<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended July 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from_______________________to_______________________
Commission file number 0-2865
UNIVERSAL MFG. CO.
------------------
(Name of small business issuer in its charter)
Nebraska 42-0733240
- ---------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
405 Diagonal Street, Algona, Iowa 50511
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 515/295-3557
------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock ($1.00 par value)
------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $17,678,542
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act).
Common Stock ($1.00 par value) - $11,526,000 for October 1, 1996.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Common Stock ($1.00 par value) - 816,000 shares as of October 25, 1996.
This document consists of 22 pages. Page 1 of 22 pages.
See Page 22 for Exhibit Index
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual meeting of shareholders to
be held October 29, 1996, are incorporated by reference in Part III.
Transitional Small Business Disclosure Format (check one): Yes ; No X
---- ---
2
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) The Company is a Nebraska corporation which became incorporated on
December 12, 1945. During the fiscal year ended July 31, 1993, the Company
phased out remanufacturing of engines and increased its remanufacturing and sale
of component automotive parts to other Ford Authorized Remanufacturers. The
Company continues to market and distribute remanufactured engines. The
Company's source for such remanufactured engines is other Ford Authorized
Remanufacturers. During the fiscal year ended July 31, 1993, the Company also
instituted distribution programs distributing Ford branded parts and products to
Ford dealers and began distributing new products, including remanufactured
diesel parts, transmissions and Ford branded car care products.
During the fiscal year ended July 31, 1993, the Company's production
employees became unionized. A description of the agreement between the Company
and the union is set forth below. In addition, on May 26, 1993, the Company
entered into a lease agreement with another manufacturer whereby the Company
will lease equipment to such manufacturer at 8% interest for a sixty-month
period. A copy of such lease agreement is attached as Exhibit 10(ii) to the
Company's Annual Report on Form 10-KSB for the fiscal year ended July 31, 1993.
(b) The Company is engaged in the business of selling on a wholesale basis
remanufactured automotive parts for Ford, Lincoln and Mercury automobiles and
trucks. It is a franchised remanufacturer for Ford Motor Company. Used
automotive parts are the basic raw materials. The principal markets for the
Company's products are automotive dealers, parts jobber supply houses and other
Ford Authorized Remanufacturers. The Company has refocused its distribution
efforts from parts jobber supply houses to independent warehouse distributors
and warehouses. In addition to its remanufacturing activities, the Company also
sells, under a warehouse distributorship agreement with Ford Motor Company,
clutches, pressure plates, torque converters, transmissions, engine assemblies,
remanufactured diesel parts and Ford branded car care products.
The Company purchases approximately 90% of its new (i.e., non-used) raw
materials and all of its car care products from Ford Motor Company. Used parts
to be remanufactured are obtained in exchange with dealers, parts jobber supply
houses and other Ford Authorized Remanufacturers, or are purchased from salvage
dealers and other used parts suppliers. Approximately 75% of such used raw
materials are obtained by such exchange with the remaining 25% being purchased.
The Company purchases approximately 95% of its completed engine assemblies from
Dealers Manufacturing Co., of Minneapolis, Minnesota.
As an authorized distributor of remanufactured products, the Company's
competitive position is strongly related to that of Ford Motor Company. As of
April 1, 1995, the Company entered into an Authorized Remanufactured Product
Distributor Agreement with Ford Motor Company. A copy of such agreement is
attached as Exhibit 10(ii) to the Form 10-KSB for the fiscal year ended July 31,
1995. Among other things, the agreement provides that a Ford dealer may
purchase products from any Ford authorized remanufacturer and the agreement
changed the designation of the Company's status with respect to Ford Motor
Company from remanufacturer to distributor, with remanufacturing activities to
be governed by a specific annexed agreement (a copy of which is attached as part
of Exhibit 10(ii) to the Form 10-KSB for the fiscal year ended July 31, 1995).
The Company's agreement with Ford Motor Company requires it to observe
specifications for remanufacturing which are provided by the engineering
department of Ford Motor Company. Under the arrangement Ford Motor Company is
permitted to inspect for quality control purposes the plant and products of the
Company. Universal Mfg. Co. attempts to maintain a rigid program of quality
control to assure conformance with the specifications of Ford Motor Company.
The Company's agreement with Ford Motor Company to operate as an authorized
distributor of remanufactured products may be cancelled by either party upon
thirty days' notice by the Company or upon five days' notice by Ford Motor
Company upon the occurrence of certain events described in the agreement.
The Company carries a substantial inventory of both raw materials and
finished parts. Relatively large stocks of raw material parts are required
because the Company remanufactures parts which may be as much as 30 years
3
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old. The Company's business also requires that a range of finished engines and
other parts be maintained at each of its three warehouse facilities in order to
serve customers promptly. Each customer is entitled to return purchased items
so long as the dollar amount on return items does not exceed 5% of the
customer's total annual purchases. All sales are on an account receivable basis
with payment due by the 10th day of the following month.
The Company faces a wide range of competitors selling both new and used
engines and parts, including franchises of the other large automotive companies
and numerous independent suppliers. Competition is based upon price, service,
warranty terms and product performance.
Under the 1979 amendments to the Clean Air Act, standards have been and are
being formulated which apply to automotive engines as newly manufactured. Such
regulatory standards have affected and will continue to affect the Company's
business by changing the design of the products which the Company
remanufactures. Refer to Item 3--Legal Proceedings for information with respect
to the implementation of certain remedial projects which include the separation,
removal and transportation of hazardous wastes related primarily to residues
from cleaning operations in response to a complaint against the Company filed by
the EPA.
As of July 31, 1996, the Company had 84 employees, all which were full-time
employees. In May of 1993 the Company entered into a three year agreement with
the United Auto Workers Union ("UAW"), which represents the Company's production
employees. Effective May 5, 1996, the Company entered into a new three year
agreement with the UAW. The agreement calls for 2.6% hourly wage increases of
$.25, $.27 and $.29 on May 5 of each year of the agreement.
ITEM 2. DESCRIPTION OF PROPERTY
The location and general description of the principal plants of the Company
are as follows:
Location General Description Owned or Leased
-------- ------------------- ---------------
Algona, Iowa Manufacturing Plant Owned
Des Moines, Iowa Warehouse Owned
Peoria, Illinois Warehouse Owned
Omaha, Nebraska Warehouse Owned
ITEM 3. LEGAL PROCEEDINGS
On February 25, 1991, the Company was served with a complaint, compliance
order and notice of opportunity for hearing from the United States Environmental
Protection Agency ("EPA") Region VII, Kansas City, Kansas. The complaint
contained eight counts of alleged violations of the Resource Conservation and
Recovery Act of 1976 and the Hazardous Waste Amendments of 1984 and sought to
impose civil penalties against the Company totalling $511,535.
On May 6, 1994, the Company entered into a Consent Agreement and Consent
Order (the "Agreement") with the EPA. The Agreement settled all issues arising
under the 1991 complaint. The Company approved the Agreement without admitting
the allegations of the complaint and solely to avoid further costs of
litigation.
The Agreement imposed an immediate civil penalty of $32,955 which has been
paid by the Company. It also imposed an additional penalty of $176,374, which
has been deferred by the EPA pending the Company's performance and EPA's
approval of a Supplemental Environmental Project (the "Project") relating to the
removal of sludge from, and cleaning of, four wastewater collection pits at the
Company's manufacturing facility in Algona, Iowa. The terms of the Agreement
called for the entire deferred penalty to be offset and permanently waived upon
certain conditions, including completion of the Project to the satisfaction of
the EPA and that actual costs of the Project exceed or equal the $149,725
estimate of the Company's engineering firm. In the event that the Company's
4
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actual costs for the Project are less than $149,725, the Company will be
required to pay an additional penalty equal to 62% of the difference between
$149,725, and the amount expended on the Project.
During July and August of 1994 the Company undertook the Project and
incurred costs of $91,076, or $58,649 less than the engineer's estimate,
potentially subjecting the Company to a deferred penalty of $36,362. After the
sludge was removed, however, additional contamination was found in the largest
of the wastewater collection pits. The Company is awaiting direction from the
EPA regarding any additional testing, studies or clean-up of the large pit that
may be required to complete the Project or otherwise. No estimate of the costs
of such work can be made at this time. If the EPA determines that no further
work is allowed under the Project, the Company will owe the deferred penalty of
$36,362, and it will also be required to perform any additional work required by
the EPA. If the EPA authorizes additional work at the large pit to be performed
as part of the Project, the costs of such work may be offset against the amount
of the deferred penalty.
The Agreement also required the Company to proceed with preparation and
implementation of a closure plan for certain solid waste treatment and storage
facilities at its manufacturing facility in Algona, Iowa. This closure was
completed by the Company under EPA supervision in February of 1995 at a cost of
approximately $20,000. On July 25, 1995, the EPA determined that the closure
met all regulatory requirements and released $64,796 in deposits which the
Company previously was required to maintain for the costs of closure and for
liability assurance purposes under the EPA regulations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No response required.
5
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
THE COMPANY'S STOCK
The Company's stock is traded in the over-the-counter market and is listed
on the NASDAQ Small-Cap Market under the trading symbol UFMG. As of August 23,
1996, there were 278 holders of record of the Company's common stock. The
following table lists the dividend declarations on the Company's stock during
the last two fiscal years:
AMOUNT AMOUNT
DATE PER SHARE DATE PER SHARE
- -------------------------------------------------------------------
October 31, 1995 $.20 November 1, 1994 $.15
January 16, 1996 .20 January 17, 1995 .25
April 23, 1996 .20 April 25, 1995 .20
July 16, 1996 .25 July 18, 1995 .20
- -------------------------------------------------------------------
1996 TOTAL $.85 1995 TOTAL $.80
The high and low bid and asked prices for the Company's common stock during
the last two fiscal years are shown in the adjacent table:
HIGH LOW
- ---------------------------------------------------------------------------
CALENDAR QUARTERS BID ASKED BID ASKED
3rd Quarter 1994 6 1/8 7 1/4 6 1/8 7
4th Quarter 1994 6 1/2 7 5/8 6 1/8 7
1st Quarter 1995 8 1/4 9 6 1/2 7
2nd Quarter 1995 8 9 1/4 7 3/4 9
3rd Quarter 1995 8 1/2 10 7 3/4 9
4th Quarter 1995 8 1/2 10 8 1/2 10
1st Quarter 1996 8 1/2 10 8 1/2 10
2nd Quarter 1996 10 11 1/4 8 1/2 10
Information concerning stock prices for fiscal year 1996 was obtained from The
NASDAQ Stock Market, Inc. Information concerning stock prices for fiscal year
1995 was obtained from Kirkpatrick, Pettis, Smith & Polian, which acts as a
market maker in the Company's stock. The above quotations may reflect inter-
dealer prices and may not reflect retail mark-up, or mark-down or commission or
necessarily represent actual transactions.
6
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
In fiscal 1996, the Company experienced an increase in sales of 20% due to
continued increases in sales of Ford Remanufactured distribution products and
sales to other Ford Authorized Remanufacturers. In fiscal 1995 the Company
experienced an increase in sales of 13% due to increased sales to other Ford
Authorized Remanufacturers and increased sales of Ford Remanufactured
distribution products.
Sales of Ford Remanufactured distribution products in fiscal 1996 were
$5,439,309 compared to $3,542,364 in fiscal 1995. Sales to other Ford
Authorized Remanufacturers increased to $2,052,650 in fiscal 1996 from
$1,361,018 in fiscal 1995.
Transmission unit sales increased by 1,187 in fiscal year 1996 to 3,755
units. Transmission sales in fiscal 1995 were 2,568, an increase of 2,015 over
the previous year.
Remanufactured engine unit sales in fiscal year 1996 were 2,797, which
represents an increase of 280 units. Engine sales in fiscal 1995 were 2,517.
Unit sales increases in fiscal year 1996 were led by electric fuel pumps,
with sales of 16,473 units. This represents an increase of 8,754 units.
Prices were reviewed in February, 1996, and were selectively increased by
approximately 5%. In July, 1996, brake shoe prices were reduced to adjust to
market trends. In March, 1995, prices were increased by approximately 2%. In
July, 1995, prices were adjusted on several part numbers to pass on cost
increases of specific component parts. In January, 1994, prices were increased
by approximately 3.5%. In September, 1994, price increases received from our
engine supplier were passed on, and brake shoe and window lift motor prices were
adjusted to reflect changes in component part pricing.
In May, 1996, the Company and the United Auto Workers Union, which
represents the production employees, reached a new three year agreement. This
agreement provides for approximate wage increases of 2.6% each year of the
agreement.
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Net interest income for fiscal 1996 was $31,153; in fiscal 1995 it was
$15,206; and in fiscal 1994 it was $12,977. Investment amounts were higher
during fiscal 1996 than during fiscal 1995, and available rates were
approximately equal. Investment amounts during 1995 were approximately equal to
1994, but available interest rates were slightly higher through most of the
year.
The following table shows the comparison for the last five fiscal years of
gross profit and selling, general and administrative expenses as a percentage
of net sales. Increased sales volume from Ford distribution products and sales
to other Ford Authorized Remanufacturers allowed for continued reduction in
selling, general and administrative expenses as a percentage of sales.
GROSS PROFIT SELLING, GENERAL AND
FISCAL AS PERCENTAGE ADMINISTRATIVE EXPENSES AS
YEAR OF NET SALES PERCENTAGE OF NET SALES
- ------------------------------------------------------------------------------
1992 26.5 17.9
1993 24.9 17.6
1994 21.6 14.6
1995 21.4 12.8
1996 21.7 11.4
The following table shows the changes in selected expense categories,
included within selling, general and administrative expenses, for the past three
fiscal years:
<TABLE>
<CAPTION>
AMOUNT OF INCREASE (DECREASE)
OVER PRIOR FISCAL YEAR
FISCAL YEARS ENDED JULY 31
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and Wages (Other than for Officers and Directors) $2,700 ($10,187) $69,612
Cost of Group Insurance for Employees 19,778 (16,155) (63,369)
Officers' and Directors' Compensation 28,173 (4,918) (4,254)
Repairs and Maintenance for Vehicles (1,697) 1,964 (5,834)
Depreciation on Vehicles 9,453 (25,424) (13,640)
Gas and Oil (3,808) 2,800 (2,432)
Warehouse Supplies & Expenses 2,656 13,037 1,338
Payroll Taxes 3,986 149 (1,056)
Advertising and Price Lists 19,502 (7,264) (7,519)
Bad Debt Expenses (253) (2,228) 2,481
Professional Services (20,346) 4,472 (18,124)
Payroll Insurance (13,426) (168) 8,576
Insurance -- Vehicles, Building, Contents (1,717) (6,666) (3,935)
Telephone 7,133 (5,526) 7,199
Utilities 2,773 (2,676) (74)
Freight 46,491 45,566 -----
</TABLE>
The increase in group insurance is due to higher claim costs, as 1995 was a
year of very favorable claims experience. The increase in officers' and
directors' compensation was due to higher commissions paid, and to higher salary
paid to one officer. The increase in vehicle depreciation is from upgrading of
the delivery fleet. The increase in advertising and price lists is due to two
promotion programs during the fiscal year. The decrease in professional
services is due to unusual consulting costs associated with environmental pro-
8
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- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
jects and tax preparation during fiscal 1995. The increase in freight costs are
due to policy changes which result in more products being shipped on a prepaid
basis.
Earnings per share of common stock increased $.39 in fiscal 1996 due to
increased sales volume and to a slight improvement in gross margin. Earnings
increased $.06 in fiscal 1995 also due to increased sales volume. Earnings
increased $.24 in fiscal 1994 due to adjustments from accounting changes.
The Company's ratio of current assets to current liabilities of over 2.5
to 1 indicates we are maintaining a reasonable level of liquidity. Our
inventories in fiscal 1996 were lower than in fiscal 1995, although sales
volumes were higher. Our total cash and short-term investments at fiscal year-
end for the past three years were:
TOTAL OF CASH AND
FISCAL YEAR SHORT TERM INVESTMENTS
- ------------------------------------------------------------------------
1996. . . . . . . . . . . . . . . . . . . . $934,072
1995. . . . . . . . . . . . . . . . . . . . $278,064
1994. . . . . . . . . . . . . . . . . . . . $708,522
It is anticipated that certain capital expenditures will be required to
maintain or improve quality levels, to increase production levels of some
product lines, and updates to the truck fleet will continue. Continued growth
in Ford distribution programs may require investment in additional inventories.
Management believes the internal resources of the Company will permit a
relatively easy transition to higher levels of inventory if demand requires such
levels and should also provide for future capital needs.
In connection with the complaint filed by the Environmental Protection
Agency (EPA) described in Note 7 of the Notes to Consolidated Financial
Statements, the Company accrued an expense of $149,725 in fiscal 1994 to account
for clean-up costs or additional penalty as provided in the settlement agreement
with the Environmental Protection Agency (EPA). Portions of this amount were
expended in each of fiscal 1994 and 1995. It is unknown when additional
expenditures will be required.
The Company had no bank borrowings during the fiscal year ended July 31,
1996.
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ITEM 7. FINANCIAL STATEMENTS
10
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INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Universal Mfg. Co.:
We have audited the accompanying balance sheets of Universal Mfg. Co. as of
July 31, 1996 and 1995 and the related statements of income and retained
earnings and of cash flows for each of the three years in the period ended
July 31, 1996. 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, such financial statements present fairly, in all
material respects, the financial position of Universal Mfg. Co. at July 31,
1996 and 1995 and the results of its operations and its cash flows for each
of the three years in the period ended July 31, 1996 in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the financial statements, in August 1993, the
Company changed its methods of accounting for income taxes and for product
cores.
/s/ Deloitte & Touche LLP
Omaha, Nebraska
August 16, 1996
11
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<TABLE>
<CAPTION>
UNIVERSAL MFG. CO.
BALANCE SHEETS
JULY 31, 1996 AND 1995
- -------------------------------------------------------------------------------------------
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 934,072 $ 210,467
Short-term investments (at fair value) - 67,597
Accounts receivable 1,654,992 1,419,177
Inventories (Notes 2 and 3) 2,479,713 2,523,983
Income taxes recoverable - 109,646
Prepaid expenses 50,282 37,976
------------ ------------
Total current assets 5,119,059 4,368,846
------------ ------------
DEFERRED INCOME TAXES (Notes 2 and 6) 42,329 42,329
LEASE RECEIVABLE (Note 4) 26,073 36,249
PROPERTY - At cost:
Land 120,499 167,429
Buildings 1,099,594 1,075,550
Machinery and equipment 899,997 766,010
Furniture and fixtures 209,947 196,896
Trucks and automobiles 699,240 654,321
------------ ------------
Total property 3,029,277 2,860,206
Less accumulated depreciation (1,985,407) (1,854,211)
------------ ------------
Property - net 1,043,870 1,005,995
------------ ------------
$ 6,231,331 $ 5,453,419
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,507,944 $ 1,265,713
Dividends payable 204,000 163,200
Payroll taxes 10,539 9,312
Income taxes payable 56,790 -
Accrued compensation 90,046 88,335
Accrued local taxes 13,984 19,690
------------ ------------
Total current liabilities 1,883,303 1,546,250
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value - authorized, 2,000,000
shares; issued and outstanding, 816,000 shares 816,000 816,000
Additional paid-in capital 17,862 17,862
Retained earnings 3,514,166 3,073,307
------------ ------------
Total stockholders' equity 4,348,028 3,907,169
------------ ------------
$ 6,231,331 $ 5,453,419
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
12
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<TABLE>
<CAPTION>
UNIVERSAL MFG. CO.
STATEMENTS OF INCOME AND RETAINED EARNINGS
THREE YEARS ENDED JULY 31, 1996
- ---------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
NET SALES $ 17,678,542 $ 14,762,085 $ 13,118,372
COST OF GOODS SOLD 13,836,818 11,600,552 10,286,055
------------- ------------- -------------
GROSS PROFIT 3,841,724 3,161,533 2,832,317
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,019,079 1,885,622 1,924,736
EPA PROJECT COSTS (Note 7) - - 182,680
------------- ------------- -------------
Total operating expenses 2,019,079 1,885,622 2,107,416
------------- ------------- -------------
INCOME FROM OPERATIONS 1,822,645 1,275,911 724,901
OTHER INCOME:
Interest (net) 31,153 15,206 12,977
Other 35,152 28,785 71,770
------------- ------------- -------------
Total other income 66,305 43,991 84,747
------------- ------------- -------------
INCOME BEFORE INCOME TAXES 1,888,950 1,319,902 809,648
INCOME TAXES (Note 6) 754,491 501,086 329,016
------------- ------------- -------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES 1,134,459 818,816 480,632
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES (Note 2) - - 284,061
------------- ------------- -------------
NET INCOME 1,134,459 818,816 764,693
RETAINED EARNINGS, BEGINNING OF YEAR 3,073,307 2,907,291 2,632,198
------------- ------------- -------------
4,207,766 3,726,107 3,396,891
LESS CASH DIVIDENDS - ($.85, $.80 and $.60 per
share in 1996, 1995 and 1994, respectively) 693,600 652,800 489,600
------------- ------------- -------------
RETAINED EARNINGS, END OF YEAR $ 3,514,166 $ 3,073,307 $ 2,907,291
------------- ------------- -------------
------------- ------------- -------------
EARNINGS PER COMMON SHARE:
Income before cumulative effect of changes
in accounting principles $ 1.39 $ 1.00 $ 0.59
Cumulative effect of changes in
accounting principles - - 0.35
------------- ------------- -------------
Net income $ 1.39 $ 1.00 $ 0.94
------------- ------------- -------------
------------- ------------- -------------
PRO FORMA AMOUNTS ASSUMING THE NEW CORE
ACCOUNTING METHOD IS APPLIED RETROACTIVELY:
Net income $ 1,134,459 $ 818,816 $ 480,632
------------- ------------- -------------
------------- ------------- -------------
Earnings per common share $ 1.39 $ 1.00 $ 0.59
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See notes to financial statements.
13
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<TABLE>
<CAPTION>
UNIVERSAL MFG. CO.
STATEMENTS OF CASH FLOWS
THREE YEARS ENDED JULY 31, 1996
- -------------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,134,459 $ 818,816 $ 764,693
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 184,406 149,786 165,729
Cumulative effect of changes in accounting principles - - (284,061)
Deferred income taxes - (22,586) 10,100
Gain on sale of property (14,634) (4,920) (34,494)
Effect of changes in operating assets and liabilities:
Accounts receivable (235,815) 131,288 (278,918)
Inventories 44,270 (203,350) (326,507)
Income taxes recoverable 109,646 (109,646) 14,369
Prepaid expenses (12,306) 46,411 (36,203)
Accounts payable 242,231 (117,845) 673,347
Dividends payable 40,800 40,800 -
Payroll taxes 1,227 (2,676) (2,818)
Income taxes payable 56,790 (143,848) (56,430)
Accrued compensation 1,711 (32,292) 8,988
Accrued local taxes (5,706) (710) (719)
------------ ---------- ----------
Net cash flows from operating activities 1,547,079 508,428 617,076
------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 81,063 38,724 50,046
Purchases of property (278,534) (365,610) (203,828)
Purchases of investments - (3,197) (2,165)
Proceeds from maturities of investments 67,597 - -
------------ ---------- ----------
Net cash flows from investing activities (129,874) (330,083) (155,947)
------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of deferred compensation - - (4,800)
Payment of dividends (693,600) (652,800) (489,600)
------------ ---------- ----------
Net cash flows from financing activities (693,600) (652,800) (494,400)
------------ ---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 723,605 (433,655) (33,271)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 210,467 644,122 677,393
------------ ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 934,072 $ 210,467 $ 644,122
------------ ---------- ----------
------------ ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ 595,805 $ 729,514 $ 359,729
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
See notes to financial statements.
14
<PAGE>
UNIVERSAL MFG. CO.
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED JULY 31, 1996
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - Effective August 1, 1994, Allied Sales Co., a
wholly-owned subsidiary of Universal Mfg. Co. (the Company), was dissolved
as a separate company and is now a division of the Company. For the year
ended July 31, 1994 and prior years, the financial statements were
presented on a consolidated basis and all material intercompany balances,
transactions and profits were eliminated.
NATURE OF OPERATIONS - The Company is engaged in the business of
remanufacturing and selling on a wholesale basis remanufactured engines and
other remanufactured automotive parts for Ford, Lincoln and Mercury
automobiles and trucks. The Company is a franchised remanufacturer for
Ford Motor Company with a defined sales territory. The Company purchases
the majority of its new raw materials from Ford Motor Company.
Remanufactured engines for non-Ford vehicles are also marketed on a limited
basis. The principal markets for the Company's products are automotive
dealers and jobber supply houses. The Company has no separate segments,
major customers, foreign operations or export sales.
USE OF ESTIMATES - In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
INVENTORIES - Inventories are stated at the lower of cost (last-in, first-
out method) or market.
INVESTMENTS - Short-term investments are considered as either trading
securities or available for sale securities and, accordingly, are carried
at fair value in the Company's financial statements.
DEPRECIATION, MAINTENANCE, AND REPAIRS - Property is depreciated generally
as follows:
ASSETS DEPRECIATION METHOD LIVES
Buildings Straight-line and
declining-balance 10-20 years
Machinery and equipment Declining-balance 7-10 years
Furniture and fixtures Declining-balance 5-7 years
Trucks and automobiles Declining-balance 3-5 years
Maintenance and repairs are charged to operations as incurred. Renewals
and betterments are capitalized and depreciated over their estimated useful
service lives. The applicable property accounts are relieved of the cost
and related accumulated depreciation upon disposition. Gains or losses are
recognized at the time of disposal.
15
<PAGE>
REVENUE RECOGNITION - Sales and related cost of sales are recognized
primarily upon shipment of products.
CASH EQUIVALENTS - For purposes of the Statements of Cash Flows, the
Company considers all highly liquid instruments purchased with a maturity
of three months or less to be cash equivalents.
FINANCIAL INSTRUMENTS - Cash and cash equivalents, accounts receivable and
accounts payable are short-term in nature and the values at which they are
recorded are considered to be reasonable estimates of their fair values.
EARNINGS PER SHARE - Earnings per share have been computed on the weighted
average number of shares outstanding during the years (816,000 shares).
RECLASSIFICATIONS - Certain balances reported in 1995 and 1994 have been
reclassified to conform with the current year presentation.
2. CHANGES IN ACCOUNTING PRINCIPLES
ACCOUNTING FOR INCOME TAXES - Effective August 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109 (SFAS 109), ACCOUNTING
FOR INCOME TAXES. This statement supersedes both Accounting Principles
Board Opinion No. 11 and SFAS 96, the previous authoritative literature on
income tax accounting. The cumulative effect of adopting SFAS 109 on the
Company's financial statements was to decrease net income by $29,196 ($.04
per share) for the year ended July 31, 1994.
PRODUCT CORES - The Company changed it method of accounting for product
cores by the establishment of small parts core inventories and the
elimination of customer core deposit reserve accounts. These changes will
conform the accounting for product cores to the method used for all other
classes of inventory, and will provide for a better match of revenues and
costs related to small parts sales, which are expected to become more
significant as a result of increased sales to other remanufacturers and
distribution program sales. The cumulative effect of the accounting change
on the Company's financial statements was to increase net income by
$313,257 ($.39 per share) for the year ended July 31, 1994.
INVESTMENTS - During the year ended July 31, 1995 the Company adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. The
adoption of SFAS No. 115 had no effect on the 1995 financial statements.
3. INVENTORIES
The major classes of inventory are as follows:
1996 1995
Product cores $ 889,164 $ 824,737
Raw materials 496,439 580,054
Finished engines 208,295 375,322
Finished small parts 885,815 743,870
---------- ----------
$2,479,713 $2,523,983
---------- ----------
---------- ----------
16
<PAGE>
If inventories were valued at the lower of cost (first-in, first-out
method) or market, inventories would have been $5,483,024 and $5,636,290 at
July 31, 1996 and 1995, respectively.
4. LEASE RECEIVABLE
On May 26, 1993, the Company, as lessor, entered into a lease agreement
with another manufacturer to lease equipment at 8% interest, for a sixty-
month period. The total minimum lease payments are $54,746 and the
unearned income is $28,673 at July 31, 1996. These amounts are shown on a
net basis for financial statement purposes.
5. NOTES PAYABLE
The Company has in place a revolving line of credit aggregating $400,000
which expires in January 1997. The interest rate was 9% as of July 31,
1996 and is subject to change based on the associated bank's base rate.
There were no outstanding borrowing under this line as of July 31, 1996 and
1995.
6. INCOME TAXES
The provision for income taxes for the years ended July 31, 1996, 1995 and
1994 is as follows:
1996 1995 1994
Current income taxes $ 754,491 $ 523,672 $ 318,916
Deferred income taxes - (22,586) 10,100
---------- ---------- ----------
Income tax provision $ 754,491 $ 501,086 $ 329,016
---------- ---------- ----------
---------- ---------- ----------
The tax effect of differences in the timing of revenues and expenses for tax
and financial statement purposes is as follows:
1996 1995 1994
Depreciation $ 40,590 $ - $ 13,192
Uniform inventory capitalization 1,752 (13,128) (6,448)
Vacation pay accruals 5,788 1,834 7,004
Other (48,130) (11,292) (3,648)
--------- ---------- ---------
Deferred income taxes $ - $ (22,586) $ 10,100
--------- ---------- ---------
--------- ---------- ---------
17
<PAGE>
A reconciliation between statutory and effective tax rates is as follows:
1996 1995 1994
Income before income taxes $1,888,950 $1,319,902 $ 809,648
Statutory rate 34% 34% 34%
---------- ---------- ----------
Income taxes at statutory rates 642,243 448,767 275,280
Tax effect of:
State taxes 85,320 62,552 32,528
Other - net 26,928 (10,233) 21,208
---------- ---------- ----------
Total income taxes $ 754,491 $ 501,086 $ 329,016
---------- ---------- ----------
---------- ---------- ----------
7. EPA PROJECT COSTS
In February, 1991, the Company was served with a complaint from the United
States Environmental Protection Agency (EPA) which contained eight counts
of alleged violations of the Resource Conservation and Recovery Act of 1976
and the Hazardous Solid Waste Amendments of 1984. The complaint alleged,
among other things, that the Company failed to adequately test and properly
transport certain residue of hazardous wastes which it was treating at its
facility. The Company entered into a Consent Agreement and Consent Order
with the EPA dated May 6, 1994, which provided for settlement of this
complaint.
This settlement called for payment of a civil penalty of $32,955, and for
the completion of certain remedial projects, estimated to cost $149,725.
Total costs paid as of July 31, 1996 are $90,113. The remaining amount of
$59,612 has been recorded in the accompanying financial statements.
Refer to Item 13 for Supplemental Report of Independent Public Accountants and
the following financial statement schedule:
Schedule VIII - Valuation Accounts for the three years ended July 31, 1996
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No response required.
18
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The following information set forth in the Company's proxy statement for
its annual meeting of shareholders to be held October 31, 1996, is incorporated
by reference:
"Election of Directors" - Pages 2, 3 and 4.
"Management" - Page 4.
"Section 16(a) Beneficial Ownership Reporting Compliance" - Page 7.
ITEM 10. EXECUTIVE COMPENSATION
The following information set forth in the Company's proxy statement for
its annual meeting of shareholders to be held October 31, 1996, is incorporated
by reference:
"Compensation of President and Directors" - Pages 4 and 5.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information set forth in the Company's proxy statement for
its annual meeting of shareholders to be held October 31, 1996, is incorporated
by reference:
"Ownership of Voting Securities by Directors and Nominees" - Pages 5 and 6.
"Principal Holders of Voting Securities" - Pages 7 and 8.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No response required.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
(2) Plan or acquisition, reorganization, arrangement,
liquidation or succession. None required.
(3)(i) Articles of Incorporation. The Articles of
Incorporation of the Company are incorporated by
reference to the Company's Annual Report on Form
10-K for the fiscal year ended July 31, 1980,
Page 26, to the Company's Annual Report on Form 10-K
for the fiscal year ended July 31, 1986, Pages 15 to
16 and to the Company's Annual Report for the fiscal
year ended July 31, 1987, Pages 15 to 16.
(ii) Bylaws. The Bylaws of the Company are incorporated
by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended July 31, 1993,
Pages 12-24.
(4) Instruments defining the rights of security holders,
including indentures. None required.
19
<PAGE>
(9) Voting trust agreement. None required.
(10) Material contracts.
(i) The Company's Rent Agreement with Dealers
Manufacturing Co., dated May 26, 1993, is
incorporated by reference to the Company's
Annual Report on Form 10-KSB for the fiscal
year ended July 31, 1993, Pages 25-29.
(ii) The Company's Authorized Remanufactured
Product Distributor Agreement with Ford Motor
Company, dated April 1, 1995, is incorporated
by reference to the Company's Annual Report
on Form 10-KSB for the fiscal year ended July
31, 1995, Pages 20-38.
(11) Statement re: computation of per share earnings.
None required.
(13) Annual or quarterly reports, Form 10-Q. None
required.
(16) Letter on change in certifying accountant. None
required.
(18) Letter on change in accounting principles. None
required.
(21) Subsidiaries of the registrant. None required.
(22) Published report regarding matters submitted to
vote. None required.
(23) Consent of experts and counsel. None required.
(24) Power of attorney. None required.
(27) Financial Data Schedule.
(99) Additional Exhibits. Supplemental Report of
Independent Public Accountants and attached
financial statement schedule: Schedule VIII -
Valuation Accounts for the three years ended July
31, 1996.
(b) The Company did not file any reports on Form 8-K during the
last quarter of the period covered by this report.
20
<PAGE>
SIGNATURES
In accordance with Section 13 of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNIVERSAL MFG. CO.
By: /s/ Donald D. Heupel By: /s/ Gary L. Christiansen
---------------------------------- ------------------------------------
Donald D. Heupel, President, Chief Gary L. Christiansen, Vice President
Executive Officer, Chief Financial and Treasurer
Officer and Director
Date: October 29, 1996 Date: October 29, 1996
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant in the capacities and on
the dates indicated.
By: /s/ Richard W. Agee Date: October 29, 1996
----------------------------------
Richard W. Agee/Director
By: /s/ Anthony H. Kelley Date: October 29, 1996
----------------------------------
Anthony H. Kelley/Director
By: /s/ Richard E. McFayden Date: October 29, 1996
----------------------------------
Richard E. McFayden/Director
By: /s/ John R. McHugh Date: October 29, 1996
----------------------------------
John R. McHugh/Director
By: /s/ Harry W. Meginnis Date: October 29, 1996
----------------------------------
Harry W. Meginnis/Director
By: /s/ T. Warren Thompson Date: October 29, 1996
----------------------------------
T. Warren Thompson/Director
21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Page
No. Description Method of Filing Location
- -------- ----------- ---------------- ------------
<S> <C> <C> <C>
3(i) Articles of Incorporation Incorporated by reference to the Company's --
Annual Report on Form 10-K for the fiscal year
ended July 31, 1980, Page 26, to the Company's
Annual Report on Form 10-K for the fiscal year
ended July 31, 1986, Pages 15-16 and to
the Company's Annual Report for the fiscal year
ended July 31, 1987, Pages 15-16.
3(ii) Bylaws Incorporated by reference to the Company's --
Annual Report on Form 10-KSB for the fiscal year
ended July 31, 1993, Pages 12-24.
10(i) The Company's Rent Incorporated by reference to the Company's --
Agreement with Dealers Annual Report on Form 10-KSB for the fiscal year
Manufacturing Co., dated ended July 31, 1993, Pages 25-29.
May 26, 1993
10(ii) The Company's Authorized Incorporated by reference to the Company's --
Remanufactured Product Annual Report on Form 10-KSB for the fiscal year
Distributor Agreement with ended July 31, 1995, Pages 20-38.
Ford Motor Company,
dated April 1, 1995
27 Financial Data Schedule Filed herewith.
99 Supplemental Report of Filed herewith.
Independent Public
Accountants and attached
financial statement schedule:
Schedule VIII - Valuation
Accounts for the three years
ended July 31, 1996
</TABLE>
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of Universal Mfg. Co. as of July 31, 1995 and the related statements of
income and retained earnings and of cash flows for the period ended July 31,
1995 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 934,072
<SECURITIES> 985
<RECEIVABLES> 1,654,992
<ALLOWANCES> 0
<INVENTORY> 2,479,713
<CURRENT-ASSETS> 5,119,059
<PP&E> 3,029,277
<DEPRECIATION> (1,985,407)
<TOTAL-ASSETS> 6,231,331
<CURRENT-LIABILITIES> 1,883,303
<BONDS> 0
<COMMON> 816,000
0
0
<OTHER-SE> 3,532,028
<TOTAL-LIABILITY-AND-EQUITY> 6,231,331
<SALES> 17,678,542
<TOTAL-REVENUES> 17,744,847
<CGS> 13,836,818
<TOTAL-COSTS> 15,855,897
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,888,950
<INCOME-TAX> (754,491)
<INCOME-CONTINUING> 1,134,459
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,134,459
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.39
<FN>
<F1>Note 2, 5-02(6) Small parts core inventories
<F2>Note 3, 5-02(6) The major classes of inventories
<F3>Note 6, 5-03(b)(11) Provision for income taxes
</FN>
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Universal Mfg. Co.:
We have audited the financial statements of Universal Mfg. Co. as of July 31,
1996 and 1995, and for each of the three years in the period ended July 31,
1996, and have issued our report thereon dated August 16, 1996, which report
includes an explanatory paragraph as to changes in August, 1993 in the
Company's methods of accounting for income taxes and for product cores; such
financial statements and report are included in your 1996 Annual Report to
Stockholders and are incorporated herein by reference. Our audits also
included the financial statement schedules of Universal Mfg. Co., listed in
Item 7. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Omaha Nebraska
August 16, 1996
<PAGE>
Schedule VIII
UNIVERSAL MFG. CO.
VALUATION ACCOUNTS
THREE YEARS ENDED JULY 31, 1996
_______________________________________________________________________________
Additions-
Balance, Charged to Deductions- Balance,
Beginning Cost and Accounts End of
of Year Expenses Charged-Off Year
--------- ---------- ----------- ---------
Description
July 31, 1996 -- Allowance
for doubtful accounts $ -- $ -- $ -- $ --
--------- ---------- ----------- ---------
July 31, 1995 -- Allowance
for doubtful accounts $ -- $ 252 $ 252 $ --
--------- ---------- ----------- ---------
July 31, 1994 -- Allowance
for doubtful accounts $ -- $2,481 $2,481 $ --
--------- ---------- ----------- ---------
