<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended 10-31-97 Commission File Number 0-2865
UNIVERSAL MFG, CO.
(Exact name if Registrant as specified in its charter)
Nebraska 42 0733240
--------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
405 Diagonal Street., P. O. Box 190, Algona, Iowa 50511
(Address of principal executive office)
Registrant's telephone number, including area code (515)-295-3557
Not Applicable
- ------------------------------------------------------------------------------
Former name, former address and former fiscal year if changed since last report
"Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days."
Yes _X_ No_____
"Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date."
Number of shares outstanding as of 10-31-97 816,000
--------
common
Transitional Small Business Disclosed Format ( Check one ):
Yes____ No _X_
1
<PAGE>
UNIVERSAL MFG. CO.
FORM 10-QSB
INDEX
Pages
Part I FINANCIAL INFORMATION
Item 1. Financial Statements: 3
Balance Sheets - October 31, 1997
(unaudited) and July 31, 1997
Statements of Income and Retained 4
Earnings - Three Months ended October 31, 1997
and 1996. (unaudited)
Statements of Cash Flows - Three
months ended October 31, 1997 and 1996. (unaudited) 5
Notes to Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and results of Operations 9
Part II OTHER INFORMATION
Item 1. Legal proceedings 9
Item 2. Changes in securities 9
Item 3. Defaults upon senior securities 9
Item 4. Submission of Matters to a vote of security holders 9
Item 5. Other information 9
Item 6. Exhibits and reports on Form 8-K 9
Signatures 10
2
<PAGE>
Item 1. FINANCIAL STATEMENTS
UNIVERSAL MFG. CO.
BALANCE SHEETS
October 31
1997 July 31,
(Unaudited) 1997
----------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,233,582 $881,389
Accounts receivable 1,870,746 1,884,917
Inventories 2,187,674 2,412,712
Income taxes recoverable 0 23,180
Prepaid expenses 222,334 70,929
----------- ----------
Total current assets 5,514,336 5,273,127
----------- ----------
Deferred Income Taxes 44,208 44,208
----------- ----------
Lease Receivable 10,726 14,041
----------- ----------
PROPERTY - At cost
Land 120,499 120,499
Buildings 1,157,156 1,157,116
Machinery and equipment 1,001,723 938,466
Furniture and fixtures 208,086 208,086
Trucks and automobiles 743,530 743,530
----------- ----------
Total property 3,230,994 3,167,697
Less accumulated depreciation (2,098,471) (2,055,549)
----------- ----------
Property - net 1,132,523 1,112,148
----------- ----------
$6,701,793 $6,443,524
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,347,996 $1,419,725
Dividends payable 204,000 204,000
Payroll taxes 21,167 24,944
Income taxes payable 173,934 0
Accrued compensation 85,287 87,631
Accrued local taxes 0 22,269
----------- ----------
Total current liabilities 1,832,384 1,758,569
----------- ----------
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 4,035,547 3,851,093
----------- ----------
Total stockholders' equity 4,869,409 4,684,955
----------- ----------
$6,701,793 $6,443,524
----------- ----------
----------- ----------
3
<PAGE>
UNIVERSAL MFG. CO.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
Three Months Ended
----------------------------
October October
1997 1996
----------- ----------
NET SALES $5,375,784 $4,854,133
COST OF GOODS SOLD 4,214,178 3,559,425
----------- ----------
GROSS PROFIT 1,161,606 1,294,708
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 542,629 495,813
----------- ----------
INCOME FROM OPERATIONS 618,977 798,895
----------- ----------
OTHER INCOME:
Interest 13,223 15,087
Other income 4,618 3,745
----------- ----------
Total other income 17,841 18,832
----------- ----------
INCOME BEFORE INCOME TAXES 636,818 817,727
INCOME TAXES 248,359 318,913
----------- ----------
NET INCOME 388,459 498,814
RETAINED EARNINGS, Beginning of period 3,851,088 3,514,161
DIVIDENDS (204,000) (204,000)
----------- ----------
RETAINED EARNINGS, End of period $4,035,547 $3,808,975
----------- ----------
----------- ----------
EARNINGS PER COMMON SHARE:
Earnings per common share $0.48 $0.61
----------- ----------
----------- ----------
4
<PAGE>
UNIVERSAL MFG. CO.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
-------------------------
October 31, October 31,
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $388,459 $498,814
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 42,922 48,152
Gain on sale of property 0 (700)
Changes in operating assets and liabilities:
Accounts receivable 14,171 40,962
Inventories 225,033 220,580
Prepaid expenses (151,405) (77,423)
Income taxes recoverable 23,180 0
Lease receivable 3,315 0
Accounts payable (82,437) (134,958)
Payroll taxes (3,777) 9,123
Accrued compensation (2,344) 9,589
Accrued local taxes (11,561) (3,324)
Income taxes payable 173,934 250,674
----------- ----------
Net cash flows from operating activities 619,490 861,489
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 0 700
Purchases of property (63,297) (35,446)
Proceeds from maturities of investments - 0
----------- ----------
Net cash flows from investing activities (63,297) (34,746)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (204,000) (204,000)
----------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 352,193 622,743
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 881,389 934,072
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,233,582 $1,556,815
----------- ----------
----------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Income taxes $8,915 $68,240
----------- ----------
----------- ----------
5
<PAGE>
UNIVERSAL Mfg. Co.
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS
ENDED OCTOBER 31, 1997 (unaudited)
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
automobile parts for Ford, Lincoln and Mercury automobile and trucks. The
Company is a franchised remanufacturer for Ford Motor Company with a defined
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 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 reported
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 market
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
Mach & Equip Declining balance 7-10 years
Furniture & Fix. Declining balance 5-7 years
Trucks & Auto's 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 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 product.
CASH EQUIVALENT - For the purposes of the Statement of Cash Flows, the Company
considers all highly liquid instruments purchased with a maturity of three
months or less to be cash equivalents.
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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 market values.
Earnings Per Share - Earnings per share have been computed on the weighted
average number of shares outstanding. (816,000 shares.)
Company Representation - In the opinion of the Company, the accompanying
unaudited financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position
as of October 31, 1997, and the results of operations and cash flows for the
three month period ending October 31, 1997 and October, 1996. The results of
operations for these periods are not necessarily indicative of results to be
expected for the full year. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted. The Company
suggests that these condensed financial statements be read in conjunction
with the financial statements and notes included in the Company's Form 10-KSB
for the fiscal year ended July 31, 1997.
CHANGES IN ACCOUNTING PRINCIPLES
Pending Accounting Changes - In February 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
128, "Earning per Share" and in addition 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, "Disclosure about segments of and
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.
LEASE RECEIVABLE
On May 26, 1993, the Company 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 $20,530 and the unearned income is $9,804, as
of October 31, 1997. These amounts are shown on a net basis
for financial statement purposes.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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 alleges, 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 provides for settlement of this complaint.
This settlement called for payment of civil penalties of $32,955 and for
completion of certain remedial projects, estimated to cost approximately
$149,725. Total costs paid as of October 31, 1997 are $90,113. The remaining
amount of $59,612 has been recorded, as a liability, in the accompanying
financial statements.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Sales for the first quarter, 1997, were 11% higher than for the
first quarter a year ago. This sales increase was led by sales of
remanufactured engine assemblies, and by distribution of
remanufactured components for diesel engines. Other product lines
which increased in sales were starters, water pumps, alternator
rotors, steering gears, and transmission assemblies.
Earnings from operations decreased 22% due to unusual earnings from
core (old parts for remanufacturing) sales first quarter last
fiscal year.
The higher cash balance for October 31, 1997, compared to July 31,
1997, is because first quarter, 1998 estimated income taxes are due
November 17, 1997, after quarter end. Fourth quarter 1997 taxes
were paid before quarter end.
Inventories were lower in October 31, 1997, than July 31, 1997, but
are within normal business fluctuations. Prepaid expenses were
higher due to payments made on the construction of a 10,000 sq. ft.
arehouse facility in Algona, Iowa.
Part II
Item 1. LEGAL PROCEEDINGS:
With respect to the Supplemental Environmental Project (the "SEP")
being performed by the Company pursuant to the May 6, 1994 Consent
Agreement with the United States Environmental Protection Agency
("EPA"), the Company has paid total costs of $90,113 for work
performed. No further direction has been received from the EPA
regarding any testing or clean-up that may be required for
contamination found in the large pit after the sludge was removed. No
estimate of these costs can be made at this time. If the EPA
determines that no further work is required under the SEP, the Company
will owe a deferred penalty of approximately $32,955 under the terms
of the Consent Agreement with the EPA.
Please refer to the Part I, Item 3 of the Form 10-KSB report for the
Company's fiscal year ended July 31, 1997, for further discussion of
this matter.
Item 2. CHANGES IN SECURITIES NONE
Item 3. DEFAULTS UPON SENIOR SECURITIES NONE
Item 4. SUBMISSION OF MATTERS TO A NONE
VOTE OF SECURITY HOLDERS
Item 5. OTHER INFORMATION NONE
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a.) Exhibits NONE
(b.) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during
the quarter for which this report is filed.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date 11-25-97 /s/ Donald D. Heupel
-------------------------------------------------------
Donald D. Heupel, President and Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 52,389
<SECURITIES> 1,181,193
<RECEIVABLES> 2,148,014
<ALLOWANCES> 0
<INVENTORY> 2,187,674
<CURRENT-ASSETS> 5,569,270
<PP&E> 3,230,994
<DEPRECIATION> 2,098,471
<TOTAL-ASSETS> 6,701,793
<CURRENT-LIABILITIES> 1,628,384
<BONDS> 0
0
0
<COMMON> 816,000
<OTHER-SE> 4,257,409
<TOTAL-LIABILITY-AND-EQUITY> 6,701,793
<SALES> 5,375,784
<TOTAL-REVENUES> 5,393,625
<CGS> 4,214,178
<TOTAL-COSTS> 4,756,807
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 636,818
<INCOME-TAX> 248,359
<INCOME-CONTINUING> 388,459
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 388,459
<EPS-PRIMARY> .48
<EPS-DILUTED> 0
</TABLE>
