FORM 10-K405
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to _____________
Commission file number 0-1837
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.)
2400 Buhl Building, Detroit, Michigan 48226
- ---------------------------------------- -------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code 313-963-2323
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1 par value
--------------------------
(Title of class)
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part 3 of this Form 10-K or any amendment to this
Form 10-K. [X]
(continued)
<PAGE>
As of September 1, 1995, the aggregate market value of the common stock of
Registrant held by non-affiliates was $16,572,964.
The number of shares outstanding of each of the Registrant's classes of common
stock, as of September 1, 1995 is as follows:
Common stock, $1 Par Value--1,086,662 shares
- --------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Certain information from the following documents has been incorporated by
reference herein in response or partial response to the items indicated:
Document Form 10-K Part No.; Item No.
- -------- ----------------------------
1. Annual Report to Stockholders of the Part I; Item 1, 2
Registrant for the year ended June 30, Part II; Item 5, 6, 7, 8
1995 (hereinafter referred to as "1995
Annual Report") attached hereto as
Exhibit 13
2. Proxy Statement of the Registrant Part III; Item 10, 11, 12, 13
dated September 27, 1995
3. 1994 Form 10-K Part IV; Item 14
4. 1993 Form 10-K Part IV; Item 14
5. 1992 Form 10-K Part IV; Item 14
6. 1991 Form 10-K Part IV; Item 14
7. 1989 Form 10-K Part IV; Item 14
8. Form 10-Q for the quarter ended Part IV; Item 14
March 31, 1995
9. Form 10-Q for the quarter ended Part IV; Item 14
December 31, 1992
10. Form 10-Q for the quarter ended Part IV; Item 14
September 30, 1992
11. Form 10-Q for the quarter ended Part IV; Item 14
September 30, 1990
12. Form 10-Q for the quarter ended Part IV; Item 14
December 31, 1989
13. Form 10-Q for the quarter ended Part IV; Item 14
September 30, 1989
2
<PAGE>
PART I
Item 1. Description of Business.
(a) General Development of Business.
(1) The Registrant, originally incorporated in 1919, is
principally engaged in the manufacture and sale of various
industrial component parts. During the fiscal year for which
this Annual Report is being filed, there were no material
developments with respect to the Registrant's business, except
for those described in Registrant's 1995 Annual Report on pages
9-12, attached hereto as Exhibit 13. This information is
incorporated herein by reference.
(2) Inapplicable.
(b) Financial Information About Industry Segments.
(1) (2) Industry segments.
The Registrant is engaged in a single business segment as
described on pages 5-6 and 24 of the 1995 Annual Report of
the Registrant, attached hereto as Exhibit 13. Amounts of
revenue, operating profits and identifiable assets
attributable to the single business segment are included on
pages 13 and 14 of the 1995 Annual Report of the Registrant,
attached hereto as Exhibit 13. This information is
incorporated herein by reference.
(c) Narrative Description of Business.
The description of the business set forth on pages 5-6, 9-12, and 24
of the Registrant's 1995 Annual Report, attached hereto as Exhibit
13, is incorporated herein by reference. The following information
supplements that description:
(1) (i) See Narrative Description cross-reference above.
(ii) See Narrative Description cross-reference above.
(iii) See Narrative Description cross-reference above.
(iv) While Registrant holds a number of patents, Registrant
believes that the successful continuation of its business is
not dependent on any single patent or group of patents,
trademarks, or licenses. (Registrant retains the rights to
certain royalties related to an exclusive license agreement
with semiconductor manufacturer Silicon Systems incorporated
(SSi), whereunder SSi will produce and market certain
phonetic speech synthesizer chips under the SSi product
name. Registrant does not consider the royalty agreement to
be material to Registrant's business.)
3
<PAGE>
(v) No material portion of the business of the Registrant is
seasonal in nature.
(vi) There are no practices and conditions of the
Registrant or known to the Registrant relating to working
capital items which are material to an understanding of the
Registrant's business in the industry in which it competes.
(vii) See Narrative Description cross-reference above.
(viii) As of August 31, 1995, the Registrant had an estimated
backlog of firm orders amounting to approximately
$15,000,000, all of which are expected to be filled within
the 1996 fiscal year. The comparable backlog as of August
31, 1994 amounted to approximately $14,500,000.
(ix) No material portion of the business of Registrant
is subject to renegotiation of profits or termination of
contracts or subcontracts at the election of the Government.
(x) The manufacture and sale of Registrant's products is an
extremely competitive business. Because industry statistics
are not available, Registrant is unable to accurately
determine the number of its competitors nor to state its
competitive position in its principal market as a supplier
of parts to automotive customers. However, Registrant
believes that it is generally considered a leading producer
of its principal type of product in an estimated $650
million annual market served by approximately thirty major
domestic suppliers, no one of which, or no small number of
which are dominant. Registrant is aware, however, that there
are companies making similar products, with greater sales
and resources than Registrant. Registrant is aware that in
recent years the activity of foreign competitors
manufacturing similar products has increased. The quality of
the product, the product's price and service to customers
are the principal methods of competition.
(xi) Research and development activity expenses during each
of the last three fiscal years is not deemed material.
(xii) Registrant has experienced no material effects in complying
with government environmental regulations.
(xiii) See Narrative Description cross-reference above.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales.
Financial information about foreign and domestic operations and
export sales are set forth on pages 5, 6, 13, 14 and 24 of the
Registrant's 1995 Annual Report, attached hereto as Exhibit 13. This
information is incorporated herein by reference.
4
<PAGE>
Item 2. Description of Property.
The description of property set forth on pages 5-6 of the Registrant's 1995
Annual Report, attached hereto as Exhibit 13, is incorporated herein by
reference.
Item 3. Legal Proceedings.
Registrant is one of approximately twenty designated potentially responsible
parties (PRPs) in a federal "Superfund" environmental clean-up proceeding
involving a dump site in Rose Township, Oakland County, Michigan. Although
Registrant denies responsibility for contamination of the site, it has
nevertheless agreed to participate in funding clean-up of the site by paying a
share of the clean-up costs which Registrant does not consider to be material.
This share has been assumed primarily because of the large transactional costs
expected to be incurred in defending the lawsuit against the PRPs which would
have been filed by the Environmental Protection Agency if the matter had not
been settled voluntarily.
Registrant and eleven other PRPs have signed a Consent Decree and adopted a
Remedial Action Plan which has been filed in, and approved by, the U.S.
District Court for the Eastern District of Michigan. The Complaint instituting
the court proceeding was filed September 19, 1989. The principal parties are
the United States of America, the State of Michigan, and the PRPs. On appeal,
the Consent Decree has been affirmed by the United States Court of Appeals for
the Sixth Circuit. The allocation of the responsibility to fund the Remedial
Action Plan among the participating PRPs is set out in a written Agreement to
which Registrant is a party. Settlements with two of the Registrant's
insurers resulted in coverage for in excess of one half of the Registrant's
share.
The settling defendants have submitted to the United States Environmental
Protection Agency comments regarding a soil vapor extraction system report
which the PRPs submitted after a pilot study at the Site. The EPA had
previously concluded that neither soil flushing nor enhanced soil flushing
would achieve target cleanup levels for certain materials within the time
frames specified in the Remedial Action Plan attached to the Consent Decree.
The Rose Township PRP Agreement provides, upon the occurrence of such an
event, the participating PRPs shall meet to discuss the allocation of the
costs of performing further work. No meetings have been held or scheduled to
discuss any allocation of additional remediation costs. It is anticipated that
even if a successful effort to reopen allocation costs is made that the
Registrant's share would not be material. Selection of soil vapor extraction
as an alternate remedy by the EPA may require an amendment to the Record of
Decision.
The Registrant and other Rose Township PRPs have been notified by the EPA of
potential liability at another site located in Springfield Township, Oakland
County, Michigan. The PRPs have actively been engaged in negotiations with the
EPA and the Michigan Department of Natural Resources in an effort to agree
upon mutually acceptable remediation parameters. The PRPs have negotiated
Administrative Orders on Consent Regarding Selected Response Activities and
for Cost Recovery Settlement, the cost of which is not expected to have a
material effect upon the Company's financial statements. The PRPs have not
negotiated an overall remedy at the Site. But, interim remediation is
5
<PAGE>
occurring as the Order Regarding Selected Response Activities covers the
groundwater component of the remedy. The Registrant has settled with the
Michigan Department of Natural Resources the Department's past cost claims at
both the Rose and at the Springfield Township Sites. The Registrant's share of
the settlements was an immaterial amount. It is anticipated that the
Registrant's share of any future expense at the Site will be immaterial. The
Registrant liquidated its coverage claims against its insurers.
Item 4. Submission of Matters to a Vote of Security Holders.
Inapplicable.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
(a) The information set forth under the caption "Stock Prices" on
page 7 of Registrant's 1995 Annual Report, attached hereto as Exhibit
13, is incorporated herein by reference. On September 1, 1995, the
market price for Registrant's common stock on the Nasdaq National
Market was $26.25 asked, $26.25 bid.
(b) The approximate number of record holders of common stock
securities is set forth on page 27 of Registrant's 1995 Annual
Report, attached hereto as Exhibit 13. This information is
incorporated herein by reference. Included are individual
participants in security position listings.
(c) Cash dividends were declared in each of the four quarters during
fiscal 1995 and fiscal 1994. Total cash dividends in fiscal 1995 were
80 cents per share and in fiscal 1994 were 60 cents per share.
Additional information is set forth under the caption "Dividends" on
page 10 and in "Note 2" to the financial statements on page 18 of the
Registrant's 1995 Annual Report, attached hereto as Exhibit 13, and
is incorporated herein by reference.
Item 6. Selected Financial Data.
The information set forth under the caption "Selected Financial Data" on page
8, supplemented by the discussion on pages 9-12 of Registrant's 1995 Annual
Report, attached hereto as Exhibit 13, is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 9-12 of
Registrant's 1995 Annual Report, attached hereto as Exhibit 13, is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The Financial Statements and Quarterly Data set forth on pages 7 and 13-26 of
Registrant's 1995 Annual Report, attached hereto as Exhibit 13, are
incorporated herein by reference.
6
<PAGE>
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
Inapplicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) Identification of Directors.
The information set forth under the caption "Election of Directors
and Security Ownership of Management" in Registrant's Proxy Statement
dated September 27, 1995 is incorporated herein by reference.
(b) Identification of Executive Officers.
The following information supplements the information provided under
the caption "Election of Directors and Security Ownership of
Management" in Registrant's Proxy Statement dated September 27, 1995
which is incorporated herein by reference.
<TABLE>
<CAPTION>
Name Position Age
---- -------- -----
<S> <C> <C>
John M. O'Brien Vice President-Sales and Marketing 45
since 1986; Vice President-General
Sales Manager, 1984 to 1986; General
Sales Manager, 1982 to 1984; Sabbatical
at Stanford University Business School,
1981 to 1982; Sales Representative,
1975 to 1981
Jeffrey M. Harness Vice President and General Manager-Chelsea 39
Division and Novex Tool Division since 1994;
Vice President and General Manager-Chelsea
Division, 1992 to 1994; General Manager-
Chelsea Division, 1985 to 1992; Sales Manager-
Chelsea Division, 1984 to 1985; Sales
Representative, 1982 to 1984; Management
Trainee, 1981 to 1982; Chelsea Division
Junior Buyer, 1980 to 1981.
</TABLE>
(c) Identification of Certain Significant Employees.
Inapplicable.
(d) Family Relationships.
The information set forth in footnotes (b), (c), (d) and (e) under
the caption "Election of Directors and Security Ownership of
Management" in Registrant's Proxy Statement dated September 27, 1995
is incorporated herein by reference.
7
<PAGE>
(e) Business Experience.
(1) Included in response to paragraphs (a) and (b) of this Item 10.
(2) The information set forth under the caption "Election of
Directors and Security Ownership of Management" in Registrant's
Proxy Statement dated September 27, 1995 is incorporated herein
by reference.
(f) Involvement in Certain Legal Proceedings.
None.
(g) Promoters and Control Persons.
Inapplicable.
Item 11. Executive Compensation.
The information set forth under the captions "Executive Compensation,"
"Long-Term Incentive Plan," "Comparative Performance Graph," "Certain
Relationships and Related Transactions," "Restricted Stock Bonus Plans,"
"Retirement Supplement," "Salaried Pension Plan" and "Board of Directors and
Committees" in Registrant's Proxy Statement dated September 27, 1995 is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information set forth under the caption "Election of Directors and
Security Ownership of Management" in the Registrant's Proxy Statement dated
September 27, 1995 is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information set forth under the captions "Certain Relationships and
Related Transactions" in Registrant's Proxy Statement dated September 27, 1995
is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K.
(a) (1) and (2) - The response to this item is submitted as a separate
section of this report beginning on page 12.
(3) Exhibits. The following exhibits designated with a "+" symbol
represent the Company's management contracts or compensation plans or
arrangements for directors and executive officers.
3.1 Registrant's Articles of Incorporation were filed as
an exhibit to the Registrant's 1994 Form 10-K, and are
incorporated herein by reference.
8
<PAGE>
3.2 Registrant's By-Laws were filed as an exhibit to
Registrant's 1989 Form 10-K and are incorporated herein
by reference.
4.1 Lease-purchase contract dated as of November 1,
1979 between the City of Big Rapids, Michigan and
Federal Screw Works was filed as an exhibit to
Registrant's 1993 Form 10-K and is incorporated
herein by reference.
4.2 Guarantee agreement (municipal industrial revenue bond)
dated as of November 1, 1979, as previously filed,
was filed as an exhibit to the Registrant's 1993
Form 10-K and is incorporated herein by reference. All
waivers, amendments and modifications thereto, were
filed as exhibits to the Registrant's 1989, 1993 and
1994 Forms 10-K and are incorporated herein by reference.
4.3 Revolving Credit and Term Loan Agreement by and
between Registrant and Comerica Bank, as successor
in interest by reason of merger to Manufacturers
National Bank of Detroit dated September 21, 1989 (the
"Comerica Loan Agreement") was filed as an exhibit to
the Registrant's 10-Q for the quarter ended September
30, 1989 and is incorporated herein by reference.
Amendment No. 1 to the Comerica Loan Agreement dated
January 24, 1990 was filed as an exhibit to the
Registrant's 10-Q for the quarter ended December 31,
1989 and is incorporated herein by reference.
Amendment No. 2 to the Comerica Loan Agreement dated
September 15, 1990 was filed as an exhibit to the
Registrant's 10-Q for the quarter ended September 30,
1990 and is incorporated herein by reference.
Amendment No. 3 to the Comerica Loan Agreement, dated
August 12, 1991, was filed as an exhibit to the
Registrant's 10-K for the year ended June 30, 1991
and is incorporated herein by reference. Amendment
No. 4 for the Comerica Loan Agreement, dated
October 30, 1992, was filed as an exhibit to the
Registrant's 10-Q for the quarter ended September 30,
1992 and is incorporated herein by reference. Amendments
No. 5, 6, and 7 to the Comerica Loan Agreement,
respectively dated November 15, 1992, December 15, 1992,
and January 20, 1993 were filed as exhibits to the
Registrant's 10-Q for the quarter ended December 31, 1992
and are incorporated herein by reference. Letter
agreement, dated August 31, 1994, amending the Comerica
Loan Agreement, was filed as an exhibit to the
Registrant's 1994 Form 10-K, and is incorporated herein
by reference.
10.1+ Supplemental retirement agreement between the
Registrant and W. T. ZurSchmiede, Jr., current Chairman
and CEO of the Company, dated April 1, 1986 was filed as
an exhibit to Registrant's 1993 Form 10-K and is
incorporated herein by reference.
9
<PAGE>
10.2+ Supplemental retirement agreement between the
Registrant and Hugh G. Harness, a director and past
President of the Company, dated December 21, 1978 and
amended pursuant to an Amendment to Agreement dated
October 23, 1986, together with an Agreement providing
for the retirement and consultation of and by Mr.
Harness and the Registrant dated January 7, 1994,
attached to which as Exhibits B and C were agreements
further amending the supplemental retirement agreement,
were filed as an exhibit to Registrant's 1994 Form 10-K,
and are incorporated herein by reference.
10.3+ Indemnity agreement effective September 24, 1986,
which exists between the Registrant and each
director, was filed as an exhibit to Registrant's 1992
Form 10-K, and is incorporated herein by reference.
10.4 Lease agreement between the Registrant and Equitable
Life Assurance Society of the United States for
the lease of the 24th floor of the Buhl Building,
Detroit, Michigan, effective January 1, 1995, was
filed as an exhibit to the Registrant's Form
10-Q for the quarter ended March 31, 1995, and is
incorporated herein by reference.
10.5+* Intermediate-Term Bonus Plan for the Company's Chief
Executive Officer.
10.6+* Retirement Plan for Outside Directors as amended and
restated.
13.* Registrant's Annual Report to security holders for the
year ended June 30, 1995.
27.* Financial Data Schedule.
-------------------------------------
* Filed with this report
(b) No reports on Form 8-K have been filed by Registrant during the
last quarter of the period filed by this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
----------------------------------
(Registrant)
By: /s/ W. T. ZurSchmiede, Jr.
-------------------------------
(Signature)
W. T. ZurSchmiede, Jr.
Chairman and Chief Executive
Officer, Chief Financial Officer,
Secretary, Treasurer and Principal
Accounting Officer
Date: September 25, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Date
----
/s/ Thomas W. Butler, Jr. September 25, 1995
- ----------------------------------
Thomas W. Butler, Jr. Director
/s/ Hugh G. Harness September 25, 1995
- ----------------------------------
Hugh G. Harness Director
/s/ John J. Slavin September 25, 1995
- ----------------------------------
John J. Slavin Director
/s/ F. D. Tennent September 25, 1995
- ----------------------------------
F. D. Tennent Director
/s/ W. T. ZurSchmiede, Jr. September 25, 1995
- ----------------------------------
W. T. ZurSchmiede, Jr. Director
/s/ R. F. ZurSchmiede September 25, 1995
- ----------------------------------
R. F. ZurSchmiede Director
/s/ W. T. ZurSchmiede, III September 25, 1995
- ----------------------------------
W. T. ZurSchmiede, III Director
11
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) and (2), (c) and (d)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
YEAR ENDED JUNE 30, 1995
FEDERAL SCREW WORKS
DETROIT, MICHIGAN
12
<PAGE>
FORM 10-K - ITEM 14(a)(1) AND (2)
FEDERAL SCREW WORKS
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following financial statements of Federal Screw Works, included in the
annual report of the Registrant to its stockholders for the year ended June
30, 1995, attached hereto as Exhibit 13 are incorporated by reference in
Item 8:
Balance sheets - June 30, 1995 and 1994
Statements of operations - Years ended June 30, 1995,
1994 and 1993
Statements of stockholders' equity - Years ended
June 30, 1995, 1994 and 1993
Statements of cash flows - Years ended June 30, 1995,
1994 and 1993
Notes to financial statements - June 30, 1995
The following financial statement schedules of Federal Screw Works are
included in Item 14(d);
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and, therefore, have been
omitted.
13
<PAGE>
[Letterhead of Ernst & Young LLP]
Ernst & Young LLP Suite 1700 Phone: 313 596 7100
500 Woodward
Detroit, Michigan 48226-3426
Report of Independent Auditors
Board of Directors
Federal Screw Works
We have audited the accompanying balance sheets of Federal Screw Works as of
June 30, 1995 and 1994, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended June 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Federal Screw
Works at June 30, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended June 30, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 6 to the financial statements, the Company changed its
method of accounting for postretirement benefits other than pensions in the
year ended June 30, 1994.
s/ Ernst & Young LLP
August 9, 1995
14
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SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------ ------ -------------------------------------- ------ ------
ADDITIONS
--------------------------------------
DESCRIPTION Balance at (1) (2) Deductions -- Balance at
Beginning Charged to Costs Charged to Other Describe End of Period
of Period and Expenses Accounts -- Describe
- ---------------------------- ---------- ---------------- -------------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Valuation allowance for
accounts receivable:
Year ended June 30, 1995 $ 25,000 -- -- $ 25,000
Year ended June 30, 1994 25,000 $ 3,206 $ 3,206(A) 25,000
Year ended June 30, 1993 25,000 -- -- 25,000
Valuation allowance for
inventories:
Year ended June 30, 1995 $160,000 $188,885 $73,885(B) $275,000
Year ended June 30, 1994 154,000 102,099 96,099(B) 160,000
Year ended June 30, 1993 110,000 116,102 72,102(B) 154,000
<FN>
(A) Uncollectable accounts charged off; corresponding reduction of allowance.
(B) Unsalable inventories charged off; corresponding reduction of allowance.
</TABLE>
15
<PAGE>
INDEX TO EXHIBITS
The following exhibits designated with a "+" symbol represent the
Company's management contracts or compensation plans or arrangements for
directors and executive officers.
3.1 Registrant's Articles of Incorporation were filed as
an exhibit to the Registrant's 1994 Form 10-K, and are
incorporated herein by reference.
3.2 Registrant's By-Laws were filed as an exhibit to
Registrant's 1989 Form 10-K and are incorporated herein
by reference.
4.1 Lease-purchase contract dated as of November 1,
1979 between the City of Big Rapids, Michigan and
Federal Screw Works was filed as an exhibit to
Registrant's 1993 Form 10-K and is incorporated
herein by reference.
4.2 Guarantee agreement (municipal industrial revenue bond)
dated as of November 1, 1979, as previously filed,
was filed as an exhibit to the Registrant's 1993
Form 10-K and is incorporated herein by reference. All
waivers, amendments and modifications thereto, were
filed as exhibits to the Registrant's 1989, 1993 and
1994 Forms 10-K and are incorporated herein by reference.
4.3 Revolving Credit and Term Loan Agreement by and
between Registrant and Comerica Bank, as successor
in interest by reason of merger to Manufacturers
National Bank of Detroit dated September 21, 1989 (the
"Comerica Loan Agreement") was filed as an exhibit to
the Registrant's 10-Q for the quarter ended September
30, 1989 and is incorporated herein by reference.
Amendment No. 1 to the Comerica Loan Agreement dated
January 24, 1990 was filed as an exhibit to the
Registrant's 10-Q for the quarter ended December 31,
1989 and is incorporated herein by reference.
Amendment No. 2 to the Comerica Loan Agreement dated
September 15, 1990 was filed as an exhibit to the
Registrant's 10-Q for the quarter ended September 30,
1990 and is incorporated herein by reference.
Amendment No. 3 to the Comerica Loan Agreement, dated
August 12, 1991, was filed as an exhibit to the
Registrant's 10-K for the year ended June 30, 1991
and is incorporated herein by reference. Amendment
No. 4 for the Comerica Loan Agreement, dated
October 30, 1992, was filed as an exhibit to the
Registrant's 10-Q for the quarter ended September 30,
1992 and is incorporated herein by reference. Amendments
No. 5, 6, and 7 to the Comerica Loan Agreement,
respectively dated November 15, 1992, December 15, 1992,
and January 20, 1993 were filed as exhibits to the
Registrant's 10-Q for the quarter ended December 31, 1992
and are incorporated herein by reference. Letter
agreement, dated August 31, 1994, amending the Comerica
Loan Agreement, was filed as an exhibit to the
Registrant's 1994 Form 10-K, and is incorporated herein
by reference.
10.1+ Supplemental retirement agreement between the
Registrant and W. T. ZurSchmiede, Jr., current Chairman
and CEO of the Company, dated April 1, 1986 was filed as
an exhibit to Registrant's 1993 Form 10-K and is
incorporated herein by reference.
10.2+ Supplemental retirement agreement between the
Registrant and Hugh G. Harness, a director and past
President of the Company, dated December 21, 1978 and
amended pursuant to an Amendment to Agreement dated
October 23, 1986, together with an Agreement providing
for the retirement and consultation of and by Mr.
Harness and the Registrant dated January 7, 1994,
attached to which as Exhibits B and C were agreements
further amending the supplemental retirement agreement,
were filed as an exhibit to Registrant's 1994 Form 10-K,
and are incorporated herein by reference.
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<PAGE>
10.3+ Indemnity agreement effective September 24, 1986,
which exists between the Registrant and each
director, was filed as an exhibit to Registrant's 1992
Form 10-K, and is incorporated herein by reference.
10.4 Lease agreement between the Registrant and Equitable
Life Assurance Society of the United States for
the lease of the 24th floor of the Buhl Building,
Detroit, Michigan, effective January 1, 1995, was
filed as an exhibit to the Registrant's Form
10-Q for the quarter ended March 31, 1995, and is
incorporated herein by reference.
10.5+* Intermediate-Term Bonus Plan for the Company's Chief
Executive Officer.
10.6+* Retirement Plan for Outside Directors as amended and
restated.
13.* Registrant's Annual Report to security holders for the
year ended June 30, 1995.
27.* Financial Data Schedule.
-------------------------------------
* Filed with this report
17
EXHIBIT 10.5
INTERMEDIATE TERM BONUS PLAN
The intermediate term bonus plan is intended to provide the CEO with an
incentive tied to the sustained improvement in Company financial performance.
The amount earned under the plan will be based on the Company meeting or
exceeding prescribed goals in revenue growth and return on equity (ROE) for
1995 and 1996.
Depending on the Company's performance for 1995 and 1996, the value of Mr.
ZurSchmiede, Jr.'s bonus could range from zero to 150 percent of his 1994 cash
bonus ($140,000). The threshold goals in average annual revenue growth and
average return on equity for 1995 and 1996 are 8 percent average annual growth
in revenue and 12 percent average return on equity. Target average annual
revenue growth equals 10 percent and target average return on equity equals 14
percent. Maximum payout is earned if average annual growth in revenue equals
12 percent and average annual return on equity equals 16 percent. Both
thresholds must be met for any award to be earned. If both thresholds are met
or exceeded, the payment will equal (i) $70,000 plus (2) $17,500 times the sum
of (a) the percentage by which average revenue growth exceeds 8 percent (up to
a maximum of four percentage points), plus (b) the percentage by which average
return on equity exceeds 12 percent (up to a maximum of four percentage
points).
Return on equity is defined as net earnings for the year divided by
stockholders' equity as of the beginning of the year. Revenue is defined as
net sales. Average return on equity will be the simple average of the return
on equity for each of the two years. Average revenue growth will be the simple
average of the percentage growth from the prior year for each of the two
years. All calculations will be based on the figures reported to shareholders
in each year's annual report. There will be no adjustments for extraordinary
or nonrecurring items. All calculations will be rounded to two decimals.
EXHIBIT 10.6
RETIREMENT PLAN FOR OUTSIDE DIRECTORS
AMENDED AND RESTATED
Federal Screw Works (the "Company") hereby adopts this Retirement
Plan for Outside Directors (the "Plan"), effective August 12, 1994, as
restated effective February 24, 1995.
1. An annual honorarium shall continue to be paid to an Outside
Director who has served at least five (5) years on the Board who hereafter
retires, dies, or is not re-elected to the Board. Upon the death of the
Director, payment shall be made, or continue to be made, to the Director's
surviving spouse or to any trust if, and so long as, the surviving spouse is
an income beneficiary thereof or to such Contingent Beneficiary as was
designated as such in writing by the Director. The payments shall be made for
the number of years of the Director's Board service but not to exceed a total
of fifteen (15) years if paid to the Director, his surviving spouse, or such
trust. If less than ten (10) such annual payments have been made in the
aggregate to the Director and his surviving spouse or such spousal trust, the
remainder of such payments, but not to exceed a total of ten (10) in the
aggregate, shall be paid to the Contingent Beneficiary designated by the
Director. The annual aggregate payment shall be either the base Director
annual honorarium in effect at the time of such event (excluding separate
compensation as Committee Chairman and excluding any Meeting fees), or
Eighteen Thousand ($18,000.00) Dollars, whichever is greater. The payment
shall be made quarterly in arrears.
2. An Outside Director who has had prior service on the Board
while serving as an Officer of the Company and who has retired from such
office but
1
<PAGE>
continues serving as a Member of the Board of Directors will qualify to
receive payments under this plan after serving at least one (1) year as an
Outside Director. The benefit for such a Director shall be calculated as if
his entire Board service had been as an Outside Director.
3. "Outside Director" is defined as a Director who is not an
Officer of the Company.
4. The Chief Executive Officer is authorized to approve, on
behalf of the Company, such trust or other agreement as shall provide security
which he considers appropriate for confirmation of this Company obligation.
2
Federal Screw Works [logo]
1995 Annual Report
1
<PAGE>
Board of Directors
Thomas W. Butler, Jr.**+
President, Thomas W. Butler and
Associates, Inc., Business Consultants
Hugh G. Harness*
Business Consultant, Retired President and
Chief Operating Officer of the Company
John J. Slavin**+
President of Professional Corporation
law firm since 1969. Since April 1992, of
Counsel to the Dykema Gossett law firm which
provides legal services to the Company
F. D. Tennent**+
Business Consultant; Retired Senior
Vice President -- Finance, Secretary &
Treasurer of the Company
Robert F. ZurSchmiede*
Vice President of the Company -- Romulus
Divisions
Thomas ZurSchmiede*
President and Chief Operating Officer of the
Company
W. T. ZurSchmiede, Jr.*+
Chairman of the Board & Chief Executive Officer;
Chief Financial Officer; Secretary & Treasurer
of the Company
Executive Officers
W. T. ZurSchmiede, Jr.
Chairman of the Board & Chief Executive Officer;
Chief Financial Officer; Secretary & Treasurer
Thomas ZurSchmiede
President and Chief Operating Officer
John M. O'Brien
Vice President -- Sales and Marketing
Robert F. ZurSchmiede
Vice President -- Romulus Divisions
Jeffrey M. Harness
Vice President -- Chelsea and Novex
Tool Divisions
*Member of
Executive Committee
**Member of Audit
and Restricted
Stock Bonus Committees
+Member of Salary Compensation
Committee
2
<PAGE>
Financial Highlights
Federal Screw Works
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Years Ended June 30 1995 1995 1994 1993
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Net sales $90,503 $80,713 $73,050
Earnings before federal
income taxes 6,388 4,030 2,918
Federal income taxes 2,147 1,308 912
Net earnings 4,241 2,722 2,006
Depreciation and
amortization 3,135 2,709 2,435
Capital expenditures 7,443 6,169 4,393
Working capital 11,526 9,141 9,923
Cash dividends declared 870 653 654
Stockholders' equity 30,957 27,464 25,872
Per Share Data
- --------------
Net earnings $3.90 $2.50 $1.84
Cash dividends declared .80 .60 .60
Average number of shares
outstanding:
1995 -- 1,086,954;
1994 -- 1,087,955;
1993 -- 1,089,306
</TABLE>
Annual Meeting
October 26, 1995, 10 a.m.
Federal Screw Works
2400 Buhl Building
Detroit, Michigan 48226
Transfer Agent
State Street Bank & Trust Company
Registrar
State Street Bank & Trust Company
Federal Screw Works
Corporate Offices:
2400 Buhl Building
Detroit, Michigan 48226
Telephone: 313/963-2323
Division locations: Big Rapids, Brighton,
Chelsea, Romulus, Michigan.
10-K Available:
Copies of the 1995 Form 10-K including the financial statements and schedules
as filed with the Securities and Exchange Commission may be obtained without
charge by the Stockholders from the Company upon written request to the
Secretary. Exhibits will likewise be supplied upon payment of a reasonable fee.
Federal Screw Works shares are traded on the National Over-The-Counter Market.
The Company's NASDAQ symbol is FSCR.
3
<PAGE>
To Our Shareholders:
The Company reports net earnings for the fiscal year ended June 30, 1995, of
$4,241,000 or $3.90 per share, on sales of $90,503,000. For the year ended
June 30, 1994, the Company reported net earnings of $2,722,000, or $2.50 per
share, on sales of $80,713,000. Net earnings for the fourth quarter ended June
30, 1995, were $1,716,000, or $1.58 per share, on sales of $24,017,000. Net
earnings for the fourth quarter ended June 30, 1994, were $1,843,000, or $1.69
per share, on sales of $22,960,000. The reported earnings for each year are
after non-cash FAS 106 post-retirement health benefit charges of $1,231,000
and $1,269,000, respectively ($314,000 and $339,000, respectively, for the
fourth quarter).
The Company's financial performance in fiscal 1995 was extremely gratifying.
Cost reduction programs by our two largest customers continue. Raw material
and processing increases, as well as health care costs, are also of great
concern. However, net sales increased by $10 million and significant
productivity improvements were realized. With these things in mind, net
profits were up 56% for the year.
We believe the new fiscal year will also be strong. New product programs at
our major divisions have expanded the range of products we bring to the
market. Substantial process improvements have also been completed at both the
Company's Steel Processing Division and Novex Tool Division, which will
enhance the fundamental competitiveness of the larger divisions. Further, the
new Technical Center in Romulus brings more resources to bear on the
continuing demand for product innovation and new technology. Capital
investment in fiscal 1995 was $7.4 million, a new Company record.
At its August 10 meeting, the Board of Directors approved the payment of a
$.10 a share regular dividend and a $.70 share extra dividend payable October
2nd to Shareholders of record September 8th, 1995.
Thomas ZurSchmiede
President
W. T. ZurSchmiede, Jr.
Chairman
4
<PAGE>
The Company
Industry Information
Federal Screw Works is a domestic manufacturer of industrial component parts,
consisting of locknuts, bolts, piston pins, studs, bushings, shafts and other
machined, cold formed, hardened and/or ground metal parts, all of which
constitute a single business segment.
The Company's products are manufactured at several plants and are fabricated
from metal rod and bar, which are generally available at competitive prices
from multiple sources. Production is in high-volume job lots to the
specification of original equipment manufacturers and sold to them for
incorporation into their assemblies. The majority of these sales are to
manufacturers of automobiles and trucks, with the balance being mainly to
manufacturers of nonautomotive durable goods.
Operating Divisions
The Company's industrial component parts are manufactured in six plants
located throughout lower Michigan. The Company presently employs approximately
502 hourly-rated and salaried personnel. A brief description of each division
follows.
The Big Rapids Division in Big Rapids, Michigan, manufactures special
high-strength bolts and other cold formed products using boltmakers and
headers as primary equipment. Among the items manufactured to both inch and
metric specifications are hex head bolts, connecting rod bolts, studs and
flange bolts. The 160,000 square foot plant is situated on 25 acres of land,
and contains heat treat facilities for hardening in-process parts. The
annealing and pickling of the steel used at Big Rapids is generally performed
at the Romulus Steel Processing Division.
The Romulus Division is housed in a 100,000 square foot plant, on 22 acres of
land, in Romulus, Michigan. This division uses nutformers as primary equipment
to manufacture special prevailing torque locknuts. Products include locknuts,
connecting rod nuts, and other special nut products, in both metric and inch
sizes. The plant has its own furnace for heat treating in-process parts.
Annealing and pickling of the steel coils used in manufacturing nut products
are performed by the adjacent Romulus Steel Processing Division.
The parts produced at the above divisions are sold principally to the
automotive market. These parts are mass produced, and most are shipped
directly to car assembly plants.
Steel rod annealing, picking and drawing facilities are provided at the 38,000
square foot Romulus Steel Processing Division plant on a tract of land it
shares with the Romulus Division. A significant amount of the output of this
facility is converted to finished products by Federal Screw Works' bolt and
nut making operations. Excess capacity is used to process steel rod belonging
to other companies, mainly in the cold heading industry.
5
<PAGE>
The Company
Continued
The Novex Tool Division occupies a 19,000 square foot leased facility in
Brighton, Michigan. The lease expires in December, 1995. The Division
manufactures perishable tooling, primarily for the cold heading industry. More
than one-half of its output is consumed by the Company's Romulus and Big
Rapids Divisions.
The Chelsea Division is located in Chelsea, Michigan, in a plant having
approximately 86,000 square feet. Primary equipment consists of automatic
screw machines and rotary index machines capable of making products from 1/16
inch to 2-3/4 inches in diameter. Chelsea Division fabricates a wide variety
of precision parts including piston pins, bushings, fittings, special
fasteners, valve components, sleeves, shafts, gear blanks and the like. These
parts are generally produced in large volume lots and delivered direct to
manufacturers of products such as compressors, automobiles, transmissions and
small engines.
In August, 1994, the Company leased a 16,000 square foot facility in Romulus
to conduct engineering and manufacturing development activities. This
facility, known as the Technical Center, gives us sufficient room to try out
new primary and secondary equipment, tooling, and parts feeding and automation
devices, as well as permitting us to rebuild recently purchased used equipment.
This facility has been of major assistance during the fiscal year just
concluded.
The Company's corporate offices are located in the Buhl Building in downtown
Detroit where the Company occupies 12,000 square feet of space under a five
year lease expiring in 1999 (renewable for an additional 5 years).
The Company owns outright all of the above described buildings, land, and
production facilities except as specifically noted to the contrary. The
Company utilizes all of the floor space of these structures. Present facilities
are adequate to meet the needs of each respective division.
6
<PAGE>
Financial Review
Federal Screw Works
<TABLE>
<CAPTION>
Quarterly Operating Results (Dollars in thousands, except per share data)
1st 2nd 3rd 4th For the
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
1995
Net sales $19,838 $21,734 $24,914 $24,017 $90,503
Gross profit 1,977 2,541 3,386 3,959 11,863
Net earnings 532 852 1,141 1,716 4,241
Net earnings per share $ .49 $ .78 $ 1.05 $ 1.58 $ 3.90
Cash dividends per share .50 .10 .10 .10 .80
1994
Net sales $16,653 $18,919 $22,181 $22,960 $80,713
Gross profit 1,011 1,332 2,209 4,504 9,056
Net earnings 6 209 664 1,843 2,722
Net earnings per share $ .01 $ .19 $ .61 $ 1.69 $ 2.50
Cash dividends per share .30 .10 .10 .10 .60
<FN>
Net earnings for the fourth quarter of 1995 and 1994 were favorably affected
by year end adjustments, principally inventory ($841,284
or $.77 per share and $683,000 or $.63 per share, respectively).
</TABLE>
These are the quarterly high and low bid quotations as reported by the
National Association of Securities Dealers for the Company's common stock,
which is traded over the counter (under the NASDAQ symbol FSCR).
<TABLE>
<CAPTION>
Stock Prices 1995 1994
---------------- -----------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter $20 $16-3/4 $18-1/2 $15-1/4
2nd Quarter 20-1/2 18-3/4 17-3/4 15-1/2
3rd Quarter 21 18-3/4 17-1/2 15-1/2
4th Quarter 23-1/2 17-1/8 18 16
</TABLE>
7
<PAGE>
Financial Review
Continued
Federal Screw Works
<TABLE>
<CAPTION>
Selected Financial Data
Years Ended June 30 (Dollars in thousands, except per share data)
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $90,503 $80,713 $73,050 $67,618 $57,147
Cost of products sold 78,640 71,657 65,669 59,824 53,042
Interest expense 559 470 494 510 642
Earnings (loss) before federal income
taxes and cumulative effect of
accounting change 6,388 4,030 2,918 2,984 (475)
Federal income taxes (credit) 2,147 1,308 912 964 (248)
Earnings (loss) before cumulative
effect of accounting change 4,241 2,722 2,006 2,020 (227)
Cumulative effect of accounting change 450
Net earnings 4,241 2,722 2,006 2,020 223
--------- --------- --------- --------- ---------
Average number of shares of
common stock outstanding 1,086,954 1,087,955 1,089,306 1,103,610 1,139,418
--------- --------- --------- --------- ---------
Per share of common stock:
Earnings (loss) before cumulative
effect of accounting change $3.90 $2.50 $1.84 $1.83 $(.20)
Cumulative effect of accounting change .40
Net earnings 3.90 2.50 1.84 1.83 .20
Cash dividends .80 .60 .60 .40 .60
--------- --------- --------- --------- ---------
Total assets $61,302 $52,925 $49,205 $46,952 $42,761
Long-term debt 8,700 6,020 6,385 6,880 6,170
--------- --------- --------- --------- ---------
</TABLE>
8
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Federal Screw Works recorded net sales of $90.5 million in fiscal 1995, which
represented a 12.1% increase from fiscal 1994 sales of $80.7 million. Net
sales for fiscal 1994 increased 11% from fiscal 1993 sales of $73.0 million.
Like 1994, the increase in fiscal 1995 sales resulted from new automotive
parts programs, greater automotive production and an increase in non-
automotive business. The number of pieces shipped increased in each of the
last two fiscal years.
Gross profits increased 31% to $11.9 million in fiscal 1995, a $2.8 million
increase from fiscal 1994. Fiscal 1994 gross profits increased 23% to $9.1
million compared to the $7.4 million level realized in 1993. The 1995 increase
resulted primarily from greater sales and increased manufacturing efficiency,
offset in part by heavy price concessions which continued to be required by
our customers. These concessions are a part of the competitive environment and
will be with us for the foreseeable future. Other factors negatively impacting
our gross profits in 1995 included higher labor, plating and packaging costs.
Our Shareholders are aware of the Company's dependence upon sales to the two
largest U.S. automobile manufacturers, a condition that has existed for at
least fifty years. Among the parts we sell to the automotive market, however,
are several expanding groups of specially engineered and high precision cold
headed parts that are less subject to competitive pressure than are standard
fasteners. We have also increased our shipments to the refrigeration
compressor and small engine market to approximately ten percent of our total
sales. This market has been growing at a faster rate than our automotive
business in recent years. Sales to customers outside North America are
increasing but still are not material.
No significant competitors of the Company went out of business during 1995,
although several were acquired by other fastener companies, or are for sale.
We believe that there will be continuing reductions in the number of U.S.
owned competitors. Over the longer term we can expect increasing competition
from the so-called "transplant" fastener suppliers who supply the Japanese
owned automobile manufacturers with whom our Company presently enjoys little
business. Although it seems clear that these suppliers desire to increase
their business with the U.S. owned automobile manufacturers, we do not believe
that competition from these companies will significantly impact the Company in
the near term.
As a percentage of net sales, selling, general and administrative expenses
decreased to 5.4% in fiscal 1995. In fiscal 1994 and fiscal 1993 these
expenses were 5.6% and 5.4% of net sales, respectively.
Interest expense increased in fiscal 1995 by 19% from fiscal 1994 levels.
Average borrowings under the
9
<PAGE>
The Company
Continued
Federal Screw Works
Company's bank credit agreement were up, and average interest rates were
higher. Interest expense in fiscal 1994 decreased by 4.8% from fiscal 1993
levels because lower average interest rates more than offset the increase in
average bank borrowings.
The Company has been designated by the federal Environmental Protection Agency
("EPA") as a Potentially Responsible Party ("PRP") with respect to three
related dump sites. The sites are related in that the PRPs engaged a single
transporter who illegally disposed of toxic and hazardous waste materials
there in the late 1960s. The sites are located in Oakland County, Michigan,
and are referred to as the Springfield Township, the Rose Township and
Cemetery Dump Sites. While the Company denies it has engaged in disposing of
any materials at any of the sites, the Company together with eleven other PRPs
has actively participated in negotiations directed toward settlement of the
EPA's claims. The Rose Township Site was the first site selected by the EPA
for remediation. The participating PRPs were successful in negotiating a
Consent Decree which was approved by the United States District Court for the
Eastern District of Michigan under which the Company has agreed to participate
in the cost of the clean up. These costs are not expected to have a material
effect on the Company's financial statements. The State of Michigan appealed
the Consent Decree to the United States Court of Appeals for the Sixth Circuit
which affirmed entry of the Decree.
The same PRPs have actively been engaged in negotiations with the EPA and the
Michigan Department of Natural Resources in an effort to agree upon mutually
acceptable remediation parameters for the Springfield Township site. While
agreement has not yet been reached upon an overall remediation method,
remediation is occurring on an interim basis. Remediation costs for which the
Company may become liable are not expected to have a material effect on the
Company's financial statements. With respect to the Cemetery site, no
investigation has been undertaken to the Company's knowledge which would
identify any costs to be incurred by the Company which might have a material
effect on the Company's financial statements. The EPA has added this site to
its Sites Awaiting Deletion List.
Dividends
Cash dividends declared in fiscal year 1995 were $.80 per share, $.20 more
than those declared in fiscal 1994 and fiscal 1993. The Board of Directors in
August, 1995, declared a $.10 per share quarterly dividend, and an extra
dividend of $.70 per share.
Liquidity and Capital Resources
The Company has received a commitment for a new Revolving Credit and Term Loan
Agreement permitting increased borrowings of up to $25 million and capital
expenditures of $10 million annually. Under the existing Revolving Credit and
Term
10
<PAGE>
The Company
Continued
Federal Screw Works
Loan Agreement amended in 1993 borrowings of up to $16.0 million are permitted
with the option to convert borrowings under the facility to a term note
through October 31, 1995, the expiration date of the agreement. Payments under
the term note, if the conversion option were exercised, would be made
quarterly and could extend to October 31, 1997. Therefore borrowings under the
Revolving Credit and Term Loan Agreement, which amounted to $7,300,000 at June
30, 1995 ($4,220,000 at June 30, 1994) are classified as long-term debt.
Working capital at June 30, 1995 amounted to $11,526,000 as compared to
working capital of $9,141,000 at June 30, 1994.
The balance sheet at June 30, 1995 includes a long-term liability of
$3,400,000 representing the unfunded accumulated benefit obligations of
certain employee pension plans. The excess of this liability over the
unrecognized prior service cost at the date of transition is included as a
reduction of stockholders' equity. The funding policies of these plans, which
are based on actuarial calculations, continue to comply with applicable laws
and regulations.
As discussed in Note 6 to the financial statements, effective July 1, 1993,
the Company adopted FASB No. 106. The Statement requires that the projected
future cost of providing benefits, such as health care and life insurance, be
recognized as an expense as employees render service instead of when the
benefits are paid. The Statement provides two alternatives for recognizing the
cumulative effect of the accounting change. The first alternative is to
recognize the cumulative effect as a charge against income in the year of
adoption or, alternatively, to recognize the cumulative effect on a
prospective basis as a part of future annual benefit cost. The Company elected
the prospective approach and amortized the present value of future benefits
related to employees past service ($17,967,000) over a period of 20 years. The
adoption of this accounting pronouncement has no impact on the Company's cash
flows.
Cash flows from operating activities approximated $4.4 million in fiscal 1995.
This compares to $7.0 million in 1994 and $5.0 million in 1993. In 1995 net
earnings plus depreciation generated cash flows of $7.4 million, $3.0 million
of which was reinvested in elements of working capital.
Capital expenditures for fiscal 1995 were $7.4 million primarily related to
the purchase and modernization of equipment in order to improve production
efficiencies, maintain existing business and enable the Company to address new
opportunities. Capital expenditures in fiscal years 1994 and 1993 were $6.2
million and $4.4 million, respectively. Expenditures for additional equipment
during fiscal 1996 are presently expected to approximate $5.8 million, of
which $1.9 million had been committed as of June 30, 1995. These future
capital expenditures are expected to be financed from cash generated from
operations
11
<PAGE>
The Company
Continued
Federal Screw Works
and additional borrowing capacity under the bank credit agreement.
Net cash provided by financing activities was $1.8 million in fiscal 1995,
compared with uses of cash of $1.0 million in 1994 and $1.2 million in 1993.
Fluctuations in these activities have been influenced principally by
borrowings and repayments under the Company's Revolving Credit and Term Loan
Agreement and by purchases of its common stock.
Impact of Inflation and Changing Prices
The Company passes increased costs on to customers, to the extent permitted by
competition, by increasing sales prices whenever possible. In fiscal 1995,
1994 and 1993 the Company was generally unable to pass on cost increases
incurred due to competitive pressures. Sales price increases in each of these
years were insignificant.
12
<PAGE>
Statements of Operations
Federal Screw Works
<TABLE>
<CAPTION>
Year Ended June 30
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
Net sales $90,502,562 $ 80,712,542 $73,049,876
Costs and expenses:
Cost of products sold 78,639,970 71,657,160 65,668,747
Selling, general and administrative 4,915,987 4,555,136 3,969,289
Interest 559,092 470,199 493,816
----------- ------------ -----------
84,115,049 76,682,495 70,131,852
----------- ------------ -----------
EARNINGS BEFORE FEDERAL INCOME TAXES 6,387,513 4,030,047 2,918,024
Federal income taxes--Note 4:
Current 1,846,000 1,571,000 693,000
Deferred (credit) 301,000 (263,000) 219,000
----------- ------------ -----------
2,147,000 1,308,000 912,000
----------- ------------ -----------
NET EARNINGS $ 4,240,513 $ 2,722,047 $ 2,006,024
=========== ============ ===========
Average number of shares outstanding 1,086,954 1,087,955 1,089,306
=========== ============ ===========
Net earnings per share $3.90 $2.50 $1.84
=========== ============ ===========
<FN>
See accompanying notes.
</TABLE>
13
<PAGE>
Balance Sheets
Federal Screw Works
<TABLE>
<CAPTION>
June 30
1995 1994
------------ ------------
Assets
<S> <C> <C>
Current Assets
Cash $ 394,902 $ 1,373,502
Accounts receivable 10,237,968 9,319,628
------------ ------------
Inventories--Note 1:
Finished products 3,635,783 2,296,944
In-process products 6,163,400 4,749,781
Raw materials and supplies 3,336,734 1,709,839
------------ ------------
13,135,917 8,756,564
Prepaid expenses and other current accounts 502,380 445,203
Deferred income taxes--Note 4 91,000 625,000
------------ ------------
TOTAL CURRENT ASSETS 24,362,167 20,519,897
Other Assets
Intangible pension asset--Note 5 2,623,494 2,964,263
Cash value of life insurance 4,730,368 4,622,030
Miscellaneous 972,898 451,760
------------ ------------
8,326,760 8,038,053
Property, Plant and Equipment--Notes 2 and 3
Land 337,934 388,353
Buildings and improvements 8,684,213 6,885,136
Machinery and equipment 59,551,880 54,636,838
------------ ------------
68,574,027 61,910,327
Less accumulated depreciation 39,960,749 37,543,739
------------ ------------
28,613,278 24,366,588
------------ ------------
$ 61,302,205 $ 52,924,538
============ ============
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
June 30
1995 1994
------------ ------------
Liabilities and Stockholders' Equity
<S> <C> <C>
Current Liabilities
Accounts payable $ 4,607,066 $ 2,984,742
Payroll and employee benefits 4,856,601 4,834,617
Dividend payable 108,666 108,761
Federal income taxes 349,455 684,433
Taxes, other than income taxes 1,283,709 1,022,990
Accrued pension contributions 481,410 920,799
Other accrued liabilities 749,072 422,788
Current maturities of long-term debt 400,000 400,000
------------ ------------
TOTAL CURRENT LIABILITIES 12,835,979 11,379,130
Long-Term Liabilities
Long-term debt--Note 2 8,700,000 6,020,000
Unfunded pension obligation--Note 5 3,399,530 4,048,851
Deferred income taxes--Note 4 341,000 604,000
Employee benefits 1,323,899 1,417,513
Postretirement benefits--Note 6 3,744,665 1,879,813
Other liabilities -- 110,872
------------ ------------
17,509,094 14,081,049
Stockholders' Equity--Notes 2 and 8
Common stock, $1 par value, authorized
2,000,000 shares, 1,086,662 and 1,087,612
shares outstanding at June 30, 1995 and
1994, respectively 1,086,662 1,087,612
Additional capital 2,772,628 2,579,475
Retained earnings 28,364,643 25,006,409
Unfunded pension costs (1,266,801) (1,209,137)
------------ ------------
30,957,132 27,464,359
------------ ------------
$ 61,302,205 $ 52,924,538
============ ============
<FN>
See accompanying notes.
</TABLE>
15
<PAGE>
Statements of
Stockholders' Equity
Federal Screw Works
<TABLE>
<CAPTION>
Years ended June 30, 1995, 1994 and 1993
Unfunded
Common Additional Retained Pension
Stock Capital Earnings Costs Total
----------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JULY 1, 1992 $ 1,089,933 $2,183,548 $ 21,606,857 $ (419,265) $ 24,461,073
Net earnings for the year -- -- 2,006,024 -- 2,006,024
Purchase of 1,194 shares (1,194) -- (13,398) -- (14,592)
Transactions under restricted
stock bonus plans--net -- 212,068 -- -- 212,068
Unfunded pension costs,
net of taxes -- -- -- (138,691) (138,691)
Cash dividends declared--
$.60 per share -- -- (653,657) -- (653,657)
----------- ---------- ------------ ----------- ------------
BALANCES AT JUNE 30, 1993 1,088,739 2,395,616 22,945,826 (557,956) 25,872,225
Net earnings for the year -- -- 2,722,047 -- 2,722,047
Purchase of 564 shares (564) -- (8,652) -- (9,216)
Transactions under restricted
stock bonus plans--net (563) 183,859 -- -- 183,296
Unfunded pension costs,
net of taxes -- -- -- (651,181) (651,181)
Cash dividends declared--
$.60 per share -- -- (652,812) -- (652,812)
----------- ---------- ------------ ----------- ------------
BALANCES AT JUNE 30, 1994 1,087,612 2,579,475 25,006,409 (1,209,137) 27,464,359
Net earnings for the year -- -- 4,240,513 -- 4,240,513
Purchase of 700 shares (700) -- (12,600) -- (13,300)
Transactions under restricted
stock bonus plans--net (250) 193,153 -- -- 192,903
Unfunded pension costs,
net of taxes -- -- -- (57,664) (57,664)
Cash dividends declared--
$.80 per share -- -- (869,679) -- (869,679)
----------- ---------- ------------ ----------- ------------
BALANCES AT JUNE 30, 1995 $ 1,086,662 $2,772,628 $ 28,364,643 $(1,266,801) $ 30,957,132
=========== ========== ============ =========== ============
<FN>
( ) Denotes deduction.
See accompanying notes.
</TABLE>
16
<PAGE>
Statements of
Cash Flows
Federal Screw Works
<TABLE>
<CAPTION>
Year Ended June 30
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 4,240,513 $ 2,722,047 $ 2,006,024
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 3,134,940 2,709,245 2,435,001
Increase in cash value of life insurance (108,338) (129,788) (184,901)
Change in deferred income taxes 271,000 (598,000) 147,000
Employee benefits 1,771,238 1,882,819 (139,780)
Amortization of restricted stock 76,904 107,296 149,068
Other (1,133,807) (627,249) 306,502
Changes in operating assets and liabilities:
Accounts receivable (918,340) (26,672) (1,258,434)
Inventories and prepaid expenses (4,436,530) (717,295) 611,971
Accounts payable and accrued expenses 1,456,849 1,628,423 943,183
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,354,429 6,950,826 5,015,634
INVESTING ACTIVITES
Purchases of property, plant and equipment (7,443,353) (6,168,569) (4,393,112)
Proceeds from sale of property,
plant and equipment 313,304 401,722 402,148
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (7,130,049) (5,766,847) (3,990,964)
FINANCING ACTIVITIES
Additional borrowings (principal repayments)
under bank credit agreement 3,080,000 35,000 (95,000)
Principal payments on lease-purchase obligation (400,000) (400,000) (400,000)
Purchases of common stock (13,300) (9,216) (14,592)
Dividends paid (869,680) (652,943) (653,757)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,797,020 (1,027,159) (1,163,349)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH (978,600) 156,820 (138,679)
Cash at beginning of year 1,373,502 1,216,682 1,355,361
----------- ----------- -----------
CASH AT END OF YEAR $ 394,902 $ 1,373,502 $ 1,216,682
=========== =========== ===========
<FN>
See accompanying notes.
</TABLE>
17
<PAGE>
Notes to
Financial Statements
Federal Screw Works
Note 1--Significant Accounting Policies
Inventories: Inventories are stated at the lower of cost or market. Cost
determined by the last-in, first-out (LIFO) method was used for certain raw
material inventories, $2,617,090 and $1,173,414 at June 30, 1995 and 1994,
respectively. The remaining inventories are costed using the first-in,
first-out (FIFO) method. If inventories had been valued at current cost,
amounts reported at June 30 would have been increased by $763,000 in 1995 and
$683,000 in 1994.
Property, Plant and Equipment: Property, plant and equipment is stated at
cost, which includes the cost of interest which is capitalized during
construction of significant additions. Provisions for depreciation, are based
upon the estimated useful lives of the respective assets and are computed by
the straight-line method for financial reporting purposes and by accelerated
methods for income tax purposes.
Income Taxes: Income taxes have been provided using the liability method.
Note 2--Debt
Long-term debt at June 30 consists of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Revolving credit note payable to bank $7,300,000 $4,220,000
Lease-purchase obligation (see Note 3), payable
$200,000 semiannually, plus interest at 7-3/4% 1,800,000 2,200,000
---------- ----------
9,100,000 6,420,000
Less current maturities 400,000 400,000
---------- ----------
$8,700,000 $6,020,000
========== ==========
</TABLE>
The Company has a $16,000,000 revolving credit and term loan agreement with a
bank. The Company has the option to convert borrowings thereunder (classified
as long-term debt) to a term note through October 31, 1995, 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, 1997.
Interest (7.25% at June 30, 1995) on outstanding borrowings is determined
based on the prime rate, or at the Company's option, an alternative variable
market rate. The Company also pays a commitment fee of 3/8% on the unused
portion of the revolving credit.
The Company is in compliance with covenants of the revolving credit and term
loan agreement and the lease-purchase obligation including restrictions on
payment of cash dividends. Retained earnings of $5,962,000 are free of
restriction at June 30, 1995.
Interest paid by the Company during fiscal 1995, fiscal 1994 and fiscal 1993
aggregated $735,000, $591,000, and $548,000, respectively.
18
<PAGE>
Notes to
Financial Statements
Continued
Federal Screw Works
Note 3--Leases and Other Commitments
The Company acquired one of its manufacturing facilities under a
lease-purchase agreement with a municipality, and $1,800,000 of remaining
outstanding Industrial Revenue Bond financing is guaranteed by the Company at
June 30, 1995.
At June 30, 1995, the aggregate minimum rental commitments for the Industrial
Revenue Bond lease-purchase obligation and various noncancelable operating
leases with initial terms of one year or more are as follows:
<TABLE>
<CAPTION>
Lease-
Purchase Operating
Year ending June 30 Obligation Leases
- ------------------- ---------- ----------
<C> <C> <C>
1996 $ 531,750 $ 635,000
1997 500,750 463,000
1998 469,750 273,000
1999 438,750 240,000
2000 207,750 203,000
---------- ----------
Total minimum lease payments $2,148,750 $1,814,000
==========
Amounts representing interest 348,750
----------
Present value of net minimum lease payments $1,800,000
==========
</TABLE>
Total rent expense (exclusive of the lease-purchase obligation) was $731,000
in fiscal 1995, $786,000 in fiscal 1994, and $768,000 in fiscal 1993.
Commitments to purchase machinery and equipment approximated $1,900,000 at
June 30, 1995.
19
<PAGE>
Notes to
Financial Statements
Continued
Federal Screw Works
Note 4--Federal Income Taxes
A reconciliation of the federal income tax provision to the amount computed by
applying the applicable statutory federal income tax rate (34%) to earnings
before federal income taxes follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ---------
<S> <C> <C> <C>
Computed amount $ 2,172,000 $ 1,370,000 $ 992,000
Life insurance policies (67,000) (72,000) (86,000)
Other 42,000 10,000 6,000
----------- ----------- ---------
Total federal income tax provision $ 2,147,000 $ 1,308,000 $ 912,000
=========== =========== =========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of June 30, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- -----------
<S> <C> <C>
Deferred tax liabilities:
Accelerated tax depreciation $2,964,000 $ 2,574,000
---------- -----------
Total deferred tax liabilities 2,964,000 2,574,000
---------- -----------
Deferred tax assets:
Employee benefits 2,510,000 2,393,000
Inventory 131,000 95,000
Other 73,000 107,000
---------- -----------
Total deferred tax assets 2,714,000 2,595,000
---------- -----------
Net deferred tax liabilities (assets) $ 250,000 $ (21,000)
========== ===========
</TABLE>
Income taxes paid by the Company during fiscal 1995, fiscal 1994, and fiscal
1993 totalled $2,065,000, $1,287,000, and $331,000, respectively.
20
<PAGE>
Notes to
Financial Statements
Continued
Federal Screw Works
Note 5--Employee Benefits
The Company sponsors four defined benefit pension plans covering substantially
all employees. Benefits under three 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. Plan assets for these plans consist
principally of fixed income instruments, equity securities and participation
in insurance company contracts.
A summary of the components of net pension expense, is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Service cost $ 465,000 $ 463,000 $ 409,000
Interest cost 1,356,000 1,316,000 1,213,000
Actual return on plan assets (793,000) (549,000) (1,099,000)
Net amortization and deferral (14,000) (234,000) 401,000
----------- ----------- -----------
$ 1,014,000 $ 996,000 $ 924,000
=========== =========== ===========
</TABLE>
In accounting for pension plans, the Company used a discount rate of 8%, a 5%
rate of increase in compensation, and an 8% expected rate of return on assets.
The following table sets forth the plans' funded status at the March 31, 1995
and 1994 measurement dates:
21
<PAGE>
Notes to
Financial Statements
Continued
Federal Screw Works
<TABLE>
<CAPTION>
Plans for Which Plans for Which
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
-------------------------- ----------------------------
1995 1994 1995 1994
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Actuarial present value of
vested benefit obligations $ 5,300,000 $ 5,007,000 $ 11,071,000 $ 10,984,000
=========== =========== ============ ============
Actuarial present value of
accumulated benefit obligations $ 5,479,000 $ 5,441,000 $ 11,282,000 $ 11,195,000
=========== =========== ============ ============
Plan assets at fair value $ 8,195,000 $ 7,729,000 $ 7,024,000 $ 5,975,000
Projected benefit obligations 6,477,000 6,921,000 11,282,000 11,195,000
----------- ----------- ------------ ------------
Excess (deficiency) of assets
over projected benefit obligations 1,718,000 808,000 (4,258,000) (5,220,000)
Unrecognized net loss 358,000 12,000 2,302,000 1,955,000
Unrecognized prior service cost (141,000) 693,000 538,000 583,000
Unrecognized net (asset)
liability at transition (1,047,000) (1,120,000) 2,492,000 2,508,000
Additional liability
recognized under the
minimum liability provisions -- -- (4,925,000) (4,796,000)
----------- ----------- ------------ ------------
Net pension asset (liability) $ 888,000 $ 393,000 $ (3,851,000) $ (4,970,000)
=========== =========== ============ ============
</TABLE>
In 1995, the Company established a retirement plan for directors who are not
employees of the Company. The cost for this plan, including prior service
cost, was $290,000 in 1995 and the actuarial present value of vested benefit
obligations was $518,000 at June 30, 1995. The plan is currently unfunded.
22
<PAGE>
Notes to
Financial Statements
Continued
Federal Screw Works
Note 6--Other Postretirement Benefits
In addition to providing pension benefits, the Company provides certain health
care and life insurance benefits for retired employees. Substantially all of
the Company's employees may become eligible for those benefits if they reach
normal retirement age while working for the Company. The benefits are provided
through certain insurance companies.
Effective July 1, 1993, the Company adopted FASB Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." The
adoption of FAS No. 106 had the effect of increasing the Company's cost for
postretirement benefits. Postretirement benefit costs for fiscal 1993, which
were recorded on a cash basis, have not been restated.
The following table presents the plan's funded status reconciled with amounts
recognized in the Company's financial statements:
<TABLE>
<CAPTION>
June 30
1995 1994
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (9,538,000) $(10,010,000)
Fully eligible active plan participants (2,488,000) (2,077,000)
Other active plan participants (5,796,000) (5,660,000)
------------ ------------
(17,822,000) (17,747,000)
Unrecognized net (gain) or loss (2,093,000) (1,202,000)
Unrecognized transition obligation 16,170,000 17,069,000
------------ ------------
Accrued postretirement benefit cost $ (3,745,000) $ (1,880,000)
============ ============
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
Net periodic postretirement benefit cost
includes the following components:
Service cost $ 432,000 $ 409,000
Interest cost 1,420,000 1,438,000
Amortization of transition obligation
over 20 years 898,000 898,000
---------- ----------
Net periodic postretirement benefit cost $2,750,000 $2,745,000 $840,000
========== ========== ========
</TABLE>
The weighted average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 10 percent for fiscal
1996 and 10.5 percent for fiscal year 1995 and is assumed to decrease
gradually to six percent for 2004 and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. For example, increasing the assumed health care cost trend rates by
one percentage point in each year would increase the accumulated
postretirement benefit obligation as of June 30, 1995 and 1994, by $2,199,000
and $2,131,000, respectively, and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for the year ended
June 30, 1995, by $239,000.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8% at June 30, 1995 and 1994.
23
<PAGE>
Notes to
Financial Statements
Continued
Federal Screw Works
Note 7--Industry Information
Federal Screw Works is a domestic manufacturer of industrial component parts,
consisting of locknuts, bolts, piston pins, studs, bushings, shafts and other
machined, cold formed, hardened and/or ground metal parts, all of which
constitute a single business segment.
The Company's products are manufactured at several plants and are fabricated
from metal rod and bar, which are generally available at competitive prices
from multiple sources. Production is in high-volume job lots to the
specification of original equipment manufacturers and sold to them for
incorporation into their assemblies. The majority of these sales are to
manufacturers of automobiles and trucks, with the balance being mainly to
manufacturers of nonautomotive durable goods.
Approximately 89% of the Company's net sales in fiscal 1995 (90% in both
fiscal 1994 and fiscal 1993) were made either directly or indirectly to
automotive companies. The Company generally does not require collateral from
its customers.
Customers comprising 10% or greater of the Company's net sales are summarized
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Ford Motor Company 46% 45% 45%
General Motors Corporation 22 26 27
All Others 32 29 28
--- --- ---
100% 100% 100%
--- --- ---
</TABLE>
Sales to customers outside the United States are not significant.
24
<PAGE>
Notes to
Financial Statements
Continued
Federal Screw Works
Note 8--Restricted Stock Bonus Plan
The Company maintains a restricted stock bonus plan for certain key employees.
Shares issued under the plan are subject to certain restrictions which lapse
generally over a period of six to ten years from date of grant. The market
value of shares issued, considered to be compensation, is being charged to
operations over the periods during which the restrictions lapse and the
unamortized compensation related to the outstanding restricted shares ($71,850
and $150,915 as of June 30, 1995 and 1994, respectively) has been deducted
from additional capital.
Note 9--Litigation
The Company is involved in various legal actions arising in the normal course
of business. Management, after taking into consideration legal counsel's
evaluation of such actions, is of the opinion that their outcome will not have
a significant effect on the Company's financial statements.
25
<PAGE>
Report of
Ernst & Young
Independent Auditors
Board of Directors
Federal Screw Works
We have audited the accompanying balance sheets of Federal Screw Works as of
June 30, 1995 and 1994, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended June 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Federal Screw
Works at June 30, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended June 30, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 6 to the financial statements, the Company changed its
method of accounting for postretirement benefits other than pensions in the
year ended June 30, 1994.
Detroit, Michigan
August 9, 1995
26
<PAGE>
Five Year Summary
Federal Screw Works
<TABLE>
<CAPTION>
Five Years Ended June 30 1995 1994 1993 1992 1991
- ------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operations (in thousands)
Net sales $ 90,503 $ 80,713 $ 73,050 $ 67,618 $ 57,147
Earnings (loss) before federal income
taxes and cumulative effect of
accounting change 6,388 4,030 2,918 2,984 (475)
Federal income taxes (credit) 2,147 1,308 912 964 (248)
Cumulative effect of accounting change 450
Net earnings 4,241 2,722 2,006 2,020 223
Depreciation and amortization 3,135 2,709 2,435 2,380 2,352
Capital expenditures 7,443 6,169 4,393 5,011 3,087
Cash dividends declared 870 653 654 439 687
---------- ---------- ---------- ---------- ----------
Per share data
Earnings (loss) before cumulative effect of
accounting change $ 3.90 $ 2.50 $ 1.84 $ 1.83 $ (.20)
Cumulative effect of accounting change .40
Net earnings 3.90 2.50 1.84 1.83 .20
Cash dividends declared .80 .60 .60 .40 .60
Book value 28.49 25.25 23.76 22.44 20.83
Market price range (OTC)
High 23-1/2 18-1/2 16-1/2 14-1/4 12
Low 16-3/4 15-1/4 11-1/4 8-1/2 8
---------- ---------- ---------- ---------- ----------
Return data
Net earnings on net sales 4.7% 3.4% 2.7% 3.0% 0.4%
Net earnings on stockholders' equity 13.7% 9.9% 7.8% 8.3% 1.0%
---------- ---------- ---------- ---------- ----------
Financial position at June 30 (in thousands)
Working capital (net current assets) $ 11,526 $ 9,141 $ 9,923 $ 10,247 $ 11,020
Other assets 8,327 8,038 8,375 8,288 8,331
Property, plant and equipment (net) 28,613 24,367 21,156 19,609 17,023
---------- ---------- ---------- ---------- ----------
Total assets less current liabilities 48,466 41,546 39,454 38,144 36,374
Less:
Long-term debt 8,700 6,020 6,385 6,880 6,170
Unfunded pension obligation 3,400 4,049 4,367 4,010 3,936
Deferred taxes 341 604 1,257 999 934
Employee benefits 1,324 1,418 1,415 1,554 1,594
Postretirement benefits 3,744 1,880
Other liabilities 111 158 240 328
---------- ---------- ---------- ---------- ----------
Stockholders' equity (net assets) $ 30,957 $ 27,464 $ 25,872 $ 24,461 $ 23,412
========== ========== ========== ========== ==========
Other
Number of employees 502 507 510 498 480
Approximate number of stockholders 644 671 722 760 775
Average shares outstanding 1,086,954 1,087,955 1,089,306 1,103,610 1,139,418
---------- ---------- ---------- ---------- ----------
</TABLE>
27
<PAGE>
Federal Screw Works
2400 Buhl Building
Detroit, Michigan 48226
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> $ 395
<SECURITIES> 0
<RECEIVABLES> 10,238
<ALLOWANCES> 0
<INVENTORY> 13,136
<CURRENT-ASSETS> 24,362
<PP&E> 68,574
<DEPRECIATION> 39,961
<TOTAL-ASSETS> 61,302
<CURRENT-LIABILITIES> 12,836
<BONDS> 1,400
<COMMON> 1,087
0
0
<OTHER-SE> 29,870
<TOTAL-LIABILITY-AND-EQUITY> 61,302
<SALES> 90,503
<TOTAL-REVENUES> 90,503
<CGS> 78,640
<TOTAL-COSTS> 83,556
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 559
<INCOME-PRETAX> 6,388
<INCOME-TAX> 2,147
<INCOME-CONTINUING> 4,241
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,241
<EPS-PRIMARY> 3.90
<EPS-DILUTED> 3.90
</TABLE>
