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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 10-31-98 Commission File Number 0-2865
UNIVERSAL MFG, CO.
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(Exact name of Registrant as specified in its charter)
Nebraska 42 0733240
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(State or other jurisdiction of incorporation IRS Employer Identification No.)
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
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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
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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 10-31-98 816,000
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Common
Transitional Small Business Disclosed Format ( Check one ):
Yes No X
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1
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UNIVERSAL MFG. CO.
FORM 10-QSB
INDEX
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PAGES
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Part I FINANCIAL INFORMATION
Item 1. Financial Statements: 3
Balance Sheets - October 31, 1998
(unaudited) and July 31, 1998
Statements of Income and Retained 4
Earnings - Three Months ended October 31, 1998
and 1997. (unaudited)
Statements of Cash Flows - Three months ended
October 31, 1998 and 1997. (unaudited) 5
Notes to Financial Statements as of and for the Three Months
Ended October 31, 1998
Item 2. Management's Discussion and Analysis of Financial
Condition and results of Operations 8
Part II OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in securities 8
Item 3. Defaults upon senior securities 8
Item 4. Submission of Matters to a vote of security holders 8
Item 5. Other information 9
Item 6. Exhibits and reports on Form 8-K 9
Signatures 10
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2
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ITEM 1. FINANCIAL STATEMENTS
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UNIVERSAL MFG. CO.
BALANCE SHEETS
October 31
1998 July 31,
(Unaudited) 1998
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,911,592 $1,234,007
Accounts receivable 1,798,823 2,141,099
Inventories 2,756,585 2,611,961
Income taxes recoverable 0 23,545
Prepaid expenses 42,013 19,798
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Total current assets 6,509,013 6,030,410
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Deferred Income Taxes 24,188 24,188
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Lease Receivable 0 0
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PROPERTY - At cost
Land 120,499 120,499
Buildings 1,406,747 1,406,747
Machinery and equipment 1,013,923 1,013,923
Furniture and fixtures 263,838 264,924
Trucks and automobiles 842,654 870,579
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Total property 3,647,661 3,676,672
Less accumulated depreciation (2,193,702) (2,201,225)
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Property - net 1,453,959 1,475,447
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$7,987,160 $7,530,045
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $2,359,662 $2,199,744
Dividends payable 163,200 163,200
Payroll taxes 25,172 27,828
Income taxes payable 151,825 0
Accrued compensation 87,396 81,495
Accrued local taxes 10,768 17,570
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Total current liabilities 2,798,023 2,489,837
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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 4,355,275 4,206,346
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Total stockholders' equity 5,189,137 5,040,208
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$7,987,160 $7,530,045
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UNIVERSAL MFG. CO.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
Three Months Ended
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October October
1998 1997
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NET SALES $4,991,730 $5,375,784
COST OF GOODS SOLD 3,970,837 4,214,178
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GROSS PROFIT 1,020,893 1,161,606
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 546,319 542,629
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INCOME FROM OPERATIONS 474,574 618,977
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OTHER INCOME:
Interest 13,192 13,223
Other income 23,921 4,618
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Total other income 37,113 17,841
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INCOME BEFORE INCOME TAXES 511,687 636,818
INCOME TAXES 199,558 248,359
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NET INCOME 312,129 388,459
RETAINED EARNINGS, Beginning of period 4,206,346 3,851,088
DIVIDENDS (163,200) (204,000)
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RETAINED EARNINGS, End of period $4,355,275 $4,035,547
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PER COMMON SHARE INFORMATION:
Earnings per common share $0.38 $0.48
Dividends per common share 0.20 0.25
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4
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UNIVERSAL MFG. CO.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
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October 31, October 31,
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $312,129 $ 388,459
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 55,136 42,922
Gain on sale of property 3,423 0
Changes in operating assets and liabilities:
Accounts receivable 342,276 14,171
Inventories (144,624) 225,033
Prepaid expenses (22,215) (151,405)
Income taxes recoverable 23,545 23,180
Lease receivable 0 3,315
Accounts payable 159,918 (82,437)
Payroll taxes (2,656) (3,777)
Accrued compensation 5,901 (2,344)
Accrued local taxes (6,802) (11,561)
Income taxes payable 151,825 173,934
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Net cash flows from operating activities 877,856 619,490
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 0 0
Purchases of property (37,071) (63,297)
Proceeds from maturities of investments - -
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Net cash flows from investing activities (37,071) (63,297)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (163,200) (204,000)
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NET CHANGE IN CASH AND CASH EQUIVALENTS 677,585 352,193
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,234,007 881,814
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- -
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,911,592 $1,234,007
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Income taxes $0 $ 8,915
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5
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UNIVERSAL Mfg. Co.
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS
ENDED OCTOBER 31, 1998 (unaudited)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - The Company is engaged in the business of remanufacturing
and distribution on a wholesale basis, engines and other automobile parts for
Ford, Lincoln and Mercury automobile and trucks. On October 1, 1998, the Company
signed a new sales agreement with Ford Motor Company authorizing the Company to
be a Ford authorized distributor. 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:
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Assets Depreciation Method Lives
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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
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Maintenance and repairs are charged to operations as incurred. Renewals and
betterment's 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.
WARRANTY - Warranty expense is based upon receipt of warranty claims and prior
historical experience.
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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, 1998, and the results of operations and cash flows for the three
month period ending October 31, 1998 and April 1997. 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, 1998.
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 April 30, 1998 are $90,113. The remaining
amount of $59,612 has been recorded, as a liability, in the accompanying
financial statements.
On June 10, 1998, the Company received notice from the EPA authorizing
submission of a proposal for treatment on additional contamination found after
the initial hazardous waste was removed. The EPA approved that costs related to
studies for the removal of the additional contamination could be offset against
the remaining liability. On August 6, 1998, the Company received a proposal to
study the additional contamination with an estimated cost approximating the
liability at July 31, 1998.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Sales for the first quarter of this fiscal year were 7.1% lower than the first
quarter a year ago. Sales of remanufactured transmission assemblies and other
distribution products increased, but were offset by decreases in remanufactured
engine assemblies and several small parts lines. Small part sales were affected
by product line deauthorizations, as customers reduced inventories.
Earnings were lower due to the lower sales volumes and to lower margins
generated by remanufactured transmissions and other distribution products.
Effective October 1, 1998, Universal Manufacturing Company signed a new Sales
Agreement with Ford Motor Company, which established the Company as a Ford
Authorized Distributor. As a Ford Authorized Distributor, the Company will
distribute Ford remanufactured products, Motorcraft branded products, and other
Ford branded products to Ford and Lincoln-Mercury dealerships in the territories
near Universal's warehouse locations.
The Des Moines, Iowa, warehouse has been moved to a larger facility, and the
Peoria, Illinois, warehouse is being expanded to provide adequate space for all
the additional inventories. Delivery capability and personnel are being added at
all locations to perform distribution within the standards designated in the new
sales agreement.
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS NONE
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
8
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ITEM 5. OTHER INFORMATION
In fiscal year 1998, through routine upgrades, as represented by the software
suppliers, the Company made the computer software programs and equipment
utilized at the company's facilities year 2000 compliant. These upgrades
include, but are not limited to, the manufacturing, financial and accounting,
invoicing, production, sales, and warehouse management systems. The Company has
not incurred significant costs as a result of the upgrade of its internal system
to year 2000 compliance.
The Company is investigating the year 2000 status of the Company's
non-information/technology systems, which include phones, voice mail,
heating/air conditioning, electricity, security systems and lift trucks. The
Company expects that its non-IT systems will be year 2000 compliant before the
end of 1999.
In addition to reviewing its internal systems, the Company has sent surveys to
its major outside vendors to determine if they are year 2000 compliant and to
identify any potential issues.
To the extent the Company's vendors are not year 2000 compliant, such vendors
may fail to deliver ordered materials and products to the Company in a timely
manner. Consequently, the Company may not have the correct inventory to send to
their customers and may experience a shortage of inventory. Any disruption in
manufacturing services provided by the Company as a result of year 2000
noncompliance could have a material adverse affect on the Company's business,
financial condition, and results from operations.
Management is committed to devoting the appropriate resources to ensure a timely
year 2000 solution and will continue to test current and new versions of the
Company's computer software and equipment, and will work with the necessary
third parties to achieve the solution.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits None
b. Reports on Form 8-K
The Company filed a Form 8-K on October 20, 1998.
9
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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 November 24, 1998 /s/ Donald D. Heupel
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Donald D. Heupel, President and
Chief Financial Officer
10
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 31,493
<SECURITIES> 1,880,099
<RECEIVABLES> 1,865,024
<ALLOWANCES> 0
<INVENTORY> 2,756,585
<CURRENT-ASSETS> 6,533,201
<PP&E> 3,647,661
<DEPRECIATION> (2,193,702)
<TOTAL-ASSETS> 7,987,160
<CURRENT-LIABILITIES> 2,798,023
<BONDS> 0
816,000
0
<COMMON> 0
<OTHER-SE> 4,373,137
<TOTAL-LIABILITY-AND-EQUITY> 7,987,160
<SALES> 4,991,730
<TOTAL-REVENUES> 4,991,730
<CGS> 3,970,837
<TOTAL-COSTS> 3,970,837
<OTHER-EXPENSES> 509,206
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 511,687
<INCOME-TAX> 199,558
<INCOME-CONTINUING> 312,129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 312,129
<EPS-PRIMARY> .38
<EPS-DILUTED> 0
</TABLE>
