<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, 1997
[ ] 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.
$19,089,166
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) - $12,179,106 for October 20, 1997.
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 24, 1997.
This document consists of 12 pages. Page 1 of 12 pages.
See Page 9 for Exhibit Index
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual meeting of shareholders
to be held November 18, 1997, are incorporated by reference in Part III.
Transitional Small Business Disclosure Format (check one): Yes ; No X
--- ----
Page 2 of 12 Pages
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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 80% 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
Page 3 of 12 Pages
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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, 1997, the Company had 82 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
Page 4 of 12 Pages
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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.
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 September
10, 1997, there were 256 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 29, 1996 $.25 October 31, 1995 $.20
January 21, 1997 .25 January 16, 1996 .20
April 30, 1997 .25 April 23, 1996 .20
July 15, 1997 .25 July 16, 1996 .25
- ----------------------------------------------------------------
1997 TOTAL $1.00 1996 TOTAL $.85
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 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
3rd Quarter 1996 13 1/2 14 3/4 10 11 1/4
4th Quarter 1996 13 1/2 15 12 1/4 13 1/2
1st Quarter 1997 12 1/2 13 7/8 12 3/8 13 3/4
2nd Quarter 1997 16 3/4 18 12 3/8 13 3/4
Information concerning stock prices for fiscal year 1996 was obtained from The
NASDAQ Stock Market, Inc. Information concerning stock prices for fiscal years
1995 and 1997 was obtained from Kirkpatrick, Pettis, Smith, Polian Inc., 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, mark-down or commission
or necessarily represent actual transactions.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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In fiscal 1997, the Company experienced an increase in sales of 8% due to
continued increases in sales of Ford Remanufactured distribution products
and sales to other Ford Authorized Remanufacturers. In fiscal 1996, the Company
experienced an increase in sales of 20% also due to continued increased sales to
other Ford Authorized Remanufacturers and increased sales of Ford Remanufactured
distribution products.
Sales to other Ford Authorized Remanufacturers increased to $2,946,457 in
fiscal 1997 from $2,052,650 in fiscal 1996. Sales of Ford Remanufactured
distribution products in fiscal 1997 were $6,022,370 compared to $5,439,309 in
fiscal 1996.
Unit sales increases in fiscal year 1997 were led by electric fuel pumps,
with sales of 26,003 units. This represents an increase of 9,530 units over
fiscal 1996 sales of 16,473 units.
Remanufactured engine unit sales in fiscal year 1997 were 3,164, which
represents an increase of 367 units. Engine sales in fiscal 1996 were 2,797.
Transmission unit sales increased by 118 in fiscal year 1997 to 3,873
units. Transmission sales in fiscal 1996 were 3,755 an increase of 1,187 over
the previous year.
In February 1997, prices were reviewed and selectively increased about
2.5%. In September 1996, water pump prices were reduced as part of a nation-
wide price reduction program to increase market penetration. 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 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.
Interest income for fiscal 1997 was $49,109; in fiscal 1996 it was $31,153;
and in fiscal 1995 it was $15,206. Investment amounts were higher during fiscal
1997 than during fiscal 1996, and available rates were approximately equal.
Investment amounts during 1996 were higher than in 1995, and available
investment rates again were approximately the same.
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
- ----------------------------------------------------------------
1993 24.9 17.6
1994 21.6 14.6
1995 21.4 12.8
1996 21.7 11.4
1997 20.8 10.8
The following table shows the changes in selected expense categories,
included within selling, general and administrative expenses, for the past three
fiscal years:
AMOUNT OF INCREASE (DECREASE)
OVER PRIOR FISCAL YEAR
FISCAL YEARS ENDED JULY 31
1997 1996 1995
- --------------------------------------------------------------------------------
Salaries and Wages (Other than
for Officers and Directors) ($10,631) $2,700 ($10,187)
Cost of Group Insurance
for Employees 16,799 19,778 (16,155)
Officers' and Directors'
Compensation 12,032 28,173 (4,918)
Repairs and Maintenance
for Vehicles 8,341 (1,697) 1,964
Depreciation on Vehicles (13) 9,453 (25,424)
Gas and Oil (3,973) (3,808) 2,800
Warehouse Supplies & Expenses (992) 2,656 13,037
Payroll Taxes (910) 3,986 149
Advertising and Price Lists (23,693) 19,502 (7,264)
Bad Debt Expenses 550 (253) (2,228)
Professional Services 5,342 (20,346) 4,472
Payroll Insurance (5,624) (13,426) (168)
Insurance--
Vehicles, Building, Contents (365) (1,717) (6,666)
Telephone (6,572) 7,133 (5,526)
Utilities 2,138 2,773 (2,676)
Freight 36,113 46,491 45,566
The increase in group insurance is due to higher claim costs than during
the preceding two years. The increase in officers' and directors' compensation
was due to higher salaries and commissions paid to officers.
The decrease in advertising and price lists is due to a reduction in the
Ford Authorized Remanufacturers national advertising budget, in which the
Company participates. The increase in freight costs is due to policy changes
which result in more products being shipped on a prepaid basis.
<PAGE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
Earnings per share of common stock increased $.02 in fiscal 1997 due to
increased sales volume. 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 per share increased $.06 in fiscal 1995 also due to increased
sales volume.
The Company's ratio of current assets to current liabilities of 3 to 1
indicates that the Company is maintaining a reasonable level of liquidity. Our
inventories in fiscal 1997 were lower than in fiscal 1996, 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
- ---------------------------------------------------------------------------
1997 . . . . . . . . . . . . . . . . . $881,389
1996 . . . . . . . . . . . . . . . . . $934,072
1995 . . . . . . . . . . . . . . . . . $278,064
It is anticipated that certain capital expenditures will be required to
maintain or increase the current level of business and service. Among these
expenditures is a 10,000 square foot warehouse addition next to the Algona
plant, computer system improvements and unit replacements in the truck fleet.
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 planned and future
capital needs.
In connection with the complaint filed by the Environmental Protection
Agency (EPA) described in Note 6 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 years 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,
1997.
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INDEPENDENT AUDITORS' REPORT
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The Stockholders and Board of Directors
Universal Mfg. Co.:
We have audited the accompanying balance sheets of Universal Mfg. Co. as of
July 31, 1997 and 1996 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, 1997. 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. as of July 31, 1997 and
1996 and the results of its operations and its cash flows for each of the three
years in the period ended July 31, 1997 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Omaha, Nebraska
August 19, 1997
<PAGE>
FINANCIAL STATEMENTS
UNIVERSAL MFG. CO.
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BALANCE SHEETS
- --------------------------------------------------------------------------------
ASSETS
JULY 31,
-------------------------
CURRENT ASSETS: 1997 1996
---------- ----------
Cash and cash equivalents $ 881,389 $ 934,072
Accounts receivable 1,884,917 1,654,992
Inventories (Notes 3) 2,412,712 2,479,713
Income taxes recoverable 23,180 -
Prepaid expenses 70,929 50,282
---------- ----------
Total current assets 5,273,127 5,119,059
---------- ----------
DEFERRED INCOME TAXES (NOTES 5) 44,208 42,329
LEASE RECEIVABLE (NOTE 4) 14,041 26,073
PROPERTY - AT COST:
Land 120,499 120,499
Buildings 1,157,116 1,099,594
Machinery and equipment 938,466 899,997
Furniture and fixtures 208,086 209,947
Trucks and automobiles 743,530 699,240
---------- ----------
Total property 3,167,697 3,029,277
Less accumulated depreciation (2,055,549) (1,985,407)
---------- ----------
Property - net 1,112,148 1,043,870
---------- ----------
$6,443,524 $6,231,331
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,419,725 $1,507,944
Dividends payable 204,000 204,000
Payroll taxes 24,944 10,539
Income taxes payable - -56,790
Accrued compensation 87,631 90,046
Accrued local taxes 22,269 13,984
---------- ----------
Total current liabilities 1,758,569 1,883,303
---------- ----------
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 3,851,093 3,514,166
---------- ----------
Total stockholders' equity 4,684,955 4,348,028
---------- ----------
$6,443,524 $6,231,331
---------- ----------
---------- ----------
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
UNIVERSAL MFG. CO.
- --------------------------------------------------------------------------------
STATEMENTS OF INCOME AND RETAINED EARNINGS
- --------------------------------------------------------------------------------
THREE YEARS ENDED JULY 31, 1997
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $19,089,166 $17,678,542 $14,762,085
COST OF GOODS SOLD 15,111,618 13,836,818 11,600,552
----------- ----------- -----------
GROSS PROFIT 3,977,548 3,841,724 3,161,533
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,068,321 2,019,079 1,885,622
----------- ----------- -----------
INCOME FROM OPERATIONS 1,909,227 1,822,645 1,275,911
OTHER INCOME:
Interest (net) 49,109 31,153 15,206
Other 13,041 35,152 28,785
----------- ----------- -----------
Total other income 62,150 66,305 43,991
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,971,377 1,888,950 1,319,902
INCOME TAXES (Note 5) 818,450 754,491 501,086
----------- ----------- -----------
NET INCOME 1,152,927 1,134,459 818,816
RETAINED EARNINGS, BEGINNING OF YEAR 3,514,166 3,073,307 2,907,291
----------- ----------- -----------
4,667,093 4,207,766 3,726,107
LESS CASH DIVIDENDS
($1.00, $.85 and $.80 per share
in 1997, 1996 and 1995,
respectively) 816,000 693,600 652,800
----------- ----------- -----------
RETAINED EARNINGS, END OF YEAR $ 3,851,093 $ 3,514,166 $ 3,073,307
----------- ----------- -----------
----------- ----------- -----------
EARNINGS PER COMMON SHARE: $ 1.41 $ 1.39 $ 1.00
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
UNIVERSAL MFG. CO.
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
THREE YEARS ENDED JULY 31, 1997
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,152,927 $1,134,459 $ 818,816
Adjustments to reconcile net income to net cash from operating activities:
Depreciation 190,749 184,406 149,786
Deferred income taxes (1,879) - (22,586)
Gain on sale of property (2,459) (14,634) (4,920)
Effect of changes in operating assets and liabilities:
Accounts receivable (229,925) (235,815) 131,288
Inventories 67,001 44,270 (203,350)
Income taxes recoverable (23,180) 109,646 (109,646)
Prepaid expenses (20,647) (12,306) 46,411
Accounts payable (88,219) 242,231 (117,845)
Dividends payable - 40,800 40,800
Payroll taxes 14,405 1,227 (2,676)
Income taxes payable (56,790) 56,790 (143,848)
Accrued compensation (2,415) 1,711 (32,292)
Accrued local taxes 8,285 (5,706) (710)
----------- ----------- -----------
Net cash flows from operating activities 1,007,853 1,547,079 549,228
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 88,400 81,063 38,724
Purchases of property (332,936) (278,534) (365,610)
Purchases of investments - - (3,197)
Proceeds from maturities of investments - 67,597 -
----------- ----------- -----------
Net cash flows from investing activities (244,536) (129,874) (330,083)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (816,000) (693,600) (652,800)
----------- ----------- -----------
Net cash flows from financing activities (816,000) (693,600) (652,800)
----------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (52,683) 723,605 (433,655)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 934,072 210,467 644,122
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 881,389 $ 934,072 $ 210,467
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes $ 898,426 $ 595,805 $ 729,514
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
UNIVERSAL MFG. CO.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
THREE YEARS ENDED JULY 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, determined on a
last-in, first-out (LIFO) method or market.
INVESTMENTS - From time-to-time the Company may make short-term investments
which 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.
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).
2. CHANGES IN ACCOUNTING PRINCIPLES
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.
PENDING ACCOUNTING CHANGES - In February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
No. 128, "Earnings per Share", effective for fiscal years beginning after
December 15, 1997. In addition, in February 1997, the FASB issued Statement
of Financial Accounting Standards No. 129, "Disclosure of Information about
Capital Structure." In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" and
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", all of which are
effective for fiscal years beginning after December 15, 1997. The adoption
of these statements is not expected to have a material impact on the
operations of the Company.
<PAGE>
UNIVERSAL MFG. CO.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
THREE YEARS ENDED JULY 31, 1997
3. INVENTORIES
The major classes of inventory are as follows:
1997 1996
---------- ----------
Product core $1,048,754 $ 889,164
Raw materials 382,557 496,439
Finished engines 278,756 208,295
Finished small parts 702,645 885,815
---------- ----------
$2,412,712 $2,479,713
---------- ----------
---------- ----------
If inventories were valued at the lower of cost (first-in, first-out
method) or market, inventories would have been $5,342,795 and $5,483,024
at July 31, 1997 and 1996, 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 $27,373 and the
unearned income is $13,332 at July 31, 1997. These amounts are shown on a
net basis for financial statement purposes.
5. INCOME TAXES
The provision for income taxes for the years ended July 31, 1997, 1996 and
1995 is as follows:
1997 1996 1995
Current income taxes $820,329 $754,491 $523,672
Deferred income taxes (1,879) - (22,586)
-------- -------- --------
Income tax provision $818,450 $754,491 $501,086
-------- -------- --------
-------- -------- --------
The tax effect of differences in the timing of revenues and expenses for
tax and financial statement purposes is as follows:
1997 1996 1995
Depreciation $ (2,619) $40,590 $ -
Uniform inventory
capitalization (1,862) 1,752 (13,128)
Vacation pay accruals 2,076 5,788 1,834
Other 526 (48,130) (11,292)
--------- -------- ---------
Deferred Income taxes $ (1,879) $ - $(22,586)
--------- -------- ---------
--------- -------- ---------
A reconciliation between statutory and effective tax rates is as follows:
1997 1996 1995
Income before
income taxes $1,971,377 $1,888,950 $1,319,902
Statutory rate 34% 34% 34%
--------- --------- ---------
Income taxes
at statutory rate 670,268 642,243 448,767
Tax effect of:
State taxes 159,387 85,320 62,552
Other - net (11,205) 26,928 (10,233)
--------- --------- ---------
Total income taxes $818,450 $754,491 $501,086
--------- --------- ---------
--------- --------- ---------
6. 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, 1997 are $90,113. The remaining amount of
$59,612 is recorded as a liability 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, 1997
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
No response required.
Page 5 of 12 Pages
<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 November 18,
1997, 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 November 18,
1997, 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 November 18,
1997, 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.
Page 6 of 12 Pages
<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. See page 10.
(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. See pages 11-12.
(b) The Company did not file any reports on Form 8-K
during the last quarter of the period covered by
this report.
Page 7 of 12 Pages
<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: __________________________________ By: __________________________________
Donald D. Heupel, President, Chief T. Warren Thompson, Secretary and
Executive Officer, Chief Financial Director
Officer and Director
Date: October 28, 1997 Date: October 28, 1997
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: -------------------------- Date: October 28, 1997
Richard W. Agee/Director
By: -------------------------- Date: October 28, 1997
Richard E. McFayden/Director
By: -------------------------- Date: October 28, 1997
Helen Ann McHugh/Director
By: -------------------------- Date: October 28, 1997
Harry W. Meginnis/Director
By: -------------------------- Date: October 28, 1997
Thomas W. Rasmussen/Director
Page 8 of 12 Pages
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Page
No. Description Method of Filing Location
------- ----------- --------------- --------------
<S> <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 Agreement with Incorporated by reference to the Company's Annual Report on --
Dealers Manufacturing Co., dated Form 10-KSB for the fiscal year ended July 31, 1993, Pages
May 26, 1993 25-29.
10(ii) The Company's Authorized Incorporated by reference to the Company's Annual Report on --
Remanufactured Product Distributor Form 10-KSB for the fiscal year ended July 31, 1995, Pages
Agreement with Ford Motor Company, 20-38.
dated April 1, 1995
27 Financial Data Schedule Filed herewith. 10
99 Supplemental Report of Independent Filed herewith. 11-12
Public Accountants and attached
financial statement schedule:
Schedule VIII - Valuation Accounts
for the three years ended July 31,
1997
</TABLE>
- -------------------------------------------------------------------------------
Page 9 of 12 Pages
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 881,389
<SECURITIES> 0
<RECEIVABLES> 1,884,917
<ALLOWANCES> 0
<INVENTORY> 2,412,712
<CURRENT-ASSETS> 5,273,127
<PP&E> 3,167,697
<DEPRECIATION> (2,055,549)
<TOTAL-ASSETS> 6,443,524
<CURRENT-LIABILITIES> 1,758,569
<BONDS> 0
0
0
<COMMON> 816,000
<OTHER-SE> 3,868,955
<TOTAL-LIABILITY-AND-EQUITY> 6,443,524
<SALES> 19,089,166
<TOTAL-REVENUES> 19,151,316
<CGS> 15,111,618
<TOTAL-COSTS> 17,179,939
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,971,377
<INCOME-TAX> 818,450
<INCOME-CONTINUING> 1,152,927
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,152,927
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.41
</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,
1997 and 1996, and for each of the three years in the period ended July 31,
1997, and have issued our report thereon dated August 19, 1997; such
financial statements and report are included in your 1997 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 19, 1997
<PAGE>
UNIVERSAL MFG. CO. Schedule VIII
VALUATION ACCOUNTS
THREE YEARS ENDED JULY 31, 1997
______________________________________________________________________________
ADDITIONS-
BALANCE, CHARGED TO DEDUCTIONS- BALANCE,
BEGINNING COST AND ACCOUNTS END OF
DESCRIPTION OF YEAR EXPENSES CHARGED-OFF YEAR
July 31, 1997 - Allowance
for doubtful accounts $ - $ 550 $ 550 $ -
----- ----- ----- -----
July 31, 1996 - Allowance
for doubtful accounts $ - $ - $ - $ -
----- ----- ----- -----
July 31, 1995 - Allowance
for doubtful accounts $ - $ 252 $ 252 $ -
----- ----- ----- -----
