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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 04-30-99 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 (IRS Employer Identification No.)
of 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
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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 04-30-99 816,000
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 as of April 30, 1999
(unaudited) and July 31, 1998
Statements of Income and Retained 4
Earnings - Three Months ended April 30, 1999
and April 30, 1998. (unaudited)
Statements of Income and Retained Earnings 5
Nine Months ended April 30, 1999 and
April 30, 1998. (unaudited)
Statements of Cash Flows - Nine months ended 6
April 30, 1999 and 1998. (unaudited)
Notes to Financial Statements as of and for the Nine Months 7-8
Ended April 30, 1999 and 1998 (Unaudited)
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 10
Item 6. Exhibits and reports on Form 8-K 10
Signatures 11
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2
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ITEM 1. FINANCIAL STATEMENTS
UNIVERSAL MFG. CO.
BALANCE SHEETS
<TABLE>
<CAPTION>
April, 30
1999 July 31,
ASSETS (Unaudited) 1998
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,141,507 $ 1,234,007
Accounts receivable 1,977,771 2,141,099
Inventories 3,159,183 2,611,961
Income taxes recoverable 34,174 23,545
Prepaid expenses 12,552 19,798
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Total current assets 6,325,187 6,030,410
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Deferred Income Taxes 24,188 24,188
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PROPERTY - At cost
Land 120,499 120,499
Buildings 1,352,776 1,406,747
Machinery and equipment 1,038,810 1,013,923
Furniture and fixtures 304,083 264,924
Trucks and automobiles 771,340 870,579
Construction-in-Progress 5,180 0
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Total property 3,592,688 3,676,672
Less accumulated depreciation (2,221,214) (2,201,225)
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Property - net 1,371,474 1,475,447
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$ 7,720,849 $ 7,530,045
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,622,204 $ 2,199,744
Dividends payable 122,400 163,200
Payroll taxes 28,925 27,828
Accrued compensation 49,253 81,495
Accrued local taxes 13,252 17,570
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Total current liabilities 2,836,034 2,489,837
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STOCKHOLDERS' EQUITY
Common stock, $1 par value,
authorized, 2,000,000 shares, issued
and outstanding, 816,000 shares 816,000 816,000
Additional paid-in capital 17,862 17,862
Retained earnings 4,050,953 4,206,346
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Total stockholders' equity 4,884,815 5,040,208
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$ 7,720,849 $ 7,530,045
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3
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UNIVERSAL MFG. CO.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
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April 30, April 30,
1999 1998
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<S> <C> <C>
NET SALES $ 4,653,668 $ 4,150,491
COST OF GOODS SOLD 4,039,094 3,435,526
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GROSS PROFIT 614,574 714,965
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 745,869 534,157
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INCOME/(LOSS) FROM OPERATIONS (131,295) 180,808
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OTHER INCOME:
Interest 15,455 5,896
Gain on Sale of Property 162,411 0
Other income 5,602 4,065
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Total other income 183,468 9,961
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INCOME/(LOSS) BEFORE INCOME TAXES 52,173 190,769
INCOME TAX EXPENSE/(BENEFIT) 20,347 74,400
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NET INCOME/(LOSS) 31,826 116,369
RETAINED EARNINGS, Beginning of period 4,141,527 4,059,276
DIVIDENDS (122,400) (163,200)
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RETAINED EARNINGS, End of period $ 4,050,953 $ 4,012,445
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PER COMMON SHARE INFORMATION:
Earnings/(Loss) per common share $ 0.04 $ 0.14
Dividends per common share 0.15 0.20
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4
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UNIVERSAL MFG. CO.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
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April 30, April 30,
1999 1998
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<S> <C> <C>
NET SALES $13,913,335 $13,643,785
COST OF GOODS SOLD 11,731,278 10,896,925
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GROSS PROFIT 2,182,057 2,746,860
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,016,493 1,590,300
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INCOME FROM OPERATIONS 165,564 1,156,560
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OTHER INCOME:
Interest 61,374 32,119
Gain on Sale of Property 160,206 --
Other income 24,933 12,225
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Total other income 246,513 44,344
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INCOME BEFORE INCOME TAXES 412,077 1,200,904
INCOME TAXES 159,470 468,352
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NET INCOME 252,607 732,552
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RETAINED EARNINGS, Beginning of period 4,206,346 3,851,093
DIVIDENDS (408,000) (571,200)
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RETAINED EARNINGS, End of period $ 4,050,953 $ 4,012,445
PER COMMON SHARE INFORMATION:
Earnings Loss per common share $ 0.31 $ 0.90
Dividends per common share 0.50 0.70
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</TABLE>
5
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UNIVERSAL MFG. CO.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
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April 30, April 30,
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $252,607 $732,552
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 177,506 111,163
Gain on sale of property (160,206) 9,136
Changes in operating assets and liabilities:
Accounts receivable 163,328 360,903
Inventories (547,222) (1,141,664)
Prepaid expenses 7,246 34,649
Income taxes recoverable (10,629) 2,532
Lease receivable 0 10,334
Accounts payable 422,460 545,189
Payroll taxes 1,097 1,737
Accrued compensation (32,242) (21,777)
Accrued local taxes (4,318) (8,709)
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Net cash flows from operating activities 269,627 636,045
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property (111,008) (424,619)
Proceeds from Sale of Property 197,681
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (448,800) (571,200)
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NET CHANGE IN CASH AND CASH EQUIVALENTS (92,500) (359,774)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 1,234,007 881,389
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,141,507 $ 521,615
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during period for:
Income taxes $170,100 $467,700
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6
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UNIVERSAL Mfg. Co.
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE NINE MONTHS
ENDED APRIL 30, 1999 and 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 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 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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<CAPTION>
Assets Depreciation Method Lives
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<S> <C> <C>
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
</TABLE>
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.
7
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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 April 30, 1999, and the results of operations and cash flows for the three
and nine month periods ending April 30, 1999 and 1998. 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, 1999 are $117,340. The remaining amount of $32,385 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.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
After lagging through the first two quarters of the fiscal year, sales in the
third quarter did improve over third quarter a year ago by $500,000, or 12%.
This sales increase was led by sales of remanufactured engines,
remanufactured transmissions, and Motorcraft branded products.
Earnings improved over last quarter's loss by $.15 per share. This earnings
improvement is due to the increased sales and a gain of $167,900 on the sale
of the old Des Moines, Iowa, warehouse. However earnings continue to lag last
fiscal year. Manufacturing costs per unit have increased because
deauthorization has reduced the volume of several product lines. Also, these
product lines are distributed as Ford Remanufactured products, which are sold
at a lower gross margin. In addition, the new distribution requirements
resulted in significantly higher distribution costs.
The Company is continuing its aggressive marketing efforts of Motorcraft
parts, which has resulted in a very positive sales trend since the product
was added to the distribution line. The Company has reached agreements with
several manufacturers representatives to promote its remanufactured products
to the independent aftermarket in various parts of the country.
Several cost cutting initiatives have been put in place to reduce
manufacturing costs. The work force has been realigned with current
production volumes. Several supervisory and administrative positions have
been combined. The union (UAW) contract, which was to expire May 5, 1999, was
extended for one year. The benefits package for administrative, managerial,
and sales staff was adjusted.
As an additional cost reduction measure, the Board of Directors, reduced
their Director's fee by 33%, from $1,500 per month to $1,000. At the same
time, board members were involved in a number of special meetings and
committee projects.
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 VOTE OF SECURITY HOLDERS NONE
9
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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. Preliminary
testing of the software has been completed and found to be satisfactory. The
supplier will continue to conduct in-depth testing on date sensitive fields and
processing. 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 calendar year 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. All replies indicate the suppliers will be
compliant before year end 1999.
The Company currently believes that the most likely worst case scenario with
respect to the year 2000 issue is the failure of a supplier, including utility,
financial or governmental, to become year 2000 compliant. This could result in
the temporary interruption in supply of goods or services to our facilities.
This would cause interruptions in production or inventory of distributive
products, which in turn could result in potential lost sales and profits.
However, our major supplier- Ford, our financial institution, the utility
company and our telephone/fax companies have responded favorably to our survey.
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.
Forward Looking Statements:
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Statements herein that are not historical facts, including statements about
the Company's confidence and strategies and the company's expectations about
future market opportunities, market demand or acceptance of the Company's
products are forward looking statements that involve risks and uncertainties.
These uncertainties include, without limitation, the effect of general
economic and market conditions, customer requirements for our products, the
continuing strength of the automotive industry, competitor pricing,
maintenance of our current momentum, weather conditions and other factors.
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.
10
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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 5/14/99 /s/ Donald D. Heupel
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Donald D. Heupel,
President and Chief Financial
Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> APR-30-1999
<CASH> (46,592)
<SECURITIES> 1,188,099
<RECEIVABLES> 2,048,685
<ALLOWANCES> 0
<INVENTORY> 3,159,183
<CURRENT-ASSETS> 6,349,375
<PP&E> 3,592,688
<DEPRECIATION> (2,221,214)
<TOTAL-ASSETS> 7,720,849
<CURRENT-LIABILITIES> 2,836,034
<BONDS> 0
0
0
<COMMON> 816,000
<OTHER-SE> 4,068,815
<TOTAL-LIABILITY-AND-EQUITY> 7,720,849
<SALES> 13,913,335
<TOTAL-REVENUES> 13,913,335
<CGS> 11,731,278
<TOTAL-COSTS> 11,731,278
<OTHER-EXPENSES> 1,769,980
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 412,077
<INCOME-TAX> 159,470
<INCOME-CONTINUING> 252,607
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 252,607
<EPS-PRIMARY> .310
<EPS-DILUTED> .310
</TABLE>
