FORM 10-QSB/A
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 10-28-00 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 (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
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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 10-30-00 816,000
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Common
Transitional Small Business Disclosed Format ( Check one ):
Yes NO X
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1
UNIVERSAL MFG. CO.
FORM 10-QSB
INDEX
Pages
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Part I FINANCIAL INFORMATION
Item 1. Financial Statements: 3
Consolidated Balance Sheets as of October 28, 2000
(unaudited) and July 31, 2000
Consolidated Statements of Income (Loss) and Retained 4
Earnings - Three Months ended October 28, 2000
(unaudited) and Octobet 31, 1999 (unaudited).
Consolidated Statements of Cash Flows - Three Months ended 5
October 28, 2000 (unaudited) and October 31, 1999 (unaudited).
Notes to Consolidated Financial Statements as of and for the Three Months 6-9
ended October 28, 2000 (unaudited)
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
ITEM 1. FINANCIAL STATEMENTS
UNIVERSAL MFG. CO.
CONSOLIDATED BALANCE SHEETS
October 28, July 31,
2000 2000
(unaudited)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents ($ 264,920) $ 336,756
Accounts receivable 3,039,391 3,442,410
Inventories 9,384,696 4,310,809
Prepaid expenses 18,878 14,658
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Total current assets 12,178,045 8,104,633
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Deferred Income Taxes 306,875 306,875
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PROPERTY - At cost
Land 120,499 120,499
Buildings 1,746,702 1,746,702
Machinery and equipment 1,275,090 1,040,931
Furniture and fixtures 461,028 308,916
Trucks and automobiles 1,121,026 775,065
Construction-in-Progress 5,710 0
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Total property 4,730,055 3,992,113
Less accumulated depreciation (2,491,567) (2,453,021)
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Property - net 2,238,488 1,539,092
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TOTAL ASSETS $ 14,723,408 $ 9,950,600
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,612,191 $ 4,661,174
Dividends payable 0 122,400
Income tax payable 21,449 33,647
Payroll taxes 48,318 23,471
Accrued compensation 120,955 137,058
Accrued local taxes 18,143 26,684
Notes payable $ 4,469,826
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Total current liabilities 9,290,882 5,004,434
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LONG TERM LIABILITIES
Notes Payable $ 400,000
MINORITY INTEREST IN SUBSIDIARIES 113,034 7,591
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TOTAL LIABILITIES 9,803,917 5,012,025
STOCKHOLDER'S 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 4,085,629 4,104,713
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Total stockholders' equity 4,919,491 4,938,575
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 14,723,408 $ 9,950,600
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UNIVERSAL MFG. CO.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
Three Months Ended
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October 28, October 31,
2000 1999
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(unaudited) (unaudited)
NET SALES $ 6,750,797 $ 5,164,648
COST OF GOODS SOLD 5,676,984 4,148,627
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GROSS PROFIT 1,073,813 1,016,021
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,142,440 756,347
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INCOME/(LOSS) FROM OPERATIONS (68,627) 259,674
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OTHER INCOME (EXPENSE):
Interest income 825.00 26,452
Interest expense (32,477) 0
Other income 69,102 31,840
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Total other income (expense) 37,450 58,292
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INCOME (LOSS) BEFORE MINORITY INTEREST AND
INCOME TAXES (31,177) 317,966
MINORITY INTEREST 65 1,906
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INCOME (LOSS) BEFORE INCOME TAXES (31,242) 316,060
INCOME TAXES (12,159) 124,007
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NET INCOME (LOSS) (19,083) 192,053
RETAINED EARNINGS, Beginning of period 4,104,713 4,143,684
DIVIDENDS 0 (122,400)
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RETAINED EARNINGS, End of period $ 4,085,630 $ 4,213,337
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PER COMMON SHARE INFORMATION:
Earnings (loss) per common share ($ 0.02) $ 0.24
Dividends per common share 0.00 0.15
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4
UNIVERSAL MFG. CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
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October 28, October 31,
2000 1999
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(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 19,083) $ 192,053
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation 38,437 46,886
Gain on sale of property 0 0
Changes in operating assets and liabilities:
Accounts receivable 1,041,150 545,668
Inventories (1,320,599) (508,486)
Prepaid expenses 5,531 2
Income taxes payable 21,449 (132,183)
Accounts payable (82,630) (314,775)
Payroll taxes 24,847 (14,471)
Accrued compensation (16,103) (2,799)
Accrued local taxes (8,541) (3,485)
Minority interest 5,443 1,906
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Net cash flows from operating activities (310,099) (189,684)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property 18,559 (48,243)
Cash paid to acquire Value Independent Parts (5,157,562)
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Net cash flows from investing activities (5,139,003) (48,243)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (122,400) (122,400)
Change in notes payable, net 4,869,826
LLC membership contributions received 100,000
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Net cash flows from financing activities 4,847,426 (122,400)
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NET CHANGE IN CASH AND CASH EQUIVALENTS (601,676) (360,327)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 336,756 424,188
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CASH AND CASH EQUIVALENTS AT END OF PERIOD ($ 264,920) $ 63,861
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Income taxes $ 36,106 $ 256,189
Interest 32,477
Noncash Investing and Financing Activities:
Cash Paid to Acquire Value Independent Parts:
Assets acquired:
Inventories $3,753,288
Accounts Receivable 638,131
Property and equipment 756,392
Other 9,751
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Total Assets Acquired $5,157,562
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5
UNIVERSAL MFG. CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS
ENDED OCTOBER 28, 2000 (Unaudited)
On August 31, 2000, the Company, through its subsidiary, Universal
Distribution LLC, signed an agreement with Rainbo Oil Company and its
president and majority shareholder (Shareholder) to form Rainbo Company LLC
d/b/a Value Independent Parts (Rainbo LLC). Rainbo LLC, of which the Company
and Shareholder are each 50% members, was formed for purposes of acquiring
and operating the automobile parts distribution division (VIP) of Rainbo Oil
Company. The Company and Shareholder each contributed $100,000 in initial
membership contributions to capitalize Rainbo LLC. Additionally, the Company
and Shareholder each loaned $400,000 to Rainbo LLC. These loans bear interest
at 9%, payable annually, with principal due on October 1, 2005.
On September 29, 2000, Rainbo LLC executed an asset purchase agreement to
acquire substantially all assets of VIP. The acquisition was accounted for
under the purchase method of accounting. The purchase price was approximately
$5,160,000 which was allocated among the acquired assets in the following
approximate amounts:
Inventories $3,750,000
Accounts Receivable 640,000
Property 760,000
Other 10,000
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Total $5,160,000
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The acquisition was financed through bank borrowings totaling approximately
$4,115,000, note payable to seller of approximately $45,000, and the use of
$1,000,000 of cash received by Rainbo LLC from its initial membership
capitalization.
Details regarding the long-term bank borrowings are as follows:
Rainbo LLC's $2,000,000 revolving credit agreement of which
$1,800,000 was borrowed to finance the acquisition. Borrowings bear
interest at a variable rate equal to the bank's prime rate (9.5% at
October 31, 2000) less 1%, payable monthly. The credit agreement
matures on September 30, 2001.
The Company's $3,000,000 revolving credit agreement of which
approximately $2,815,000 was borrowed related to the Company's
initial Rainbo LLC membership contribution/loan ($500,000) and to
finance the acquisition ($2,315,000). Borrowings bear interest at a
variable rate equal to the bank's prime rate (9.5% at October 31,
2000) less 1%, payable monthly. The credit agreement matures on
September 30, 2001.
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Maximum availability under these agreements is based on a borrowing base
calculated as a percentage of eligible inventory and accounts receivable
amounts. The Company and Rainbo LLC each guarantee the obligations of the
other party. Substantially all inventories and accounts receivable of the
Company and Rainbo LLC were pledged as collateral against outstanding
borrowings. The credit agreements contain certain covenants which requires
the Company to maintain certain tangible net worth and debt to net worth
ratio amounts and limits capital expenditures.
The operations of VIP have been included in the Company's consolidated
financial statements from the date of acquisition, September 29, 2000,
forward. Pro forma information for the 3-month periods ended October 28, 2000
and October 31, 1999, had the acquisition occurred at the beginning of each
respective period, are as follows:
2000 1999
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Net Sales $8,224,448 $7,349,412
Net Income (Loss) ($114,652) $51,507
Basic and Diluted Earnings (Loss) per Common Share ($.14) $.06
7
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - The Company is engaged in the business of
remanufacturing and distribution, on a wholesale basis, of engines and other
automobile parts for Ford, Lincoln and Mercury automobiles 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.
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.
PRESENTATION - The accompanying consolidated financial statements include the
accounts of Universal Mfg. Co. and its subsidiary, Universal Distribution
LLC. Universal Distribution LLC, owned 99% by Universal Mfg. Co. and 1% by
the Company's president, was established on June 30, 1999 to operate the
Company's distribution operations. The remanufacturing operations remained
within Universal Mfg. Co. A consolidated financial statement also includes
the accounts of Rainbo LLC from date of acquisition (September 29, 2000). All
intercompany balances and transactions have been eliminated to consolidation.
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.
DEPRECIATION, MAINTENANCE, AND REPAIRS - Property is depreciated generally as
follows:
Assets Depreciation Method Lives
- ------ ------------------- -----
Buildings Straight-line and declining balance 10 - 31.5 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 upon
shipment of product.
CASH EQUIVALENT - For the purposes of the Consolidated 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.
8
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, consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly
the financial position as of October 28, 2000, and the results of operations
and cash flows for the three month periods ending October 28, 2000 and
October 31, 1999. 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,
consolidated financial statements be read in conjunction with the
consolidated financial statements and notes included in the Company's Form
10-KSB for the fiscal year ended July 31, 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Sales for the first quarter were 31% higher than the first quarter a year
ago. This sales increase was due to continued strong sales of remanufactured
engine assemblies, increase in market share of Motorcraft branded service
parts, and the inclusion of one months sales from Rainbo Company LLC dba
Value Independent Parts (VIP). As is indicated in Item 1 of this report, in
NOTES TO FINANCIAL STATEMENTS, the Company purchased VIP on September 30,
2000.
Earnings were lower than the first quarter a year ago due to a sales mix of
lower margin products, higher sales and distribution expense, and
extraordinary expenses involved in completing the VIP purchase. Since a year
ago, the engine sales mix has changed from Ford Authorized Remanufactured to
Ford and Motorcraft branded, plus several other remanfactured product lines
were deauthorized by Ford and replaced with Motorcraft branded lines, which
provide lower gross margins. Sales and distribution expenses increased due to
costs incurred in launching and promoting the ReTech line of remanufactured
products, and to delivery costs incurred to improve customer service.
Extraordinary expenses incurred in relation to the acquisition of VIP
affected per share earnings by an estimated $.08 per share.
Inventories are higher at the end of the first quarter compared to a year ago
because the inventories of VIP are included. The notes payable indicate the
debt incurred to fund the purchase of VIP.
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
10
ITEM 5. OTHER INFORMATION
FORWARD LOOKING STATEMENTS:
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 current report on Form 8-K on September 07, 2000
reporting the execution of an agreement to form a Limited Liability
Company between the Company, Universal Distribution LLC, Rainbo Oil
Company and Paul Fahey.
The Company filed a current report on Form 8-K on October 12, 2000
reporting the formation of Rainbo Company LLC and the Company's
partnership with Rainbo Oil Company to form the new entity and the
purchase by Rainbo Company LLC of Rainbo Oil Company's auto parts
distribution division.
The Company filed a Form 8-K/A on December 13, 2000 reporting the
historic and pro forma financial information required under item 7
of the Form 8-K filed on October 12, 2000.
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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: December 12, 2000 /s/ Donald D. Heupel
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Donald D. Heupel, President and
Chief Financial Officer
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