UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended September 30, 1998
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OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ___________________ to ___________________
Commission File Number: O-1837
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FEDERAL SCREW WORKS
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(Exact name of registrant as specified in its charter)
Michigan 38-0533740
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
535 Griswold Street, Suite 2400, Detroit Michigan 48226
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, and area code (313) 963-2323
-------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing require- ments for the past 90 days. YES __X__ NO _____
At September 30, 1998, the Company had one class of common stock outstanding,
$1.00 par value common stock. There were 1,086,412 shares of such common
stock outstanding at that time.
(continued)
<PAGE>
Part I FINANCIAL INFORMATION
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FEDERAL SCREW WORKS
CONDENSED BALANCE SHEETS (UNAUDITED)
(Thousands of Dollars)
Sept. 30 June 30
1998 1998
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ASSETS
<S> <C> <C>
Current Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . $ 59 $ 975
Accounts Receivable, Less Allowance of $50 . . . 13,273 11,816
Inventories:
Finished Products. . . . . . . . . . . . . . . . 5,061 4,642
In-Process Products. . . . . . . . . . . . . . . 6,533 6,065
Raw Materials And Supplies . . . . . . . . . . . 1,748 2,377
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13,342 13,084
Prepaid Expenses And Other Current Accounts. . . 394 737
Deferred Income Taxes . . . . . . . . . . . . . 1,009 946
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Total Current Assets. . . . . . . . . . . . . 28,077 27,558
Other Assets:
Intangible Pension Asset . . . . . . . . . . . . 961 961
Cash Value Of Life Insurance . . . . . . . . . . 5,217 5,190
Prepaid Pension Cost . . . . . . . . . . . . . . 3,055 3,051
Miscellaneous. . . . . . . . . . . . . . . . . . 323 324
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9,556 9,526
Property, Plant And Equipment. . . . . . . . . . . 87,819 87,156
Less Accumulated Depreciation. . . . . . . . . . 50,463 49,374
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37,356 37,782
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Total Assets . . . . . . . . . . . . . . . . . . . $74,989 $74,866
======= =======
</TABLE>
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<PAGE>
Part I FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
Sept. 30 June 30
1998 1998
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LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Accounts Payable . . . . . . . . . . . . . . . . $ 4,692 $ 4,812
Payroll And Employee Benefits. . . . . . . . . . 4,331 7,559
Dividends Payable. . . . . . . . . . . . . . . . 2,064 109
Federal Income Taxes . . . . . . . . . . . . . . 610 1,171
Taxes, Other Than Income Taxes . . . . . . . . . 1,987 1,396
Accrued Pension Contributions . . . . . . . . . 0 65
Other Accrued Liabilities. . . . . . . . . . . . 145 66
Current Maturities Of Long-Term Debt . . . . . . 400 400
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Total Current Liabilities . . . . . . . . . . 14,229 15,578
Long Term Liabilities:
Long-Term Debt . . . . . . . . . . . . . . . . . 2,520 450
Postretirement Benefits Other Than Pensions. . . 8,624 8,211
Deferred Income Taxes. . . . . . . . . . . . . . 2,129 2,197
Employee Benefits. . . . . . . . . . . . . . . . 1,016 1,017
Other Liabilities. . . . . . . . . . . . . . . . 718 634
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Total Long-Term Liabilities . . . . . . . . . 15,007 12,509
Stockholders' Equity:
Common Stock, $1.00 Par Value, Authorized
2,000,000 Shares; 1,086,412 Shares Outstanding
at September 30, 1998 and at June 30, 1998. . . . 1,086 1,086
Additional Capital . . . . . . . . . . . . . . . 3,215 3,210
Retained Earnings . . . . . . . . . . . . . . . . 42,043 43,074
Other Comprehensive Income. . . . . . . . . . . . (591) (591)
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Total Stockholders' Equity . . . . . . . . . . 45,753 46,779
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Total Liabilities and Stockholders' Equity . . . . $74,989 $74,866
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<FN>
See Accompanying Notes.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
FEDERAL SCREW WORKS
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Thousands of Dollars, Except Per Share)
Three Months Three Months
Ended Ended
Sept. 30 Sept. 30
l998 1997
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<S> <C> <C>
Net Sales ............................ $25,468 $24,716
Costs And Expenses:
Cost of Products Sold ............. 22,228 21,594
Selling And Administrative Expenses 1,633 1,661
Interest Expense .................. 42 20
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Total Costs and Expenses ....... 23,903 23,275
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Earnings Before Federal
Income Taxes ...................... 1,565 1,441
Federal Income Taxes ................. 532 489
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Net Earnings ......................... $ 1,033 $ 952
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Per Share Of Common Stock:
Basic and Diluted Earnings Per Share . $ .95 $ .88
Cash Dividends Per Share ............. $ 1.90 $ 1.70
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<FN>
See Accompanying Notes.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
FEDERAL SCREW WORKS
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of Dollars)
Three Months
Ended
September 30
1998 1997
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<S> <C> <C>
Operating Activities
Net Earnings .................................... $ 1,033 $ 952
Adjustments to Reconcile Net Earnings to Net Cash
Provided By (Used In) Operating Activities:
Depreciation and Amortization ............... 1,090 991
Increase In Cash Value of Life Insurance .... (27) (27)
Change In Deferred Income Taxes ............. (131) 38
Employee Benefits ........................... (1) (22)
Other ....................................... 499 337
Changes In Operating Assets And Liabilities:
Accounts Receivable ........................ (1,457) (787)
Inventories And Prepaid Expenses ........... 85 1,195
Accounts Payable And Accrued Expenses ...... (3,304) (4,976)
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Net Cash Provided By Operating Activities ......... (2,213) (2,299)
Investing Activities
Purchases of Property, Plant And Equipment-Net .. (664) (1,397)
Financing Activities
Proceeds and Repayments on Bank Borrowings ...... 2,070 2,760
Dividends Paid .................................. (109) (109)
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Net Cash Used In Financing Activities ............. 1,961 2,651
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Decrease In Cash .................................. (916) (1,045)
Cash At Beginning Of Period ....................... 975 1,176
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Cash At End Of Period ............................. $ 59 $ 131
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<FN>
See Accompanying Notes.
</TABLE>
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<PAGE>
FEDERAL SCREW WORKS
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note A - Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The results of operations for the three
months ended September 30, 1998, are not necessarily indicative of the
results to be expected for the fiscal year ending June 30, 1999.
Note B - Debt
On October 20, 1998, Comerica Bank approved a one year extension of the
Company's $25,000,000 Revolving Credit and Term Loan Agreement. Under the
agreement the Company has the option to convert borrowings thereunder
(classified as long-term debt) to a term note through October 31, 2001, 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, 2003. As of September 30, 1998, there was $2,320,000 in
outstanding borrowings under the Revolving Credit and Term Loan Agreement.
Note C - Dividends
Cash dividends per share are based on the number of shares outstanding at the
respective dates of declaration.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS: Net sales for the Company's first quarter ended
September 30, 1998, increased $752,000, or 3.0%, compared with net sales for
the first quarter of the prior year. The increase is attributable mainly to
our strong participation in a new truck program which has begun to ramp up
production.
Gross profit for the three month period ended September 30, 1998, increased
$118,000, or 3.8%, as compared with gross profit for the first quarter of the
prior year. The increase is attributable mainly to additional volume and
improved product mix.
Selling and administrative expenses decreased $28,000, or (1.7%), for the
first quarter ended September 30, 1998, as compared with the first quarter of
the prior year.
The Registrant's Shareholders are aware of the Registrant's dependence upon
sales to the two largest U.S. automobile manufacturers, a condition that has
existed for at least fifty years. Although the Registrant has purchase orders
from such customers, such purchase orders generally provide for supplying the
customer's requirements for a particular model or model year rather than for
manufacturing a specific quantity of products. The loss of any one of such
customers or significant purchase orders could have a material adverse effect
on the Registrant. These customers are also able to exert considerable
pressure on component suppliers to reduce costs, improve quality and provide
additional design and engineering capabilities. There can be no assurance
that the additional costs of increased quality standards, price reductions or
additional capabilities required by such customers will not have a material
adverse effect on the financial condition or results of operations of the
Registrant.
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<PAGE>
YEAR 2000 MATTERS: The Company completed a comprehensive review of its
operations related to the "Year 2000" issue during fiscal 1998. This review
included an assessment of the Company's mainframe computer system, operating
and application systems, microcomputer and office systems, facilities, and
production equipment. This review also included correspondence with major
vendors and customers. Management believes it has identified those systems
that could be affected by the "Year 2000" issue. The Company has implemented
a plan to resolve these issues and expects to complete the plan and the
related testing by December 31, 1998.
During the fiscal year ended June 30, 1998, the Company installed a new
mainframe computer system and operating system that are "Year 2000"
compliant. Implementation and testing of mainframe applications is ongoing
and is expected to be completed by December 31, 1998. The Company believes
that, with modification of its existing computer systems and updates by
vendors in the ordinary course of business, the "Year 2000" issue will not
pose significant operational problems of the Company's computer systems.
However, if such modifications are not made, or are not completed timely, the
"Year 2000" issue could have a material impact on the operations of the
Company.
The Company has developed contingency plans for its significant operations
and is continuously monitoring the progress toward the established "Year 200"
plan. These plans include preliminary discussions with the Company's primary
software vendors to replace critical applications that may become inoperable
as a result of the "Year 2000" issue. The Company may increase inventory
levels to insure that supplies are not interrupted.
The total "Year 2000" project cost is estimated at approximately $400,000,
which includes estimated costs to be incurred to acquire upgraded software
that will be capitalized. It is anticipated that these costs will be paid for
with cash from operations.
DIVIDENDS: The Board of Directors, in August 1998, declared a $.10 per share
quarterly dividend and an extra $1.80 per share dividend, both payable
October 1, 1998, to shareholders of record September 4, 1998.
LIQUIDITY AND CAPITAL RESOURCES: Working capital increased by $1,868,000 from
$11,980,000 at June 30, 1998, to $13,848,000 at September 30, 1998.
At September 30, 1998, the Company had available $22,680,000 under its bank
credit agreement.
Capital expenditures for the three month period ended September 30, 1998,
were approximately $0.7 million, and, for the year, are expected to
approximate $7.2 million, of which approximately $2.2 million has been
committed as of September 30, 1998.
There have been no material changes concerning environmental matters since
those reported in the Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1998, except that a settlement agreement regarding the
Springfield Township site described in the Company's Annual Report on Form
10-K for the year ended June 30, 1998, was imbodied in a Consent Decree that
was entered by the Court on September 14, 1998.
FORWARD LOOKING STATEMENTS: The foregoing discussion and analysis contains a
number of "forward looking statements" within the meaning of the Securities
Act
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<PAGE>
of 1933 and the Securities Exchange Act of 1934, both as amended, with
respect to expectations for future periods which are subject to various
uncertainties, including competition, the loss of, or reduction in business
with, the Company's principal customers, work stoppages, strikes and
slowdowns at the Company's facilities and those of its customers; adverse
changes in economic conditions generally and those of the automotive
industry, specifically.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth at the conclusion of the Liquidity and
Capital Resources discussion in Item 2 of Part I concerning environmental
matters is incorporated by reference.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
Item 5. Shareholder Proposals for 1999 Annual Meeting of Shareholders
Shareholder proposals pursuant to Rule 14a-8 promulgated under the
Securities Exchange Act of 1934 must be received by the Company no later than
May 31, 1999 in order to be included in the Company's Proxy Statement and
Form of Proxy for that meeting. Such proposals must also meet the other
requirements of the rules of the Securities and Exchange Commission relating
to shareholders' proposals.
Any shareholder proposal submitted for consideration at the
Company's 1999 Annual Meeting of Shareholders will be considered untimely if
(a) the proposal is submitted outside the processes of Rule 14a-8 and (b) the
Company receives notice of the proposal after August 11, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.2 One year extension of revolving credit and term
loan agreement by and between Registrant and Comerica Bank
dated October 20, 1998.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K. There was no SEC Form 8-K filed this
quarter. There were no unusual charges or credits to income,
nor a change in independent accountants.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Federal Screw Works
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Date November 13, 1998 /s/ W. T. ZurSchmiede, Jr.
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W. T. ZurSchmiede, Jr.
Chairman, Chief Executive Officer
and Chief Financial Officer
Exhibit Index:
Exhibit 10.2 One Year Extension of Revolving Credit and
Term Loan Agreement By and Between Registrant
and Comerica Bank Dated October 20, 1998.
Exhibit 27 Financial Data Schedule
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[ Comerica Letterhead ]
October 20, 1998
Mr. W.T. ZurSchmiede, Jr.
Chairman
Federal Screw Works
2400 Buhl Building
Detroit, Michigan 48226
Dear Mr. ZurSchmiede,
Per your request dated September 3, 1998 and pursuant to Section 2.13 of
the Revolving Credit and Term Loan Agreement between Federal Screw Works
and Comerica Bank, the Bank has approved the one year extension for the
Revolving Credit Facility and Term Loan option. The new maturity dates for
the facilities are October 31, 2001 and October 31, 2003, respectively.
Please feel free to contact me if you have any questions.
Regards,
/s/ Robert M. Ramirez
Robert M. Ramirez
cc: Wade Plaskey
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE COMPANY'S
FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD
ENDING SEPTEMBER 30, 1998, 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-30-1998
<PERIOD-END> SEP-30-1998
<CASH> $ 59
<SECURITIES> 0
<RECEIVABLES> 13,273
<ALLOWANCES> 0
<INVENTORY> 13,342
<CURRENT-ASSETS> 28,077
<PP&E> 87,819
<DEPRECIATION> 50,463
<TOTAL-ASSETS> 74,989
<CURRENT-LIABILITIES> 14,229
<BONDS> 200
<COMMON> 1,086
0
0
<OTHER-SE> 44,667
<TOTAL-LIABILITY-AND-EQUITY> 74,989
<SALES> 25,468
<TOTAL-REVENUES> 25,468
<CGS> 22,228
<TOTAL-COSTS> 23,861
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> 1,565
<INCOME-TAX> 532
<INCOME-CONTINUING> 1,033
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,033
<EPS-PRIMARY> 0.95
<EPS-DILUTED> 0.95
</TABLE>
