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 10-31-99 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 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 10-31-99 816,000
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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 31, 1999
(unaudited) and July 31, 1999
Consolidated Statements of Income and Retained 4
Earnings - Three Months ended October 31, 1999
and October 31, 1998. (unaudited)
Consolidated Statements of Cash Flows - Three months ended 5
October 31, 1999 and 1998. (unaudited)
Notes to Consolidated Financial Statements as of and for 6-7
the Three Months Ended October 31, 1999 and 1998
(Unaudited)
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
2
ITEM 1. FINANCIAL STATEMENTS
UNIVERSAL MFG. CO.
BALANCE SHEETS
October 31, July 31,
1999 1999
(Unaudited)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 63,861 $ 424,188
Accounts receivable 2,014,248 2,559,918
Inventories 4,128,504 3,620,018
Prepaid expenses 12,025 12,027
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Total current assets 6,218,638 6,616,151
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Deferred Income Taxes 277,505 277,505
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PROPERTY - At cost
Land 120,499 120,499
Buildings 1,352,776 1,352,776
Machinery and equipment 1,038,810 1,038,810
Furniture and fixtures 304,083 304,083
Trucks and automobiles 774,199 755,590
Construction-in-Progress 370,790 341,155
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Total property 3,961,157 3,912,913
Less accumulated depreciation (2,313,110) (2,266,225)
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Property - net 1,648,047 1,646,688
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$ 8,144,190 $ 8,540,344
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,775,170 $ 3,089,945
Dividends payable 122,400 122,400
Income Tax Payable 94,806 226,989
Payroll taxes 26,724 41,195
Accrued compensation 56,644 59,443
Accrued local taxes 15,140 18,625
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Total current liabilities 3,090,884 3,558,597
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MINORITY INTEREST IN SUBSIDIARY 6,107 4,201
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STOCKHOLDERS' EQUITY
Common stock, $1 par value,
authorized, 2,000,000 shares,
issued and outstanding, 816,000 shares 816,000 816,000
Additional paid-in capital 17,862 17,862
Retained earnings 4,213,337 4,143,684
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Total stockholders' equity 5,047,199 4,977,546
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$ 8,144,190 $ 8,540,344
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3
UNIVERSAL MFG. CO.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
Three Months Ended
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October October
1999 1998
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NET SALES $5,164,648 $4,991,730
COST OF GOODS SOLD 4,148,627 3,970,837
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GROSS PROFIT 1,016,021 1,020,893
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 756,347 546,319
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INCOME/(LOSS) FROM OPERATIONS 259,674 474,574
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OTHER INCOME:
Interest 26,452 13,192
Other income 31,840 23,921
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Total other income 58,292 37,113
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INCOME/(LOSS) BEFORE MINORITY INTEREST AND
INCOME TAXES 317,966 511,687
MINORITY INTEREST 1,906
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INCOME/(LOSS) BEFORE INCOME TAXES 316,060
INCOME TAX EXPENSE/(BENEFIT) 124,007 199,558
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NET INCOME/(LOSS) 192,053 312,129
RETAINED EARNINGS, Beginning of period 4,143,684 4,206,346
DIVIDENDS (122,400) (163,200)
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RETAINED EARNINGS, End of period $4,213,337 $4,355,275
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PER COMMON SHARE INFORMATION:
Earnings/(Loss) per common share $ 0.24 $ 0.38
Dividends per common share 0.15 0.20
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4
UNIVERSAL MFG. CO.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
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October 31, October 31,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 192,053 $ 312,129
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 46,886 55,136
Gain on sale of property 0 3,423
Changes in operating assets and liabilities:
Accounts receivable 545,668 342,276
Inventories (508,486) (144,624)
Prepaid expenses 2 (22,215)
Income taxes recoverable 0 23,545
Lease receivable 0 0
Accounts payable (314,775) 159,918
Payroll taxes (14,471) (2,656)
Accrued compensation (2,799) 5,901
Accrued local taxes (3,485) (6,802)
Income Taxes Payable (132,183) 151,825
Minority Interest 1,906
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Net cash flows from operating activities (189,684) 877,856
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property (48,243) (37,071)
Proceeds from Sale of Property 0
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (122,400) (163,200)
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NET CHANGE IN CASH AND CASH EQUIVALENTS (360,327) 677,585
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 424,188 1,234,007
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 63,861 $1,911,592
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Income taxes $ 256,189 $ 0
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5
UNIVERSAL MFG. CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS
ENDED OCTOBER 31, 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, 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. The
Company purchases the majority of its new parts 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.
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. 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
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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
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.
6
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, 1999, and the results of operations and cash flows for the
three month period ending October 31, 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, 1999.
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 October 31, 1999 are $138,677. The remaining
amount of $11,048 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 recorded liability.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Sales for the first quarter were 3.5% higher than the first quarter a year
ago. Sales increases in engine assemblies, transmissions assemblies, and
Motorcraft products more than offset sales decreases of starters,
alternators, and electric fuel pumps. Motorcraft product sales were over
$600,000 for the quarter, compared to no Motorcraft sales a year ago.
Earnings were lower than the first quarter a year ago due to the lower
margins of distributed products and the increased expense of meeting delivery
standards. However, earnings nearly matched the earnings of the fourth
quarter fiscal year ended July 31, 1999, which was the best quarter since the
transition to a Ford Authorized Distributor.
The lower cash and cash equivalents at the end of the first quarter compared
to July 31, 1999, were due an increase in inventories and a decrease in
accounts payable.
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS NONE
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Item 2. CHANGES IN SECURITIES NONE
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Item 3. DEFAULTS UPON SENIOR SECURITIES NONE
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Item 4. SUBMISSION OF MATTERS TO A NONE
VOTE OF SECURITY HOLDERS ----
8
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:
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
9
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 12/1/99 /s/ Donald D. Heupel
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Donald D. Heupel, President and Chief Financial Officer
10