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, 2002
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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
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At September 30, 2002, the Company had one class of common stock outstanding,
$1.00 par value common stock. There were 1,213,993 shares of such common stock
outstanding at that time.
(continued)
Part I FINANCIAL INFORMATION
FEDERAL SCREW WORKS
CONDENSED BALANCE SHEETS (UNAUDITED)
(Thousands of Dollars)
Sept. 30 June 30
2002 2002
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ASSETS
Current Assets:
Cash .................................................. $ 248 $ 199
Accounts Receivable, Less Allowance of $50 ............ 15,088 14,970
Inventories:
Finished Products ................................... 8,666 9,266
In-Process Products ................................. 6,919 6,754
Raw Materials And Supplies .......................... 1,600 1,507
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17,185 17,527
Prepaid Expenses And Other ............................ 1,485 434
Deferred Income Taxes ................................. 824 815
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Total Current Assets ............................... 34,830 33,945
Other Assets:
Intangible Pension Asset .............................. 96 96
Cash Value Of Life Insurance .......................... 5,729 5,696
Prepaid Pension Cost .................................. 7,232 7,210
Miscellaneous ......................................... 3,273 3,005
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Total Other Assets .................................... 16,330 16,007
Property, Plant And Equipment ........................... 118,220 116,725
Less Accumulated Depreciation ......................... 65,595 63,997
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Net Properties ........................................ 52,625 52,728
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Total Assets ............................................ $103,785 $102,680
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Part I FINANCIAL INFORMATION (Continued)
Sept 30 June 30
2002 2002
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable ......................................... $ 4,374 $ 5,288
Payroll And Employee Benefits ............................ 3,338 5,770
Dividends Payable ........................................ 975 124
Federal Income Taxes ..................................... 119 479
Taxes, Other Than Income Taxes ........................... 1,420 1,804
Other Accrued Liabilities ................................ 91 70
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Total Current Liabilities ............................. 10,317 13,535
Long Term Liabilities:
Long-Term Debt ........................................... 11,615 6,340
Deferred Employee Compensation ........................... 2,808 2,808
Postretirement Benefits Other Than Pensions .............. 15,255 14,834
Deferred Income Taxes .................................... 1,843 1,867
Employee Benefits ........................................ 1,064 1,100
Other Liabilities ........................................ 900 892
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Total Long-Term Liabilities ........................... 33,485 27,841
Stockholders' Equity:
Common Stock, $1.00 Par Value, Authorized
2,000,000 Shares; 1,213,993 Shares Outstanding at
September 30, 2002 and 1,234,093 at June 30, 2002 ....... 1,214 1,234
Additional Capital ....................................... 3,269 3,269
Retained Earnings ........................................ 55,602 56,903
Accumulated Other Comprehensive Loss ..................... (102) (102)
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Total Stockholders' Equity ............................ 59,983 61,304
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Total Liabilities and Stockholders' Equity ................. $ 103,785 $ 102,680
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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
2002 2001
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Net Sales ....................................................... $23,180 $21,518
Costs And Expenses:
Cost of Products Sold ........................................ 20,818 20,041
Selling And Administrative Expenses .......................... 1,542 1,329
Interest Expense ............................................. 64 37
Other Expenses (Income) ...................................... 68 56
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Total Costs and Expenses .................................. 22,492 21,463
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Earnings Before Federal
Income Taxes ................................................. 688 55
Federal Income Taxes ............................................ 227 18
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Net Earnings .................................................... $ 461 $ 37
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Per Share Of Common Stock:
Basic and Diluted Earnings Per Share ............................ $ 0.38 $ 0.03
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Cash Dividends Declared Per Share ............................... $ 0.80 $ 0.80
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See Accompanying Notes.
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FEDERAL SCREW WORKS
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
Three Months
Ended
September 30
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2002 2001
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Operating Activities
Net Earnings ................................................... $ 461 $ 37
Adjustments to Reconcile Net Earnings to Net Cash
Provided By (Used In) Operating Activities:
Depreciation ............................................... 1,598 1,367
Increase In Cash Value of Life Insurance ................... (33) (32)
Change In Deferred Income Taxes ............................ (33) (185)
Employee Benefits .......................................... (36) (20)
Other ...................................................... 138 486
Changes In Operating Assets And Liabilities:
Accounts Receivable ........................................ (118) 1,514
Inventories And Prepaid Expenses ........................... (709) 87
Accounts Payable And Accrued Expenses ...................... (4,069) (2,655)
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Net Cash Provided By (Used In) Operating Activities .............. (2,801) 599
Investing Activities
Purchases of Property, Plant And Equipment-Net ................. (1,495) (2,304)
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Net Cash Used In Investing Activities ............................ (1,495) (2,304)
Financing Activities
Additional Borrowings Under Bank Credit Agreement .............. 5,275 2,830
Purchase of Common Stock ....................................... (807) (906)
Dividends Paid ................................................. (123) (130)
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Net Cash Provided By Financing Activities ........................ 4,345 1,794
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Increase In Cash ................................................. 49 89
Cash At Beginning Of Period ...................................... 199 98
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Cash At End Of Period ............................................ $ 248 $ 187
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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, 2002, 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 September
30, 2002, there was $11,615,000 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.
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, 2002, increased $1,662,000, or 7.7%, compared with net sales for the first
quarter of the prior year. The increase is attributable mainly to the increase
in North American automotive production compared to the prior year. Also the
first quarter ended September 30, 2001, was adversely affected by the events of
September 11, 2001.
Gross profit for the three month period ended September 30, 2002, increased
$885,000, or 59.9%, as compared with the first quarter of the prior year. The
increase is attributable mainly to the increase in North American automotive
sales and production.
Selling and administrative expenses increased $213,000, or 16.0%, for the first
quarter ended September 30, 2002, as compared with the first quarter of the
prior year. The increase is mainly attributable to increases in compensation and
related expenses.
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The Registrant is dependent 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 August 2002, declared a $.10 per share
quarterly dividend, and an extra $.70 per share dividend, both payable October
1, 2002, to shareholders of record September 6, 2002.
LIQUIDITY AND CAPITAL RESOURCES: Working capital increased by $4,102,000 from
$20,411,000 at June 30, 2002, to $24,513,000 at September 30, 2002. The increase
is mainly attributable to the reduction in accounts payable, and payroll and
employee benefits.
At September 30, 2002, the Company had available $13,385,000 under its bank
credit agreement.
Capital expenditures for the three month period ended September 30, 2002, were
approximately $1.5 million, and, for the year, are expected to approximate $6.8
million, of which approximately $3.9 million has been committed as of September
30, 2002.
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, 2002.
FORWARD LOOKING STATEMENTS: The foregoing discussion and analysis with regard to
the Registrant's expected capital expenditures contains a "forward looking
statement" 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 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 September 30, 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.
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
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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.
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) Exhibit 10.1. One year extension of Revolving Credit and Term
Loan Agreement by and between Registrant and Comerica Bank
dated October 7, 2002.
(b) A Form 8-K Report was filed on September 27, 2002, 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 Annual
Report on Form 10-K filed the same day.
(c) 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 November 14, 2002 /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, 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 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/ Thomas ZurSchmiede
________________________________________________
Thomas ZurSchmiede, President and Chief
Executive Officer -- Principal Executive Officer
Date: November 14, 2002
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, W.T. 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 begin 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.
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W.T. ZurSchmiede, Jr., Chairman of the Board,
Chief Financial Officer, Secretary and
Principal Financial Officer
Date: November 14, 2002
Exhibit Index:
Exhibit 10.1. One Year Extension of Revolving Credit and
Term Loan Agreement By And Between Registrant and
Comerica Bank Dated October 7, 2002.