $ 373 $ 121
======= =======
<FN>
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 generally accepted accounting principles for interim
financial reporting. 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, 1998, are not necessarily indicative of the results to be
expected for the fiscal year ending June 30, 1999.
Note B - Debt
On October 20, 1998, 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, 2001, 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, 2003. As of December 31, 1998, there was $2,850,000 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 - Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." Statement No.
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share exclude any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share are very
similar to the previously reported fully diluted earnings per share.
Statement No. 128 has had no impact on the Company's calculation of average
shares outstanding or earnings per share for any of the years presented.
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, 1998, increased $4,131,000, or 16.3%, compared with net sales
for the second quarter of the prior year. Net sales for the six month period
ended December 31, 1998, increased $4,883,000, or 9.7%, compared with the six
month period of the prior year. The increase is attributable mainly to our
participation in a new truck program, and increased automotive and
refrigeration sales.
Gross profit for the three month period ended December 31, 1998,
increased $887,000, or 25.7%, as compared with gross profit for the second
quarter of the
- 6 -
prior year. Gross profit for the six month period ended December 31, 1998,
increased $1,005,000, or 15.3%, as compared with the six month period of the
prior year. The increase is attributable mainly to additional volume and
improved product mix.
Selling and administrative expenses increased $428,000, or 31.4%, for the
second quarter ended December 31, 1998, as compared with the second quarter
of the prior year. Selling and administrative expenses increased $400,000, or
13.2%, as compared with the six month period ended December 31, 1997. The
increase is mainly attributable to increases in compensation and related
expense.
The Registrant's Shareholders are aware of the Registrant's dependence 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.
YEAR 2000 MATTERS: The Company completed a comprehensive review of its
operations related to the "Year 2000" issue during fiscal 1998. This review
included an assessment of the Company's mainframe computer system, operating
and application systems, microcomputer and office systems, facilities, and
production equipment. This review also included correspondence with major
vendors and customers. Management believes it has identified those systems
that could be affected by the "Year 2000" issue. The Company has implemented
a plan to resolve these issues and has revised its expected completion date
to June, 1999.
During the fiscal year ended June 30, 1998, the Company installed a new
mainframe computer system and operating system that are "Year 2000"
compliant. Implementation and testing of mainframe applications is ongoing
and is expected to be completed by June 1, 1999. The Company believes that,
with modification of its existing computer systems and updates by vendors in
the ordinary course of business, the "Year 2000" issue will not pose
significant operational problems of the Company's computer systems. However,
if such modifications are not made, or are not completed timely, the "Year
2000" issue could have a material impact on the operations of the Company.
The Company has developed contingency plans for its significant operations
and is continuously monitoring the progress toward the established "Year
2000" plan. These plans include preliminary discussions with the Company's
primary software vendors to replace critical applications that may become
inoperable as a result of the "Year 2000" issue. The Company may increase
inventory levels to insure that supplies are not interrupted.
The total "Year 2000" project cost is estimated at approximately $400,000,
which includes estimated costs to be incurred to acquire upgraded software
that will be capitalized. It is anticipated that these costs will be paid for
with cash from operations.
- 7 -
DIVIDENDS: The Board of Directors, in October 1998, declared a $.10
per share quarterly dividend, paid January 4, 1999, to shareholders of record
December 4, 1998.
LIQUIDITY AND CAPITAL RESOURCES: Working capital increased by
$2,718,000 from $11,980,000 at June 30, 1998, to $14,698,000 at December 31,
1998.
At December 31, 1998, the Company had available $22,150,000 under its
bank credit agreement.
Capital expenditures for the six month period ended December 31,
1998, were approximately $3.2 million, and, for the year, are expected to
approximate $7.2 million, of which approximately $3.4 million has been
committed as of December 31, 1998.
There have been no material changes concerning environmental matters since
those reported in the Registrant's Report on Form 10-Q for the quarter ended
September 30, 1998.
FORWARD LOOKING STATEMENTS: The foregoing discussion and analysis contains a
number of "forward looking statements" 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 periods which are subject to various
uncertainties, including competition, Information Systems issues related to
the Year 2000, 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.
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 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K. There was no SEC Form 8-K filed this
quarter. There were no unusual charges or credits to income, nor
a change in independent accountants.
- 8 -
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 12, 1999 /s/ W.T. ZurSchmiede, Jr.
------------------- ---------------------------------
W. T. ZurSchmiede, Jr.
Chairman, Chief Executive Officer
and Chief Financial Officer
Exhibit Index:
Exhibit 27 Financial Data Schedule
- 9 -