UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q/A-2
(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, 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: 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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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 April 8, 2004, the registrant had one class of common stock outstanding,
$1.00 par value common stock. There were 1,421,595 shares of such common stock
outstanding at that time.
EXPLANATORY NOTE
We are filing this amendment No. 2 to our Quarterly Report on Form 10-Q
originally filed with the Securities and Exchange Commission on February 13,
2004, and first amended on March 25, 2004, solely for the purpose of re-filing
Exhibits 31.1 and 31.2. Except as specifically indicated herein, no other
information included in our Quarterly Report on Form 10-Q is amended by this
Form 10-Q/A-2.
Part I FINANCIAL INFORMATION
FEDERAL SCREW WORKS
CONDENSED BALANCE SHEETS (UNAUDITED)
(Thousands of Dollars)
December 31 June 30
2003 2003
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ASSETS
Current Assets:
Cash ........................................... $ 255 $ 416
Accounts Receivable, Less Allowance of $50 ..... 12,687 14,096
Inventories:
Finished Products............................. 7,531 6,619
In-Process Products........................... 6,563 6,777
Raw Materials And Supplies.................... 1,000 1,176
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15,094 14,572
Prepaid Expenses And Other Current Accounts..... 460 566
Deferred Income Taxes........................... 918 859
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Total Current Assets......................... 29,414 30,509
Other Assets:
Intangible Pension Asset ....................... 1,702 1,702
Cash Value Of Life Insurance.................... 5,890 5,825
Prepaid Pension Cost............................ 502 832
Miscellaneous................................... 4,211 3,700
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Total Other Assets 12,305 12,059
Property, Plant And Equipment..................... 123,850 122,069
Less Accumulated Depreciation................... 72,601 70,176
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Net Properties ................................. 51,249 51,893
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Total Assets ..................................... $92,968 $94,461
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Part I FINANCIAL INFORMATION (Continued)
December 31 June 30
2003 2003
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable.................................... $ 3,637 $ 4,318
Payroll And Employee Benefits....................... 2,887 5,447
Dividends Payable .................................. 144 146
Federal Income Taxes................................ 318 0
Taxes, Other Than Income Taxes ..................... 1,546 1,600
Accrued Pension Contributions....................... 590 0
Other Accrued Liabilities .......................... 112 94
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Total Current Liabilities........................ 9,234 11,605
Long Term Liabilities:
Long-Term Debt...................................... 7,135 5,680
Deferred Employee Compensation...................... 3,208 3,208
Postretirement Benefits Other Than Pensions......... 17,238 16,347
Deferred Income Taxes............................... 170 544
Employee Benefits................................... 965 1,035
Other Liabilities................................... 980 927
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Total Long-Term Liabilities...................... 29,696 27,741
Stockholders' Equity:
Common Stock, $1.00 Par Value, Authorized
2,000,000 Shares; 1,433,695 Shares Outstanding
at December 31, 2003 and 1,450,465 at June 30, 2003. 1,434 1,451
Additional Capital.................................. 3,270 3,270
Retained Earnings .................................. 54,350 55,515
Accumulated Other Comprehensive Loss................ (5,016) (5,121)
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Total Stockholders' Equity....................... 54,038 55,115
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Total Liabilities and Stockholders' Equity............ $92,968 $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 Six Months Ended
December 31 December 31
2003 2002 2003 2002
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Net Sales..................................................... $21,842 $22,990 $42,229 $46,170
Costs And Expenses:
Cost of Products Sold...................................... 20,057 21,190 38,785 42,008
Selling And Administrative Expenses........................ 1,543 1,479 3,100 3,021
Interest Expense .......................................... 39 68 69 132
Other Expenses ............................................ 49 72 103 140
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Total Costs and Expenses................................ 21,688 22,809 42,057 45,301
Earnings Before Federal
Income Taxes............................................... 154 181 172 869
Federal Income Taxes ......................................... 51 59 57 286
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Net Earnings.................................................. $ 103 $ 122 $ 115 $ 583
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Per Share Of Common Stock:
Basic and Diluted Earnings Per Share.......................... $ 0.07 $ 0.08 $ 0.08 $ 0.39
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Cash Dividends Declared Per Share............................. $ 0.10 $ 0.08 $ 0.50 $ 0.72
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Weighted Average Shares Outstanding........................... 1,438,120 1,489,628 1,443,886 1,505,583
The above per share amounts for the periods ended December 31, 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)
Six Months
Ended
December 31
2003 2002
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Operating Activities
Net Earnings............................................... $ 115 $ 583
Adjustments to Reconcile Net Earnings to Net Cash
Provided By (Used In) Operating Activities:
Depreciation .......................................... 3,262 3,228
Increase In Cash Value of Life Insurance............... (65) (65)
Change In Deferred Income Taxes........................ (433) (45)
Employee Benefits...................................... (71) (70)
Other.................................................. 867 586
Changes In Operating Assets And Liabilities:
Accounts Receivable.................................... 1,409 1,963
Inventories And Prepaid Expenses............................. (415) 1,603
Accounts Payable And Accrued Expenses........................ (2,369) (3,791)
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Net Cash Provided By Operating Activities.................... 2,300 3,992
Investing Activities
Purchases of Property, Plant And Equipment-Net............. (2,617) (2,474)
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Net Cash Used In Investing Activities........................ (2,617) (2,474)
Financing Activities
Additional Borrowings Under Credit Agreement............... 1,455 1,545
Purchase of Common Stock................................... (573) (1,988)
Dividends Paid............................................. (726) (1,098)
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Net Cash Provided By (Used In) Financing Activities.......... 156 (1,541)
Decrease In Cash............................................. (161) (23)
Cash At Beginning Of Period.................................. 416 199
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Cash At End Of Period........................................ $ 255 $ 176
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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 judgements 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, 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 December 31, 2003, there was $7,135,000 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 $4,063,000 and $3,532,000 as of December
31, 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 an unrealized gain of $105,000, net of
tax, for the six month period ended December 31, 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 Six Months Ended
December 31 December 31
2003 2002 2003 2002
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Net earnings $103 $122 $115 $583
Unrealized gains and (losses) on
securities available-for-sale,net of tax 97 (67) 105 (67)
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Total comprehensive income $200 $ 55 $220 $516
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The components of accumulated comprehensive
loss are as follows:
December 31 June 30
2003 2003
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Unrealized gains and (losses) on securities
available-for-sale, net of tax $ 64 $ (41)
Minimum pension liability, net of tax (5,080) (5,080)
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Accumulated other comprehensive loss $(5,016) $(5,121)
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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 and
six months ended December 31, 2003, compared to the three and six months ended
December 31, 2002. This information should be read in conjunction with
Managements 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, 2003.
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. A
large majority of the Company's sales are to manufacturers of automobiles and
trucks, with the balance of its sales to manufacturers of nonautomotive durable
goods. Due to its focus on sales to automotive manufacturers, the Company's
financial performance is dependent upon the overall strength of consumer demand
for light trucks and passenger cars.
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
2003 2002 2003 2002
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Net Sales 100% 100% 100% 100%
Gross Profit 8.2 7.8 8.1 9.0
Selling, General & Admin. Expenses 7.1 6.4 7.3 6.5
Interest 0.2 0.3 0.2 0.3
Other Expenses 0.2 0.3 0.2 0.3
Earnings Before Federal Income Taxes 0.7 0.8 0.4 1.9
Net Earnings 0.5 0.5 0.3 1.3
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Revenue. Net sales for the Company's second quarter ended December 31, 2003,
decreased $1,148,000, or (5.0)%, compared with net sales for the second quarter
of the prior year. Net sales for the six month period ended December 31, 2003,
decreased $3,941,000 or (8.5)%, compared with the six month period of the prior
year. The decrease is attributable to the 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 December 31, 2003, decreased
$15,000, or (0.8)%, as compared with the second quarter of the prior year. Gross
profit for the six month period ended December 31, 2003, decreased $718,000, or
(17.3)%. The decrease is attributable to the decrease in net sales, resulting
from a decrease in North American automotive sales and production. The sales
reduction in the current quarter was offset by productivity improvements
resulting in a modest decrease in gross profit. The Company has begun to
experience raw material cost increases during the third quarter of this fiscal
year. The Company is very concerned by the advent of substantial increases in
the price of steel, which are largely driven by higher scrap charges incurred by
steel suppliers and passed on to the Company.
Selling and administrative expenses increased $64,000, or 4.3%, for the second
quarter ended December 31, 2003, as compared with the second quarter of the
prior year. Selling and administrative expenses increased $79,000, or 2.6%, as
compared with the six month period ended December 31, 2002. The increase is
attributable to the increase in the cost of insurance and related expenses.
Other expenses decreased $23,000, or (31.9)%, for the three month period ended
December 31, 2003, as compared with the second quarter of the prior year. Other
expenses for the six months ended December 31, 2003, decreased $37,000, or
(26.4)%, as compared with the six month period ended December 31, 2002. The
decrease is the result of declines in value judged to be other than temporary on
available-for-sale securities in 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 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 will 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 November, 2003, declared a $0.10 per share
quarterly dividend paid January 2, 2004, to shareholders of record December 2,
2003.
LIQUIDITY AND CAPITAL RESOURCES: Working capital increased by $1,276,000 from
$18,904,000 at June 30, 2003, to $20,180,000 at December 31, 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. Accounts Receivable
decreased $1,409,000 due to decreased sales in December. Sales in December are
usually low because customers close their plants for the holidays.
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Borrowings under the Revolving Credit and Term Loan Agreement were $7,135,000 at
December 31, 2003. As of that date, the Company had available $17,865,000 under
the agreement and was in compliance with all financial covenants.
Capital expenditures for the six month period ended December 31, 2003, were
approximately $2.6 million, and, for the year, are expected to approximate $6.5
million, of which approximately $6.1 million has been committed as of December
31, 2003.
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 outstanding
common stock. Under the repurchase program, the Company has 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. The Company purchased 8,470
shares during the quarter ended December 31, 2003.
CRITICAL ACCOUNTING POLICIES: The accompanying financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States. 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.
Our critical accounting policies are described in "Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations -
Critical Accounting Policies" in our Annual Report on Form 10-K for the year
ended June 30, 2003.
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, 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 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 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; 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; 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, 2003, the carrying amounts
reported in the balance sheets for cash, accounts receivable, accounts payable,
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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
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,
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
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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) 1. On October 24, 2003, the Company furnished information regarding its
financial results for the quarter and year-to-date as of September 30,
2003, under Items 7 and 12 of Form 8-K.
(b) 2. On December 3, 2003, the Company furnished information regarding its
stock repurchase program under Item 5 of Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment No. 2 to be signed on its behalf by
the undersigned thereunto duly authorized.
FEDERAL SCREW WORKS
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Date April 14, 2004 /s/ W. T. ZurSchmiede, Jr.
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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 April 14, 2004, relating to the
Company's Quarterly Report on Form 10-Q for the
period ended December 31, 2003.
Exhibit 31.2 Certification of the Chief Financial Officer of the
Company dated April 14, 2004, relating to the
Company's Quarterly Report on Form 10-Q for the
period ended December 31, 2003.
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.