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, 2002
---------------------------------------------------------
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, and 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
----- -----
At March 31, 2002, the Company had one class of common stock outstanding, $1.00
par value common stock. There were 1,247,293 shares of such common stock
outstanding at that time.
(continued)
Part I FINANCIAL INFORMATION
FEDERAL SCREW WORKS
CONDENSED BALANCE SHEETS (UNAUDITED)
(Thousands of Dollars)
Mar. 31 June 30
2002 2001
------- --------
ASSETS
Current Assets:
Cash ........................................... $ 527 $ 98
Accounts Receivable, Less Allowance of $50 ..... 13,735 13,826
Inventories:
Finished Products ............................ 9,068 8,592
In-Process Products .......................... 6,288 6,769
Raw Materials And Supplies ................... 1,295 1,728
-------- --------
16,651 17,089
Prepaid Expenses And Other Current Accounts .... 565 659
Deferred Income Taxes .......................... 809 746
-------- --------
Total Current Assets ........................ 32,287 32,418
Other Assets:
Intangible Pension Asset ....................... 728 728
Cash Value Of Life Insurance ................... 5,662 5,566
Prepaid Pension Cost ........................... 6,981 7,102
Miscellaneous .................................. 2,914 2,579
-------- --------
Total Other Assets ............................. 16,285 15,975
Property, Plant And Equipment .................... 115,911 110,218
Less Accumulated Depreciation .................. 62,720 59,075
-------- --------
Net Properties ................................. 53,191 51,143
-------- --------
Total Assets ..................................... $101,763 $ 99,536
======== ========
- 2 -
Part I FINANCIAL INFORMATION (Continued)
Mar. 31 June 30
2002 2001
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable .............................................. $ 4,709 $ 5,058
Payroll And Employee Benefits ................................. 4,285 5,781
Dividends Payable ............................................. 125 130
Federal Income Taxes .......................................... 533 0
Taxes, Other Than Income Taxes ................................ 1,476 1,534
Accrued Pension Contributions ................................. 660 0
Other Accrued Liabilities ..................................... 108 54
-------- --------
Total Current Liabilities .................................. 11,896 12,557
Long Term Liabilities:
Long-Term Debt ................................................ 9,460 6,735
Deferred Employee Compensation ................................ 2,633 2,633
Postretirement Benefits Other Than Pensions ................... 14,473 13,344
Deferred Income Taxes ......................................... 1,857 1,940
Employee Benefits ............................................. 1,065 1,021
Other Liabilities ............................................. 881 850
-------- --------
Total Long-Term Liabilities ................................ 30,369 26,523
Stockholders' Equity:
Common Stock, $1.00 Par Value, Authorized
2,000,000 Shares; 1,247,293 Shares Outstanding
at March 31, 2002 and 1,296,887 at June 30,
2001, as restated (Note C) .................................... 1,247 1,297
Additional Capital ............................................ 3,270 3,270
Retained Earnings ............................................. 55,094 56,002
Unfunded Pension Costs ........................................ (113) (113)
-------- --------
Total Stockholders' Equity ................................. 59,498 60,456
-------- --------
Total Liabilities and Stockholders' Equity ...................... $101,763 $ 99,536
======== ========
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
2002 2001 2002 2001
---- ---- ---- ----
Net Sales ............................ $ 24,910 $ 25,820 $ 68,671 $ 79,076
Costs And Expenses:
Cost of Products Sold ............. 21,257 23,145 62,514 70,524
Selling And Administrative
Expenses......................... 1,802 1,617 4,772 4,718
Interest Expense .................. 55 (1) 164 61
Other Expenses (Income) ........... (659) 62 (1,960) 192
-------- -------- -------- --------
Total Costs and Expenses ....... 22,455 24,823 65,490 75,495
-------- -------- -------- --------
Earnings Before Federal
Income Taxes ...................... 2,455 997 3,181 3,581
Federal Income Taxes ................. 834 339 1,081 1,219
-------- -------- -------- --------
Net Earnings ......................... $ 1,621 $ 658 $ 2,100 $ 2,362
======== ======== ======== ========
Per Share Of Common Stock:
Basic and Diluted Earnings Per
Share.............................. $ 1.28 $ 0.51 $ 1.65 $ 1.82
======== ======== ======== ========
Cash Dividends Declared Per Share .... $ 0.10 $ 0.00 $ 1.00 $ 1.78
======== ======== ======== ========
See Accompanying Notes.
- 4 -
FEDERAL SCREW WORKS
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
Nine Months
Ended
March 31
2002 2001
---- ----
Operating Activities
Net Earnings .................................... $ 2,100 $ 2,362
Adjustments to Reconcile Net Earnings to Net Cash
Provided By (Used In) Operating Activities:
Depreciation and Amortization ............... 4,358 3,816
Increase In Cash Value of Life Insurance .... (97) (83)
Change In Deferred Income Taxes ............. (146) (586)
Employee Benefits ........................... 44 (18)
Other ....................................... 947 1,296
Changes In Operating Assets And Liabilities:
Accounts Receivable ......................... 90 3,177
Inventories And Prepaid Expenses ............ 533 (3,146)
Accounts Payable And Accrued Expenses ....... (656) (5,267)
------ ------
Net Cash Provided By Operating Activities ......... 7,173 1,551
Investing Activities
Purchases of Property, Plant And Equipment-Net... (6,407) (8,787)
------ ------
Net Cash Used In Investing Activities ............. (6,407) (8,787)
Financing Activities
Additional Borrowings Under Credit Agreement .... 2,725 8,300
Purchase of Common Stock ........................ (1,778) (111)
Dividends Paid .................................. (1,284) (2,292)
------ ------
Net Cash Provided By (Used In) Financing
Activities....................................... (337) 5,897
------ ------
Increase (Decrease) In Cash ....................... 429 (1,339)
Cash At Beginning Of Period ....................... 98 1,542
------ ------
Cash At End Of Period ............................. $ 527 $ 203
====== ======
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 nine months ended March 31, 2002,
are not necessarily indicative of the results to be expected for the fiscal year
ending June 30, 2002.
NOTE B - DEBT
On October 18, 2001, 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, 2004, 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, 2006. As of March 31, 2002, there was $9,460,000 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 December 2000,
declared a 5 for 4 split of the common stock of the Company to be distributed
April 2, 2001, to shareholders of record on February 23, 2001. 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 - IMPACT OF NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" and No. 142,
"Goodwill and Other Intangible Assets" effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives. The Company
adopted the Statements on July 1, 2001, with no material effect on the Company's
financial statements.
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,
2002, decreased $910,000, or (3.5%), compared with net sales for the third
quarter of the prior year. Net sales for the nine month period ended March 31,
2002, decreased $10,405,000 or (13.2%), compared with the nine month period of
the prior year. The decrease is attributable mainly to the decline in North
American automotive production compared to the prior year.
- 6 -
Gross profit for the three month period ended March 31, 2002, increased
$978,000, or 36.6%, as compared with gross profit for the third quarter of the
prior year. Gross profit for the nine month period ended March 31, 2002,
decreased $2,395,000, or (28.0%), as compared with the nine month period of the
prior year. The decrease is attributable mainly to the decline in North American
automotive production in the nine month period ended March 31, 2002 and
continual price pressure from our customers. The increase for the three month
period ended March 31, 2002, was attributable to improved productivity and cost
reductions.
Selling and administrative expenses increased $185,000, or 11.4%, for the third
quarter ended March 31, 2002, as compared with the third quarter of the prior
year. Selling and administrative expenses increased $54,000, or 1.1%, as
compared with the nine month period ended March 31, 2001. The increase for the
nine month period ended March 31, 2002, is mainly attributable to increases in
compensation and related expenses.
Other Expenses and Income for the three month period ended March 31, 2002,
includes $730,000 ($480,000 net of tax) received from the sale of stock acquired
by the Registrant during Registrant's third quarter in connection with the
demutualization of an insurance company. The insurance company converted from a
mutual insurance company to a stock insurance company and, in the conversion,
the Registrant received stock of the insurance company which it was entitled to
sell. The Registrant sold all of the stock resulting in the income. Other
Expenses and Income for the nine month period ended March 31, 2002, includes
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 is
$2,180,000 ($1,430,000 net of tax).
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.
DIVIDENDS: The Board of Directors, in February, 2002, declared a $.10 per share
quarterly dividend paid April 1, 2002, to shareholders of record as of March 5,
2002.
LIQUIDITY AND CAPITAL RESOURCES: Working capital increased by $530,000 from
$19,861,000 at June 30, 2001, to $20,392,000 at March 31, 2002. The increase is
mainly attributable to the reduction in accounts payable, payroll and employee
benefits.
At March 31, 2002, the Company had available $15,540,000 under its bank credit
agreement.
Capital expenditures for the nine month period ended March 31, 2002, were
approximately $6.4 million, and, for the year, are expected to approximate $8.2
million, of which approximately $8.1 million has been committed as of March 31,
2002.
- 7 -
There have been no material changes concerning environmental matters since those
reported in the Registrant's Report on Form 10-K for the fiscal year ended June
30, 2001.
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, the loss of, or reduction in business with, the Company's
principal customers, work stoppages, strikes and slowdowns at the Company's
facilities and those of its customers; adverse changes in economic conditions
generally and those of the automotive industry, specifically.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk is limited to interest rate risk on its
revolving credit and term loan agreement. At March 31, 2002, the carrying
amounts reported in the balance sheets for cash, accounts receivable, accounts
payable, debt and investments approximate fair value. Accordingly, management
believes this risk is not material.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth at the conclusion of the Liquidity and
Capital Resources discussion in Item 2 of Part I concerning environmental
matters is incorporated by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K. There was no SEC Form 8-K filed this quarter.
(b) There were no unusual charges or credits to income, nor a change
in independent accountants.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Federal Screw Works
-------------------------------
Date April 26, 2002 /s/ W. T. ZurSchmiede, Jr.
---------------- ------------------------------
W. T. ZurSchmiede, Jr.
Chairman, Chief Executive Officer
and Chief Financial Officer