FORM 10-K
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
For the fiscal year ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________to___________
Commission file number 0-1837
FEDERAL SCREW WORKS
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-0533740
--------------------------- ------------------
(State or other jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
organization)
535 Griswold, Suite 2400, Detroit, Michigan 48226
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(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
<PAGE>
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1 par value
--------------------------
(Title of class)
DOCUMENT INCORPORATED BY REFERENCE
Certain information from the Proxy Statement of the Registrant dated
September 26, 1997 has been incorporated by reference in response or partial
response to Items 10, 11, 12 and 13 in this Report.
<PAGE>
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]
As of September 2, 1997, the aggregate market value of the common stock of
Registrant held by non-affiliates was $39,538,004.
The number of shares outstanding of each of the Registrant's classes of
common stock, as of September 2, 1997, is as follows:
Common stock, $1 Par Value-- 1,086,512 shares
--------------------------------------------
PART I
ITEM 1. BUSINESS.
Federal Screw Works (the "Registrant"), originally incorporated in Michigan
in 1919, 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 industry segment.
The Registrant'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 87% of the Registrant's net sales in fiscal 1997 (88% and 89%
in fiscal 1996 and fiscal 1995, respectively) were made either directly or
indirectly to automotive companies. The Registrant generally does not require
collateral from its customers.
While the Registrant holds a number of patents, it believes that the
successful continuation of its business is not dependent on any single patent
or group of patents, trademarks, or licenses. (The 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. The Registrant does not consider the royalty agreement to
be material to its business.)
No material portion of the business of the Registrant is seasonal in nature.
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.
The Registrant's Shareholders are aware of the Registrant's dependence upon
sales to the two largest U.S. automobile manufacturers, a condition that has
existed for at least fifty years.
Customers comprising 10% or greater of the Registrant's net sales are
summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Ford Motor Company 47% 48% 46%
General Motors Corporation 20% 22% 22%
All Others 33% 30% 32%
--- --- ---
100% 100% 100%
==== ==== ====
</TABLE>
As of August 31, 1997, 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 1998 fiscal year. The comparable backlog as of August 31,
1996 amounted to approximately $15,500,000.
No material portion of the business of the Registrant is subject to
renegotiation of profits or termination of contracts or subcontracts at the
election of the Government.
The manufacture and sale of the Registrant's products is an extremely
competitive business. Because industry statistics are not available, the
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, the 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. The Registrant is aware, however, that there are companies making
similar products, with greater sales and resources than the Registrant. The
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.
Research and development activity expenses during each of the last three
fiscal years is not deemed material.
The Registrant has experienced no material effects in complying with
government environmental regulations.
The Registrant presently employs approximately 491 hourly-rated and salaried
personnel.
Sales to customers outside the United States are not significant.
ITEM 2. DESCRIPTION OF PROPERTY.
The Registrant's industrial component parts are manufactured in six plants
located throughout lower Michigan.
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 200,000 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
<PAGE>
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, pickling 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 the Registrant's bolt and
nut making operations. Excess capacity is used to process steel rod belonging
to other companies, mainly in the cold heading industry.
The Brighton Division occupies a 19,000 square foot leased facility in
Brighton, Michigan. The lease expires in December, 1998. The Division
manufactures perishable tooling, primarily for the cold heading industry.
More than one-half of its output is consumed by the Registrant'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. The 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 Registrant leased a 16,000 square foot facility in
Romulus to conduct engineering and manufacturing development activities. This
facility, known as the Technical Center, gives the Registrant sufficient room
to try out new primary and secondary equipment, tooling, and parts feeding
and automation devices, as well as permitting the Registrant to rebuild
recently purchased used equipment.
The Registrant's corporate offices are located in the Buhl Building in
downtown Detroit, where the Registrant occupies 12,000 square feet of space
under a five year lease expiring in 1999 (renewable for an additional 5
years).
Except as specifically noted to the contrary, the Registrant owns outright
all of the above described buildings, land, and production facilities. The
Registrant utilizes all of the floor space of these structures. Present
facilities are adequate to meet the needs of each division.
ITEM 3. LEGAL PROCEEDINGS.
The Registrant has been designated by the Federal Environmental Protection
Agency (the "EPA") as a Potentially Responsible Party ("PRP") with respect to
three related dump sites. The sites are located in Oakland County, Michigan,
and are referred to as the Springfield Township, the Rose Township and the
Cemetery Dump Sites. While the Registrant 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 settling the
EPA's claims. The Registrant has accrued $380,000 for the above three sites.
The Registrant is not aware of any other environmental claims, and in
management's judgment $380,000 is sufficient to cover all known environmental
claims.
With respect to the Rose Township site, although the 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 the 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.
<PAGE>
The 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 Registrant
paid $300,000 as its share of the settlement that was reached with the EPA
pursuant to the Consent Decree. 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
the Registrant is also 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 has
accepted the substitution of soil vapor extraction for soil flushing as the
remedial action approach, and the approach is now being implemented. No
significant effect on the site clean-up is anticipated and the Registrant
does not expect to pay any costs beyond its original contribution.
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. While agreement has
not yet been reached upon an overall remediation method, remediation is
occurring on an interim basis. Remediation costs for which the Registrant may
become liable are not expected to have a material effect on the Registrant's
financial statements. The Registrant has reached a tentative agreement with
the other PRPs involved with this site to settle all remaining identified
claims for a cost to the Registrant of $160,000. The terms of the settlement
agreement among the PRPs have not been finalized, nor have the terms of the
Consent Decree which would effectuate the settlement with the EPA. It is
considered, however, virtually certain that a settlement for this stated
cost will be achieved. The Registrant has previously paid $48,000 as its
share of an interim response action. The Registrant has also paid a total
of $39,000 to settle cost reimbursement claims for this site and the Rose
Township Site that were asserted by the Michigan Department of Natural
Resources.
With respect to the Cemetery Site, the EPA has performed a site cleanup, but
has not asserted claims against any of the identified PRPs, which suggests
that the evidence of involvement by such parties is weak.
The Registrant received a notice letter from a representative of the Barrels,
Inc. site PRP Group located in Lansing, Michigan, indicating that "empty"
drums from the Registrant were shipped to the site. The notification and
associated correspondence received by the Registrant indicates that it is
responsible for a total of 64 "empty" drums at this site. The total number of
drums shown in the correspondence as having been received by the site is
18,775,853. Since total site costs are estimated at somewhat less than $10
million and because the majority of the drums are associated with parties
that are cooperating with the Michigan Department of Environmental Quality,
it appears very probably that the Registrant's share will be relatively
small, i.e., $1,000 or less.
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.
The Registrant's common stock is traded on the Nasdaq National Market under
the symbol FSCR.
On September 2, 1997, the market price for the Registrant's common stock was
$61.00 asked, $61.00 bid.
The following table sets forth the quarterly high and low bid quotations as
reported by the Nasdaq National Market for the Registrant's common stock.
<PAGE>
<TABLE>
<CAPTION>
1997 1996
----------------- ----------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter 29-1/4 25-1/4 $26-1/4 $22-1/4
2nd Quarter 30-1/2 27-1/2 24-1/2 20-1/2
3rd Quarter 40 29 26-1/2 20-1/4
4th Quarter 47 37-3/4 28-3/4 23
</TABLE>
At September 2, 1997, there were 464 individual shareholders of record of the
Registrant's common stock.
Cash dividends were declared in each of the four quarters during fiscal 1997
and fiscal 1996. Total cash dividends in fiscal 1997 were $1.20 per share and
in fiscal 1996 were $1.10 per share.
ITEM 6. SELECTED FINANCIAL DATA.
Five Year Summary
Federal Screw Works
<TABLE>
<CAPTION>
Five Years Ended June 30 1997 1996 1995 1994 1993
- ------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operations (in thousands)
Net sales $ 102,683 $ 92,794 $ 90,503 $ 80,713 $ 73,050
Earnings before federal income
taxes 10,768 6,560 6,388 4,030 2,918
Federal income taxes 3,593 2,169 2,147 1,308 912
Net earnings 7,175 4,391 4,241 2,722 2,006
Depreciation and amortization 3,889 3,553 3,135 2,709 2,435
Capital expenditures 6,872 5,682 7,443 6,169 4,393
Cash dividends declared 1,304 1,195 870 653 654
---------- ---------- ---------- ---------- ----------
Per share data
Net earnings $ 6.60 $ 4.04 $ 3.90 $ 2.50 $ 1.84
Cash dividends declared 1.20 1.10 .80 .60 .60
Book value 36.88 31.20 28.49 25.25 23.76
Market price range (OTC)
High 47 28-3/4 23-1/2 18-1/2 16-1/2
Low 25-1/4 20-1/4 16-3/4 15-1/4 11-1/4
---------- ---------- ---------- ---------- ----------
Return data
Net earnings on net sales 7.0% 4.7% 4.7% 3.4% 2.7%
Net earnings on stockholders' equity 21.2% 14.2% 15.4% 10.5% 8.2%
---------- ---------- ---------- ---------- ----------
Financial position at June 30 (in thousands)
Working capital (net current assets) $ 9,436 $ 13,613 $ 12,538 $ 9,141 $ 9,923
Other assets 9,022 8,566 8,327 8,038 8,375
Property, plant and equipment (net) 33,642 30,665 28,613 24,367 21,156
---------- ---------- ---------- ---------- ----------
Total assets less current liabilities 52,100 52,844 49,478 41,546 39,454
Less:
Long-term debt 600 7,960 8,700 6,020 6,385
Unfunded pension obligation 1,526 2,977 3,400 4,049 4,367
Deferred taxes 1,564 1,122 1,047 604 1,257
Employee benefits 1,105 1,194 1,324 1,418 1,415
Postretirement benefits 6,746 5,250 3,744 1,880
Other liabilities 479 440 306 111 158
---------- ---------- ---------- ---------- ----------
Stockholders' equity (net assets) $ 40,080 $ 33,901 $ 30,957 $ 27,464 $ 25,872
========== ========== ========== ========== ==========
Other
Number of employees 491 505 502 507 510
Approximate number of stockholders 472 611 644 671 722
Average shares outstanding 1,086,646 1,086,662 1,086,954 1,087,955 1,089,306
---------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
The Registrant reported net sales of $102.7 million in fiscal 1997, which
represented a 10.7% increase from fiscal 1996 sales of $92.8 million. Net
sales for fiscal 1996 increased 2.5% from fiscal 1995 sales of $90.5 million.
Sales in both 1997 and 1996 benefited from new automotive parts programs and
an increase in non-automotive business. The number of parts shipped increased
slightly in 1997 following a slight decrease in 1996.
Gross profits increased 42.4% to $17.1 million in fiscal 1997, a $5.1 million
increase from fiscal 1996. Fiscal 1996 gross profits increased 0.8% to $12.0
million compared to the $11.9 million level realized in 1995. The 1997
increase resulted primarily from greater sales and increased manufacturing
efficiency, offset in part by price concessions which continued to be
required by our customers. These concessions are a part of the competitive
environment and will be with the Registrant for the foreseeable future. Gross
profits in 1996 were negatively impacted by two work stoppages, one at a
customer and the other at the Registrant's Chelsea Division. The Registrant
experienced higher aluminum and labor costs in fiscal 1997, but other
material, plating and packaging costs were stable.
The Registrant's 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. The impact of new parts programs were again
a major factor in fiscal 1997.
Shipments to the refrigeration compressor and small engine markets continue
to increase. These markets have been growing at a faster rate than the
Registrant's automotive business in recent years. Sales to customers outside
North America are increasing, but still are not material.
As mentioned in its 1996 annual report, the Registrant began production
shipments to a Tier I supplier to a transplant automobile manufacturer in
1997. Shipments to Tier I automotive suppliers increased. The Registrant
expects that shipments to Tier I suppliers will grow steadily in the next few
years. Also, the Registrant believes that outsourcing by certain of its major
customers will continue to be a positive factor, although new outsourcing
programs were not important in fiscal 1997. No significant consolidations
occurred in the fastener industry in fiscal 1997, and the Registrant did not
experience any additional competitive pressure from transplant fastener
suppliers.
As a percentage of net sales, selling, general and administrative expenses
increased to 5.8% in fiscal 1997. In fiscal 1996 and fiscal 1995 these
expenses were 4.9% and 5.4% of net sales, respectively.
Interest expense decreased in fiscal 1997 by 51% from fiscal 1996 levels.
Average borrowings under the Registrant's bank credit agreement were down in
fiscal 1997 and there were no bank borrowings outstanding at June 30, 1997.
Interest expense in fiscal 1996 increased by 52.0% from fiscal 1995 levels
because average interest rates and average bank borrowings were up.
The Registrant 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 Registrant denies it has engaged in
disposing of any materials at any of the sites, the Registrant together with
eleven other PRPs has actively participated in negotiations
<PAGE>
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 Registrant'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
Registrant may become liable are not expected to have a material effect on
the Registrant's financial statements. With respect to the Cemetery site, the
EPA has performed a site cleanup but has not asserted claims against any of
the identified PRPs which suggests that the evidence of involvement by such
parties is weak. The Registrant received a notice letter from a
representative of the Barrels, Inc. site PRP Group located in Lansing,
Michigan indicating that "empty" drums from the Registrant were shipped to
the site. The waste allegedly shipped by the Registrant is 3520 gallons which
is equal to approximately 0.02 percent of the total waste at the site. Since
the total site costs for all parties are not expected to exceed $10 million,
the Registrant's share of the costs are not expected to be material. No
investigation has been undertaken to the Registrant's knowledge which would
identify any costs to be incurred by the Registrant which might have a
material effect on the Registrant's financial statements.
Dividends
Cash dividends declared in fiscal year 1997 were $1.20 per share, $.10 more
than that declared in fiscal 1996 and $.40 more than that declared in fiscal
1995. The Board of Directors in August, 1997, declared a $.10 per share
quarterly dividend, and an extra dividend of $1.60 per share.
Liquidity and Capital Resources
On October 23, 1996, the Registrant extended its Revolving Credit and Term
Loan Agreement by one year. The expiration date is October 31, 1999, and is
renewable annually for an additional year. Borrowings up to $25 million and
capital expenditures of $10 million annually are permitted. The Registrant
has the option to convert borrowings under the facility to a term note
through October 31, 1999. Payments under the term note, if the conversion
option were exercised, would be made quarterly and could extend to October
31, 2001. Therefore, borrowings under the Revolving Credit and Term Loan
Agreement, which were zero at June 30, 1997, and $6,960,000 at June 30, 1996,
are classified as long-term debt.
Working capital at June 30, 1997 amounted to $9,436,000 as compared to
working capital of $13,613,000 at June 30, 1996. The decrease resulted
primarily from an increase in accounts payable and employee benefit accruals.
The balance sheet at June 30, 1997 includes a long-term liability of
$1,526,114 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 Registrant adopted FASB Statement No. 106. As permitted by the Statement,
the Registrant is amortizing the present value of future health care and life
insurance benefits related to employees past service ($17,967,000 at July 1,
1993) over a period of 20 years. The implementation of this accounting
pronouncement has no impact on the Registrant's cash flows.
Cash flows from operating activities approximated $15.9 million in fiscal
1997. This compares to $7.9 million in 1996 and $4.4 million in 1995.
Capital expenditures for fiscal 1997 were $6.9 million, primarily related to
the purchase of
<PAGE>
equipment and expansion of facilities in order to improve production
efficiencies and enable the Registrant to meet increased future demand for
its products. Capital expenditures in fiscal years 1996 and 1995 were $5.7
million and $7.4 million, respectively. Expenditures for additional equipment
during fiscal 1998 are presently expected to approximate $6.0 million, of
which $3.8 million had been committed as of June 30, 1997. These future
capital expenditures are expected to be financed from cash generated from
operations and additional borrowing capacity under the bank credit agreement.
Net cash used in financing activities was $8.7 million in fiscal 1997,
compared with $1.9 million used in fiscal 1996. In fiscal 1995 $1.8 million
was provided by financing activities. Fluctuations in these activities have
been influenced principally by borrowings and repayments under the
Registrant's Revolving Credit and Term Loan Agreement.
Impact of Inflation and Changing Prices
The Registrant passes increased costs on to customers, to the extent
permitted by competition, by increasing sales prices whenever possible. In
fiscal 1997, 1996 and 1995 the Registrant was generally unable to pass on
cost increases incurred due to competitive pressures. Sales price increases
in each of these years were insignificant.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Inapplicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
Statements of Operations
Federal Screw Works
Year Ended June 30
------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $102,682,635 $ 92,794,306 $ 90,502,562
Costs and expenses:
Cost of products sold 85,595,893 80,792,936 78,639,970
Selling, general and administrative 5.907,223 4,593,135 4,915,987
Interest 411,906 847,736 559,092
------------ ------------ ------------
91,915,022 86,233,807 84,115,049
------------ ------------ ------------
EARNINGS BEFORE FEDERAL INCOME TAXES 10,767,613 6,560,499 6,387,513
Federal income taxes--Note 4:
Current 3,393,000 1,845,000 1,846,000
Deferred (credit) 200,000 324,000 301,000
------------ ------------ ------------
3,593,000 2,169,000 2,147,000
------------ ------------ ------------
NET EARNINGS $ 7,174,613 $ 4,391,499 $ 4,240,513
============ ============ ============
Average number of shares outstanding 1,086,646 1,086,662 1,086,954
============ ============ ============
Net earnings per share $ 6.60 $ 4.04 $ 3.90
============ ============ ============
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of
Cash Flows
Federal Screw Works
Year Ended June 30
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net earnings $ 7,174,613 $ 4,391,499 $ 4,240,513
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 3,899,199 3,553,461 3,134,940
Increase in cash value of life insurance (176,040) (158,519) (108,338)
Change in deferred income taxes 200,000 324,000 301,000
Employee benefits 1,407,050 1,375,456 1,771,238
Amortization of restricted stock 24,717 47,132 76,904
Other (1,316,435) (873,493) (1,163,807)
Changes in operating assets and liabilities:
Accounts receivable (1,011,172) (643,734) (918,340)
Inventories and prepaid expenses 1,197,275 924,940 (4,436,530)
Accounts payable and accrued expenses 4,541,338 (1,013,883) 1,456,849
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,930,545 7,926,859 4,354,429
INVESTING ACTIVITIES
Purchases of property, plant and equipment (6,871,700) (5,682,326) (7,443,353)
Proceeds from sale of property,
plant and equipment 5,182 77,437 313,304
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (6,866,518) (5,604,889) (7,130,049)
FINANCING ACTIVITIES
Additional borrowings (principal repayments)
under bank credit agreement (6,960,000) (340,000) 3,080,000
Principal payments on lease-purchase obligation (400,000) (400,000) (400,000)
Purchases of common stock (6,000) (13,300)
Dividends paid (1,303,994) (1,195,328) (869,680)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (8,669,994) (1,935,328) 1,797,020
----------- ----------- -----------
INCREASE (DECREASE) IN CASH 394,033 386,642 (978,600)
Cash at beginning of year 781,544 394,902 1,373,502
----------- ----------- -----------
CASH AT END OF YEAR $ 1,175,577 $ 781,544 $ 394,902
=========== =========== ===========
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Balance Sheets
Federal Screw Works
June 30
------------------------
1996 1995
---- ----
Assets
<S> <C> <C>
Current Assets
Cash $ 1,175,557 $ 781,544
Accounts receivable 11,892,874 10,881,702
Inventories -- Note 1:
Finished products 3,871,909 4,731,203
In-process products 5,017,646 5,387,252
Raw materials and supplies 2,350,300 2,122,131
----------- -----------
Total Inventories 11,239,855 12,240,586
Prepaid expenses and other current accounts 276,227 472,771
Deferred income taxes -- Note 4 909,000 752,000
----------- -----------
TOTAL CURRENT ASSETS 25,493,533 25,128,603
Other Assets
Intangible pension asset -- Note 5 2,549,667 2,548,403
Cash value of life insurance 5,064,927 4,888,887
Miscellaneous 1,407,383 1,129,429
----------- -----------
9,021,977 8,566,719
Property, Plant and Equipment-- Notes 2 and 3
Land 334,850 337,934
Buildings and improvements 9,080,584 8,781,232
Machinery and equipment 69,932,906 64,300,532
----------- -----------
79,348,340 73,419,698
Less accumulated depreciation 45,706,315 42,754,992
----------- -----------
33,642,025 30,664,706
----------- -----------
$68,157,535 $64,360,028
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June 30
---------------------------
1997 1996
---- ----
Liabilities and Stockholders' Equity
Current Liabilities
<S> <C> <C>
Accounts payable $ 5,393,944 $ 2,976,916
Payroll and employee benefits 7,072,584 5,262,521
Dividend payable 108,651 108,666
Federal income taxes 848,739 414,739
Taxes, other than income taxes 1,429,692 1,317,832
Accrued pension contributions 428,719 664,308
Other accrued liabilities 375,090 371,114
Current maturities of long-term debt 400,000 400,000
----------- -----------
TOTAL CURRENT LIABILITIES 16,057,419 11,516,096
Long-Term Liabilities
Long-term debt -- Note 2 600,000 7,960,000
Unfunded pension obligation -- Note 5 1,526,114 2,977,374
Deferred income taxes -- Note 4 1,564,000 1,122,000
Employee benefits 1,104,582 1,193,524
Postretirement benefits -- Note 6 6,746,488 5,250,496
Other liabilities 478,654 439,754
----------- -----------
12,019,838 18,943,148
Stockholders' Equity -- Notes 2 and 8
Common stock, $1 par value, authorized 2,000,000 shares,
1,086,662 shares outstanding (1,086,662 in 1996) 1,086,512 1,086,662
Additional capital 3,066,476 2,917,759
Retained earnings 37,425,598 31,560,814
Unfunded pension costs (1,498,308) (1,664,451)
----------- -----------
40,080,278 33,900,784
----------- -----------
$68,157,535 $64,360,028
=========== ===========
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statements of
Stockholders' Equity
Federal Screw Works
Years ended June 30, 1997, 1996 and 1995
- ----------------------------------------
Unfunded
Common Additional Retained Pension
Stock Capital Earnings Costs Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES AT JULY 1, 1994 $ 1,087,612 $2,579,475 $25,006,409 $(1,209,137) $ 27,646,359
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
Unrecognized 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
Net earnings for the year 4,391,499 4,391,499
Transactions under restricted
stock bonus plans-- net 145,131 145,131
Unrecognized pension costs,
net of taxes (397,650) (397,650)
Cash dividends declared--
$1.10 per share (1,195,328) (1,195,328)
---------- ---------- ----------- ----------- -----------
BALANCES AT JUNE 30, 1996 1,086,662 2,917,759 31,560,814 (1,664,451) 33,900,784
Net earnings for the year 7,174,613 7,174,613
Purchase of 150 shares (150) (5,850) (6,000)
Transactions under restricted
stock bonus plans-- net 148,717 148,717
Unrecognized pension costs,
net of taxes 166,143 166,143
Cash dividends declared--
$1.20 per share (1,303,979) (1,303,979)
---------- ---------- ----------- ----------- -----------
BALANCES AT JUNE 30, 1997 $1,086,512 $3,066,476 $37,425,598 $(1,498,308) $40,080,278
========== ========== =========== =========== ===========
<FN>
( ) Denotes deduction.
See accompanying notes.
</TABLE>
<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, $1,683,000 and $1,530,000 at June 30, 1997 and 1996,
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 $675,000 in 1997 and
1996.
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.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements. Actual results could differ from those
estimates.
<PAGE>
Notes to
Financial Statements
Continued
Federal Screw Works
Note 2 -- Debt
Long-term debt at June 30 consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revolving credit note payable to bank $ -- $6,960,000
Lease-purchase obligation (see Note 3),
payable $200,000 semiannually, plus
interest at 7-3/4% 1,000,000 1,400,000
---------- ----------
1,000,000 8,360,000
Less current maturities 400,000 400,000
---------- ----------
$ 600,000 $7,960,000
========== ==========
</TABLE>
The Company has a $25,000,000 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, 1999, the expiration
date of the agreement. Payments under the term note, if the conversion option
is exercised, would be made quarterly commencing three months following
conversion until maturity of the term note on October 31, 2001. Interest
(8.5% at June 30, 1997) 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 aggregate fair value of the Company's revolving credit
note payable and lease-purchase obligation approximates its recorded amounts
at June 30, 1997.
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 $9,740,000 are free of
restriction at June 30, 1997.
Interest paid by the Company during fiscal 1997, fiscal 1996 and fiscal 1995
aggregated $503,000, $945,000, and $735,000, respectively.
<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 $1,000,000 of remaining
outstanding Industrial Revenue Bond financing is guaranteed by the Company at
June 30, 1997.
At June 30, 1997, the aggregate minimm 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>
1998 $ 469,750 $ 503,000
1999 438,750 393,000
2000 207,750 271,000
2001 99,000
2002 7,000
---------- ----------
Total minimum lease payments $1,116,250 $1,273,000
==========
Amounts representing interest 116,250
----------
Present value of net minimum lease payments $1,000,000
==========
</TABLE>
Total rent expense (exclusive of the lease-purchase obligation) was $911,000
in fiscal 1997, $866,000 in fiscal 1996, and $731,000 in fiscal 1995.
Costs to complete the expansion of plant facilities and the purchase of
machinery and equipment approximated $3,825,000 at June 30, 1997.
<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>
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
Computed amount $3,661,000 $2,231,000 $2,172,000
Life insurance policies (94,000) (90,000) (67,000)
Other 28,000 28,000 42,000
---------- ---------- ----------
Total federal income tax provision $3,593,000 $2,169,000 $2,147,000
========== ========== ==========
</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, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Accelerated tax depreciation $3,825,000 $3,390,000
---------- ----------
Total deferred tax liabilities 3,825,000 3,390,000
---------- ----------
Deferred tax assets:
Employee benefits 2,942,000 2,813,000
Inventory 121,000 175,000
Other 107,000 32,000
---------- ----------
Total deferred tax assets 3,170,000 3,020,000
---------- ----------
Net deferred tax liabilities $ 655,000 $ 370,000
========== ==========
</TABLE>
Income taxes paid by the Company during fiscal 1997, fiscal 1996, and fiscal
1995 totalled $2,390,000, $1,685,000, and $2,065,000, respectively.
<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 for these plans is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost $ 478,000 $ 408,000 $ 465,000
Interest cost 1,375,000 1,328,000 1,356,000
Actual return on plan assets (1,780,000) (2,415,000) (793,000)
Net amortization and deferral 706,000 1,494,000 (14,000)
----------- ----------- -----------
$ 779,000 $ 815,000 $ 1,014,000
=========== =========== ===========
</TABLE>
In accounting for pension plans, the Company used a discount rate of 7.75% in
1997 and 1996 and 8% in 1995, 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, 1997 and 1996 measurement dates:
<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
-------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Actuarial present value of
vested benefit obligations $ 5,127,000 $ 4,642,000 $ 12,815,000 $ 12,271,000
============ ============ ============ ============
Acturial present value of
accumulated benefit obligations $ 5,179,000 $ 4,712,000 $ 13,171,000 $ 12,612,000
============ ============ ============ ============
Plan assets at fair value $ 8,791,000 $ 8,010,000 $ 10,543,000 $ 8,844,000
Projected benefit obligations 6,326,000 5,808,000 13,171,000 12,612,000
------------ ------------ ------------ ------------
Excess (deficiency) of assets
over projected benefit obligations 2,465,000 2,202,000 (2,628,000) (3,768,000)
Unrecognized net (gain)/loss (330,000) (12,000) 2,270,000 2,521,000
Unrecognized prior service cost (102,000) (132,000) 1,056,000 758,000
Unrecognized net (asset)
liability at transition (849,000) (1,021,000) 2,269,000 2,120,000
Additional liability
recognized under the
minimum liability provisions (4,922,000) (5,273,000)
------------ ------------ ------------ ------------
Net pension asset (liability) $ 1,184,000 $ 1,037,000 $ (1,955,000) $ (3,642,000)
============ ============ ============ ============
</TABLE>
Certain plan amendments had the effect of increasing the projected benefit
obligation for the under-funded plans by approximately $361,000 in 1997.
In 1996, the change in the discount rate, coupled with changes in other
actuarial assumptions and certain plan amendments, had the effect of
increasing the projected benefit obligations for the under-funded plans
by approximately $1,3000,000.
In 1995, the Company established a retirement plan for directors who are not
employees of the Company. The net periodic pension expense for the plan was
$39,000 and $150,000 in 1997 and 1996, respectively. The actuarial present
value of vested benefit obligations approximated $514,000 at June 30, 1997 and
$560,000 at June 30, 1996. The plan is currently unfunded.
<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.
The following table presents the plan's funded status reconciled with amounts
recognized in the Company's financial statements:
<TABLE>
<CAPTION>
June 30
-----------------------------
1997 1996
---- ----
Accumulated postretirement benefit obligation:
<S> <C> <C>
Retirees $ (9,703,000) $ (8,975,000)
Fully eligible active plan participants (2,234,000) (2,821,000)
Other active plan participants (5,686,000) (5,232,000)
------------ ------------
(17,623,000) (17,028,000)
Unrecognized net (gain) or loss (3,497,000) (3,494,000)
Unrecognized transition obligation 14,374,000 15,272,000
------------ ------------
Accrued postretirement benefit cost $ (6,746,000) $ (5,250,000)
============ ============
<CAPTION>
1997 1996 1995
---- ---- ----
Net periodic postretirement benefit cost
includes the following components:
<S> <C> <C> <C>
Service cost $ 330,000 $ 344,000 $ 432,000
Interest cost 1,362,000 1,315,000 1,420,000
Amortization of transition obligation
over 20 years 898,000 898,000 898,000
Amortization of unrecognized gain (119,000) (123,000)
----------- ----------- -----------
Net periodic postretirement benefit cost $ 2,471,000 $ 2,434,000 $ 2,750,000
=========== =========== ===========
</TABLE>
During 1996, the Company made adjustments to the healh care cost trend rate
and the early retirement rates for employees to more accurately reflect actual
experience. These adjustments resulted in a net reduction in the accumulated
projected benefit obligation of approximately $1,388,000 and a net reduction
in the net periodic postretirement benefit cost of $258,000.
The weighted average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 8.5% for fiscal
1998 and 9% for fiscal year 1997 and is assumed to decrease gradually
to 5.5 % 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, 1997 and 1996, by $1,829,000 and $2,104,000,
respectively, and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for the year ended June 30, 1997, by
$215,000.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8% at June 30, 1997 and 1996,
respectively.
<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 87% of the Company's net sales in fiscal 1997 (88% and 89% in
fiscal 1996 and fiscal 1995, respectively) 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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Ford Motor Company 47% 48% 46%
General Motors Corporation 20% 22% 22%
All Others 33% 30% 32%
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
Sales to customers outside the United States are not significant.
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 ($177
and $24,717 as of June 30, 1997 and 1996, 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.
Note 10 Inpact of New Accounting Standards
During 1997, the Financial Accounting Standards Board issued several new
accounting standards: "Statements of Financial Accounting Standards No. 128,
Earnings Per Share, No. 129, Disclosure of Information About Capital
Structure, No. 130, Reporting Comprehensive Income, and No. 131, Disclosures
About Segments of an Enterprise and Related Information." The adoption of
these standards will not have a material effect on the Company's financial
statements.
<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, 1997 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the
period ended June 30, 1997. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 financial position of Federal Screw Works at June
30, 1997 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ Ernst & Young LLP
Detroit, Michigan
August 8, 1997
<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
Identification of Directors.
The information set forth on pages 1 through 3 in the Registrant's
Proxy Statement dated September 26, 1997 is incorporated herein by
reference.
Identification of Executive Officers.
The following information supplements the information provided on
pages 1 through 3 in the Registrant's Proxy Statement dated September
26, 1997 which is incorporated herein by reference.
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C>
John M. O'Brien Vice President-Sales and Marketing 47
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- 41
Chelsea Division and Brighton
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>
Identification of Certain Significant Employees.
Inapplicable.
Family Relationships.
The information set forth in footnotes (1), (3) and (4) under the
caption "Security Ownership of Management" in the Registrant's Proxy
Statement dated September 26, 1997 is incorporated herein by
reference.
Business Experience.
(1) Background.
Included in response to paragraphs (a) and (b) of this Item
10.
(2) Directorships.
None.
Involvement in Certain Legal Proceedings.
None.
Promoters and Control Persons.
Inapplicable.
Compliance With Section 16(a) of the Exchange Act.
The information set forth under the caption "Compliance With Section
16(a) of the Exchange Act" in the Registrant's Proxy Statement dated
September 26, 1997 is incorporated herein by reference.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information set forth on pages 4 through 9 and 12 through 13 in the
Registrant's Proxy Statement dated September 26, 1997 is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information set forth on pages 10 through 12 in the Registrant's Proxy
Statement dated September 26, 1997 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The information set forth on pages 5 and 12 in the Registrant's Proxy
Statement dated September 26, 1997 is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES,
AND REPORTS ON FORM 8-K.
(a) (1) and (2)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
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, 1997 $ 25,000 $ 25,000 - $ 50,000
Year ended June 30, 1996 25,000 - - 25,000
Year ended June 30, 1995 25,000 - - 25,000
Valuation allowance for
inventories:
Year ended June 30, 1997 $284,000 $ 78,586 $ 245,586(A) $ 217,000
Year ended June 30, 1996 275,000 210,092 201,092(A) 284,000
Year ended June 30, 1995 160,000 188,885 73,885(A) 275,000
<FN>
(A) Unsalable inventories charged off; corresponding reduction of allowance.
</TABLE>
<PAGE>
(3) Exhibits. The following exhibits designated with a "+" symbol
represent the Registrant'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 The 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 The (municipal industrial revenue bond) guarantee agreement
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, dated October 24, 1995, filed as
an exhibit to the Registrant's Form 10-Q for the period ended
September 30, 1995, and incorporated herein by reference.
10.1+ Supplemental retirement agreement between the Registrant and
W. T. ZurSchmiede, Jr., present Chairman of the Registrant,
dated April 1, 1986 was filed as an exhibit to Registrant's
1993 Form 10-K and is incorporated by reference.
10.2+ Supplemental retirement agreement between the Registrant and
Hugh G. Harness, a director and past President of the
Registrant, 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 previously 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+ Retirement Plan for Outside Directors as amended and restated,
filed as an exhibit to the Registrant's 1995 Form 10-K and
incorporated herein by reference.
27.* Financial Data Schedule.
<PAGE>
99. Proxy Statement for the Registrant's 1997 Annual Meeting of
Shareholders - filed by the Registrant pursuant to Regulation
14A and incorporated herein by reference.
* Filed with this report
(b) No reports on Form 8-K have been filed by Registrant during the last
quarter of the period covered by this Report.
(c) The response to this item is submitted as a separate section of this
Report.
(d) The response to this item is submitted as a separate section of this
Report.
<PAGE>
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.
---------------------------
W. T. ZurSchmiede, Jr.
Chairman and Chief Executive
Officer, Chief Financial Officer,
Secretary and Treasurer
Date: September 26, 1997
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.
/S/ THOMAS W. BUTLER, JR. September 26, 1997
- ------------------------
Thomas W. Butler, Jr.
Director
/S/ HUGH G. HARNESS September 26, 1997
- -------------------
Hugh G. Harness
Director
/S/ F. D. TENNENT September 26, 1997
- -----------------
F. D. Tennent
Director
/S/ W. T. ZURSCHMIEDE, JR. September 26, 1997
- -------------------------
W. T. ZurSchmiede, Jr.
Director
/S/ ROBERT F. ZURSCHMIEDE September 26, 1997
- ---------------------
Robert F. ZurSchmiede
Director
/S/ THOMAS ZURSCHMIEDE September 26, 1997
- ----------------------
Thomas ZurSchmiede
Director
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
27 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S AUDITED FINANCIAL STATEMENTS AS OF AND FOR
THE PERIOD ENDING JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> $ 1,176
<SECURITIES> 0
<RECEIVABLES> 11,893
<ALLOWANCES> 0
<INVENTORY> 11,240
<CURRENT-ASSETS> 25,494
<PP&E> 79,348
<DEPRECIATION> 45,706
<TOTAL-ASSETS> 68,158
<CURRENT-LIABILITIES> 16,057
<BONDS> 600
<COMMON> 1,087
0
0
<OTHER-SE> 38,993
<TOTAL-LIABILITY-AND-EQUITY> 68,158
<SALES> 102,683
<TOTAL-REVENUES> 102,683
<CGS> 85,596
<TOTAL-COSTS> 91,503
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 412
<INCOME-PRETAX> 10,768
<INCOME-TAX> 3,593
<INCOME-CONTINUING> 7,175
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,175
<EPS-PRIMARY> 6.60
<EPS-DILUTED> 6.60
</TABLE>
