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 04-28-01 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
incorporation or organization) Identification No.)
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 90 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 04-28-01 816,000
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Common
Transitional Small Business Disclosed Format ( Check one):
Yes / / No /X/
UNIVERSAL MFG. CO.
FORM 10-QSB
INDEX
PAGES
Part I FINANCIAL INFORMATION -----
Item 1. Financial Statements: 3
Consolidated Balance Sheets as of April 28, 2001
(unaudited) and July 31, 2000
Consolidated Statements of Income (Loss) and Retained 4
Earnings - Three Months Ended April 28, 2001
(unaudited) and April 30, 2000 (unaudited)
Consolidated Statements of Income (Loss) and Retained
Earnings - Nine Months Ended April 28, 2001 (unaudited)
and April 30, 2000 (unaudited) 5
Consolidated Statements of Cash Flows - Nine Months Ended 6
April 28, 2001 (unaudited) and April 30, 2000 (unaudited)
Notes to Consolidated Financial Statements as of and for the Nine Months 7-9
Ended April 28, 2001 (unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in securities 11
Item 3. Defaults upon senior securities 11
Item 4. Other information 11
Item 5. Exhibits and reports on Form 8-K 11
Signatures 12
2
ITEM 1. FINANCIAL STATEMENTS
UNIVERSAL MFG. CO.
CONSOLIDATED BALANCE SHEETS
April 28, July 31,
2001 2000
(unaudited)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $167,884 $336,756
Accounts receivable 3,676,701 3,442,410
Inventories 9,944,710 4,310,809
Prepaid expenses 34,578 14,658
Deferred Income Taxes 306,875 306,875
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Total current assets 14,130,748 8,411,508
PROPERTY:
Land 120,499 120,499
Buildings 1,950,541 1,746,702
Machinery and equipment 1,108,805 1,040,931
Furniture and fixtures 495,279 308,916
Trucks and automobiles 1,063,752 775,065
Construction-in-Progress 62,005 0
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Total property 4,800,881 3,992,113
Less accumulated depreciation (2,590,898) (2,453,021)
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Property - net 2,209,983 1,539,092
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Total Assets $16,340,731 $9,950,600
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $5,022,277 $4,661,174
Dividends payable 0 122,400
Income taxes payable 23,803 33,647
Payroll taxes 64,890 23,471
Accrued compensation 193,048 137,058
Accrued local taxes 30,248 26,684
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Total current liabilities 5,334,266 5,004,434
LONG TERM LIABILITIES:
Notes Payable 5,961,705
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Total Liabilities 11,295,971 5,004,434
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MINORITY INTEREST IN SUBSIDIARY 116,458 7,591
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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 4,094,440 4,104,713
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Total stockholders' equity 4,928,302 4,938,575
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Total Liabilities and Stockholders' Equity $16,340,731 $9,950,600
============ ============
3
UNIVERSAL MFG. CO.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Three Months Ended
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April 28, April 30,
2001 2000
(unaudited) (unaudited)
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NET SALES $8,172,677 $5,444,565
COST OF GOODS SOLD 6,492,250 4,707,582
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GROSS PROFIT 1,680,427 736,983
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,543,746 727,592
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INCOME FROM OPERATIONS 136,681 9,391
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OTHER INCOME (EXPENSE):
Interest Income 0 21,276
Interest Expense (102,054) 0
Other (4,810) 3,274
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Total Other Income (Expense) (106,864) 24,550
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INCOME BEFORE MINORITY INTEREST AND INCOME TAXES 29,817 33,941
MINORITY INTEREST 2,210 241
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INCOME BEFORE INCOME TAXES 27,607 33,700
INCOME TAX EXPENSE 14,326 13,236
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NET INCOME 13,281 20,464
RETAINED EARNINGS, Beginning of period 4,081,159 4,155,415
DIVIDENDS 0 (122,400)
----------------- ------------------
RETAINED EARNINGS, End of period $4,094,440 $4,053,479
================= ==================
PER COMMON SHARE INFORMATION:
Earnings per common share $0.02 $0.03
================= ==================
Dividends per common share $0.00 $0.15
================= ==================
4
UNIVERSAL MFG. CO.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
Nine Months Ended
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April 28, April 30,
2001 2000
(unaudited) (unaudited)
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NET SALES $23,601,198 $15,563,977
COST OF GOODS SOLD 19,209,798 13,009,036
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GROSS PROFIT 4,391,400 2,554,941
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,232,072 2,191,038
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INCOME FROM OPERATIONS 159,328 363,903
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OTHER INCOME (EXPENSE)::
Interest Income 23,226 74,209
Interest Expense (245,823) 0
Other Income 53,546 21,062
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Total Other Income (Expense) (169,051) 95,271
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INCOME/(LOSS) BEFORE MINORITY INTEREST AND INCOME TAX (9,723) 459,174
MINORITY INTEREST (4,342) 3,048
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INCOME/(LOSS) BEFORE INCOME TAX (14,065) 456,126
INCOME TAX EXPENSE/(BENEFIT) (3,792) 179,131
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NET INCOME (LOSS) (10,273) 276,995
RETAINED EARNINGS, Beginning of period 4,104,713 4,143,684
DIVIDENDS 0 (367,200)
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RETAINED EARNINGS, End of period $4,094,440 $ 4,053,479
================ ==================
PER COMMON SHARE INFORMATION:
Earnings (loss) per common share ($0.01) $ 0.34
================ ==================
Dividends per common share $ 0.00 $ 0.45
================ ==================
5
UNIVERSAL MFG. CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
-------------------------------------------------------------
April 28, April 30,
2001 2000
(unaudited) (unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($10,273) $276,995
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation 175,850 144,568
Minority interest 8,867 645
Changes in operating assets and liabilities:
Accounts receivable 403,840 707,081
Inventories (1,880,613) (1,102,998)
Prepaid expenses (19,920) 19,742
Income taxes payable (9,844) (254,995)
Accounts payable 361,103 525,643
Payroll taxes 41,419 (29,276)
Accrued compensation 55,990 (8,945)
Accrued local taxes 3,564 4,388
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Net cash flows from operating activities (870,017) 282,848
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property (80,598) (73,501)
Cash paid to acquire Value Independent Parts (5,157,562)
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Net cash flows from investing activities (5,238,160) (73,501)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (122,400) (367,200)
Change in notes payable, net 5,961,705
LLC membership contributions received 100,000
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Net cash flows from financing activities 5,939,305 (367,200)
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NET CHANGE IN CASH AND CASH EQUIVALENTS (168,872) (157,853)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 336,756 424,188
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $167,884 $266,335
=============== ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Income taxes $3,761 $434,124
=============== ================
Interest $245,823
=============== ================
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
===============
6
UNIVERSAL MFG.CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD
ENDED April 28, 2001 (unaudited)
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., its subsidiary, Universal Distribution LLC, and
its subsidiary, Rainbo Company LLC dba Value Independent Parts. 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 remain within Universal
Mfg. Co. The consolidated financial statements also include the accounts of
Rainbo Company LLC from the date of acquisition (September 29,2000). All
intercompany balances and transactions have been eliminated in 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 - 39 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.
7
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.
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 28,2001, and the results of operations and cash flows for the three and
the nine month periods ending April 28,2001 and April 30,2000. 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, 2000.
8
ACQUISITION
On August 31, 2000, the Company 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, the Company, through 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
==========
The acquisition was financed through long-term bank borrowings totaling
approximately $4,115,000, 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 (7.5% at April 28, 2001) 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 (7.5% at April 28, 2001) less 1%, payable monthly. The
credit agreement matures on September 30, 2001.
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 9 month periods ended April 28, 2001 and April 30, 2000, had
the acquisition occurred at the beginning of each respective period, are as
follows:
2001 2000
---- ----
Net Sales $25,074,853 $21,858,075
Net Loss ($105,905) ($129,346)
Basic and Diluted Loss per Common Share ($.13) ($.16)
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Sales for the third quarter were 50% higher than third quarter a year ago. Sales
by Value Independent Parts (VIP) were $2,000,000. VIP sales were not included a
year ago, as the acquisition was completed September 29,
2000.
Sales by Universal Mfg. Co., not including VIP, increased 22%, from $5,444,564
to $6,634,889. These third quarter sales resulted in a sales increase for the
first nine months of the fiscal year of over 24%. Sales increases were led by
strong sales of engine assemblies, transmission assemblies, Motorcraft branded
products, and transfer cases. The late winter - early spring period is normally
a period of moderated sales strength in the automotive aftermarket, and this
contributed to slightly reduced sales by VIP, and slowed sales growth by
Universal Distribution LLC.
Earnings for the third quarter were lower than a year ago due to losses by VIP.
These losses were the result of costs of warehousing and distribution, along
with the slight seasonal reduction in sales levels. Steps are continuing to
reduce distribution costs, and to gain synergies between Universal Distribution
LLC and VIP. Several delivery route changes were made in May and June in
Dubuque, Iowa; Rockford, Illinois; and LaCrosse, Wisconsin, which will reduce
delivery costs. Pricing adjustments have been made to compensate for higher fuel
costs, and delivery charges instituted for less profitable deliveries. It is
anticipated that with these changes and the expected higher sales volume
normally experienced during the hot weather months that VIP will become
profitable in the near future.
ACDelco and other product lines have been placed in the Omaha and Des Moines
locations, and distribution has begun in those areas. As sales volume develops,
necessary personnel and delivery equipment will be added to provide customer
service capability needed to develop and maintain this market.
Several promotional activities are being initiated both by VIP and by Universal
Distribution LLC in cooperation with ACDelco. This includes direct mailers, open
houses, and trip promotions.
Inventories are higher at the end of the third quarter compared to last fiscal
year end because the inventories of VIP are included. The notes payable indicate
the debt incurred to fund the purchase of VIP.
10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEDINGS 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
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 None
11
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 June 13, 2001 /s/ Donald D. Heupel
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Donald D. Heupel, President and Chief Financial Officer
12