<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 04-30-98 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 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
--------------
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 04-30-98 816,000
-------
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 - April 30, 1998
(unaudited) and July 31, 1997
Statements of Income and Retained 4
Earnings - Nine Months ended April 30, 1998
and 1997. (unaudited)
Statements of Income and Retained 5
Earnings - Three Months ending April 30, 1998
And 1997. (unaudited)
Statements of Cash Flows - Nine months ended
April 30, 1998 and 1997. (unaudited) 6
Notes to Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and results of Operations 10
Part II OTHER INFORMATION
Item 1. Legal proceedings 10
Item 2. Changes in securities 10
Item 3. Defaults upon senior securities 10
Item 4. Submission of Matters to a vote of security holders 10
Item 5. Other information 11
Item 6. Exhibits and reports on Form 8-K 11
Signatures 12
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
UNIVERSAL MFG. CO.
BALANCE SHEETS
<TABLE>
<CAPTION>
April 30,
1998 July 31,
(Unaudited) 1997
-------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $521,615 $881,389
Accounts receivable 1,524,014 1,884,917
Inventories 3,554,376 2,412,712
Income taxes recoverable 20,648 23,180
Prepaid expenses 36,280 70,929
-------------- -------------
Total current assets 5,656,933 5,273,127
-------------- -------------
Deferred Income Taxes 44,208 44,208
-------------- -------------
Lease Receivable 3,707 14,041
-------------- -------------
PROPERTY - At cost
Land 120,499 120,499
Buildings 1,406,747 1,157,116
Machinery and equipment 1,016,279 938,466
Furniture and fixtures 264,924 208,086
Trucks and automobiles 774,731 743,530
-------------- -------------
Total property 3,583,180 3,167,697
Less accumulated depreciation (2,166,712) (2,055,549)
-------------- -------------
Property - net 1,416,468 1,112,148
-------------- -------------
$7,121,316 $6,443,524
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $2,005,714 $1,419,725
Dividends payable 163,200 204,000
Payroll taxes 26,681 24,944
Income taxes payable 0 0
Accrued compensation 65,854 87,631
Accrued local taxes 13,560 22,269
-------------- -------------
Total current liabilities 2,275,009 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 4,012,445 3,851,093
-------------- -------------
Total stockholders' equity 4,846,307 4,684,955
-------------- -------------
$7,121,316 $6,443,524
============== =============
</TABLE>
3
<PAGE>
UNIVERSAL MFG. CO.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------
April 30, April 30,
1998 1997
-------------- -------------
<S> <C> <C>
NET SALES $13,643,785 $14,112,798
COST OF GOODS SOLD 10,896,925 11,168,363
-------------- -------------
GROSS PROFIT 2,746,860 2,944,435
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,590,300 1,535,191
-------------- -------------
INCOME FROM OPERATIONS 1,156,560 1,409,244
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OTHER INCOME:
Interest 32,119 42,815
Other income 12,225 11,595
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Total other income 44,344 54,410
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INCOME BEFORE INCOME TAXES 1,200,904 1,463,654
INCOME TAXES 468,352 570,825
-------------- -------------
NET INCOME 732,552 892,829
RETAINED EARNINGS, Beginning of period 3,851,093 3,514,161
DIVIDENDS (571,200) (612,000)
-------------- -------------
RETAINED EARNINGS, End of period $4,012,445 $3,794,990
============== =============
EARNINGS PER COMMON SHARE:
Earnings per common share $0.90 $1.09
============== =============
</TABLE>
4
<PAGE>
UNIVERSAL MFG. CO.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------
April 30, April 30,
1998 1997
-------------- -------------
<S> <C> <C>
NET SALES $4,150,491 $4,463,762
COST OF GOODS SOLD 3,435,526 3,609,911
-------------- -------------
GROSS PROFIT 714,965 853,851
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 534,157 525,906
-------------- -------------
INCOME FROM OPERATIONS 180,808 327,945
-------------- -------------
OTHER INCOME:
Interest 5,896 11,491
Other income 4,065 6,644
-------------- -------------
Total other income 9,961 18,135
-------------- -------------
INCOME BEFORE INCOME TAXES 190,769 346,080
INCOME TAXES 74,400 134,971
-------------- -------------
NET INCOME 116,369 211,109
RETAINED EARNINGS, BEGINNING OF QUARTER 4,059,276 3,787,881
DIVIDENDS PAID (163,200) (204,000)
-------------- -------------
RETAINED EARNINGS, END OF QUARTER $4,012,445 $3,794,990
============== =============
EARNINGS PER COMMON SHARE:
Earnings per common share $0.14 $0.26
============== =============
</TABLE>
5
<PAGE>
UNIVERSAL MFG. CO.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------
April 30, April 30,
1998 1997
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $732,552 $892,829
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 111,163 146,951
(Gain) on sale of property 9,136 (2,459)
Changes in operating assets and liabilities:
Accounts receivable 360,903 175,779
Inventories (1,141,664) (593,450)
Prepaid expenses 34,649 (52,289)
Income taxes recoverable 2,532 (52,995)
Lease receivable 10,334 8,842
Accounts payable 545,189 437,070
Payroll taxes 1,737 561
Accrued compensation (21,777) (37,582)
Accrued local taxes (8,709) (100)
Income taxes payable 0 (56,790)
-------------- -------------
Net cash flows from operating activities 636,045 866,367
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 0 10,200
Purchases of property (424,619) (250,835)
-------------- -------------
Net cash flows from investing activities (424,619) (240,635)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (571,200) (612,000)
-------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (359,774) 13,732
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 881,389 934,072
-------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $521,615 $947,804
============== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Income taxes $467,700 $680,610
============== =============
</TABLE>
6
<PAGE>
UNIVERSAL Mfg. Co.
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE NINE MONTHS
ENDED APRIL 30, 1998 (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
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.
7
<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 April 30, 1998, and the results of operations and cash flows for the
three and nine month periods ending April 30, 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, 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 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.
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 $6,843 and the unearned income is $3,136, as of
January 31, 1998. These amounts are shown on a net basis for financial statement
purposes.
8
<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 April 30, 1998 are $90,113. The remaining
amount of $59,612 has been recorded, as a liability, in the accompanying
financial statements.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Sales for the first nine months of fiscal 1997-98 were 3.0% lower than a year
ago. This sales decrease followed the automotive replacement parts industry
trend of lower sales, and sales were negatively affected by the unusually mild
winter.
Earnings for the first three quarters were $.19 lower than a year ago due to the
lower sales volume and to inventory reserve adjustments. Last fiscal year,
during the first three quarters, LIFO reserves were adjusted lower - this fiscal
year they were adjusted upward, resulting in a net earnings reduction of
$80,000.
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
10
<PAGE>
ITEM 5. OTHER INFORMATION
Ford Customer Service Division (FCSD) has announced that within the next four to
eight months, the Sales Agreement between FCSD and Universal Manufacturing Co.
would be replaced with a revised agreement. The revised agreement would be for
service parts distribution only and would not include manufacturing.
FCSD will form a single third party distribution system, which will consist of
current Ford Authorized Remanufacturers and Motorcraft Warehouse Distributors,
and they will likely be called Ford Authorized Distributors (FAD's). These FAD's
will distribute all Ford and Motorcraft branded service parts.
Over the next several months all current Ford Authorized Remanufactured (FAR)
product lines will be deauthorized, and most lines will be replaced with Ford
Quality Renewal (FQR) lines. These FQR products will be remanufactured under
contract for Ford Customer Service Division, and will be distributed by the
FAD's. FQR product lines will also replace new Ford and Motorcraft service
replacement parts.
As a result of these changes, Universal Manufacturing Co. will be competing
directly with Motorcraft Distributors operating in the same territory. However,
the total volume of parts included in this third party distribution will
increase significantly.
Manufacturing and distribution will become separate divisions of Universal
Manufacturing Co.'s business. Remanufacturing of FAR product lines will cease as
they become deauthorized, and the manufacturing portion of the business will
concentrate on remanufacturing for the independent after-market, OEM programs,
and custom manufacturing.
At the present time, the effects of these changes related to FCSD on Universal
Manufacturing Co.'s future operations and earnings cannot be accurately
predicted.
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.
11
<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
----------- -------------------------------------------------------
Donald D. Heupel, President and Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> APR-30-1998
<CASH> (315,484)
<SECURITIES> 837,099
<RECEIVABLES> 1,628,857
<ALLOWANCES> 0
<INVENTORY> 3,554,376
<CURRENT-ASSETS> 5,704,848
<PP&E> 3,583,180
<DEPRECIATION> (2,166,712)
<TOTAL-ASSETS> 7,121,316
<CURRENT-LIABILITIES> 2,275,009
<BONDS> 0
0
0
<COMMON> 816,000
<OTHER-SE> 4,030,307
<TOTAL-LIABILITY-AND-EQUITY> 7,121,316
<SALES> 4,150,491
<TOTAL-REVENUES> 4,160,452
<CGS> 3,435,526
<TOTAL-COSTS> 3,969,683
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 190,769
<INCOME-TAX> 74,400
<INCOME-CONTINUING> 116,369
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,369
<EPS-PRIMARY> .14
<EPS-DILUTED> 0
</TABLE>
