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 01-31-98 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 01-31-98 816,000
-------
common
Transitional Small Business Disclosed Format ( Check one ):
Yes No X
----------------------
1
UNIVERSAL MFG. CO.
FORM 10-QSB
INDEX
PAGES
Part I FINANCIAL INFORMATION
Item 1. Financial Statements: 3
Balance Sheets - January 31, 1998
(unaudited) and July 31, 1997
Statements of Income and Retained 4
Earnings - Six Months ended January 31, 1998
and 1997. (unaudited)
Statements of Income and Retained 5
Earnings - Three Months ending January 31, 1998
And 1997. (unaudited)
Statements of Cash Flows - Six months ended
January 31, 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 10
Item 6. Exhibits and reports on Form 8-K 10
Signatures 11
2
ITEM 1. FINANCIAL STATEMENTS
UNIVERSAL MFG. CO.
BALANCE SHEETS
January 31,
1998 July 31,
(Unaudited) 1997
-------------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $338,566 $881,389
Accounts receivable 1,714,557 1,884,917
Inventories 3,822,655 2,412,712
Income taxes recoverable 31,303 23,180
Prepaid expenses 204,040 70,929
-------------- -----------
Total current assets 6,111,121 5,273,127
-------------- -----------
Deferred Income Taxes 44,208 44,208
-------------- -----------
Lease Receivable 7,596 14,041
-------------- -----------
PROPERTY - At cost
Land 120,499 120,499
Buildings 1,179,892 1,157,116
Machinery and equipment 1,007,839 938,466
Furniture and fixtures 227,599 208,086
Trucks and automobiles 748,161 743,530
-------------- -----------
Total property 3,283,991 3,167,697
Less accumulated depreciation (2,118,061) (2,055,549)
-------------- -----------
Property - net 1,165,930 1,112,148
-------------- -----------
$7,328,855 $6,443,524
-------------- -----------
-------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $2,122,489 $1,419,725
Dividends payable 204,000 204,000
Payroll taxes 35,882 24,944
Income taxes payable - 0
Accrued compensation 54,259 87,631
Accrued local taxes 19,093 22,269
-------------- -----------
Total current liabilities 2,435,723 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 4,059,270 3,851,093
-------------- -----------
Total stockholders' equity 4,893,132 4,684,955
-------------- -----------
$7,328,855 $6,443,524
-------------- -----------
-------------- -----------
3
UNIVERSAL MFG. CO.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
Six Months Ended
----------------------------------
January 31, January 31,
1998 1997
-------------- -----------
NET SALES $9,493,294 $9,649,036
COST OF GOODS SOLD 7,461,399 7,558,452
-------------- -----------
GROSS PROFIT 2,031,895 2,090,584
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,056,143 1,009,285
-------------- -----------
INCOME FROM OPERATIONS 975,752 1,081,299
-------------- -----------
OTHER INCOME:
Interest 26,223 27,184
Other income 8,155 9,091
-------------- -----------
Total other income 34,378 36,275
-------------- -----------
INCOME BEFORE INCOME TAXES 1,010,130 1,117,574
INCOME TAXES 393,953 435,854
-------------- -----------
NET INCOME 616,177 681,720
RETAINED EARNINGS, Beginning of period 3,851,093 3,514,161
DIVIDENDS (408,000) (408,000)
-------------- -----------
RETAINED EARNINGS, End of period $4,059,270 $3,787,881
-------------- -----------
-------------- -----------
EARNINGS PER COMMON SHARE:
Earnings per common share $0.76 $0.84
-------------- -----------
-------------- -----------
4
UNIVERSAL MFG. CO.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
Three Months Ended
----------------------------------
January 31, January 31,
1998 1997
-------------- -----------
NET SALES $4,117,510 $4,794,903
COST OF GOODS SOLD 3,247,221 3,999,027
-------------- -----------
GROSS PROFIT 870,289 795,876
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 513,514 513,472
-------------- -----------
INCOME FROM OPERATIONS 356,775 282,404
-------------- -----------
OTHER INCOME:
Interest 13,000 12,097
Other income 3,544 5,346
-------------- -----------
Total other income 16,544 17,443
-------------- -----------
INCOME BEFORE INCOME TAXES 373,319 299,847
INCOME TAXES 145,594 116,941
-------------- -----------
NET INCOME 227,725 182,906
RETAINED EARNINGS, BEGINNING OF QUARTER 4,035,545 3,808,875
DIVIDENDS PAID (204,000) (204,000)
-------------- -----------
RETAINED EARNINGS, END OF QUARTER $4,059,270 $3,787,781
-------------- -----------
-------------- -----------
EARNINGS PER COMMON SHARE:
Earnings per common share $0.28 $0.22
-------------- -----------
-------------- -----------
5
UNIVERSAL MFG. CO.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
----------------------------------
January 31, January 31,
1998 1997
-------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $616,177 $681,720
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 62,512 98,137
Gain on sale of property 0 (595)
Changes in operating assets and liabilities:
Accounts receivable 170,360 (202,759)
Inventories (1,409,943) 296,484
Prepaid expenses (133,111) (64,331)
Income taxes recoverable (8,123) (61,380)
Lease receivable 6,445 5,774
Accounts payable 702,764 (303,046)
Payroll taxes 10,938 23,199
Accrued compensation (33,372) (42,543)
Accrued local taxes (3,176) 5,139
Income taxes payable 0 (56,790)
-------------- -----------
Net cash flows from operating activities (18,529) 379,009
-------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 0 7,300
Purchases of property (116,294) (148,857)
Proceeds from maturities of investments 0 0
-------------- -----------
Net cash flows from investing activities (116,294) (141,557)
-------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (408,000) (408,000)
-------------- -----------
Net cash flows from financing activities (408,000) (408,000)
-------------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (542,823) (170,548)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 881,389 934,072
-------------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $338,566 $763,524
-------------- -----------
-------------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Income taxes $403,955 $554,024
-------------- -----------
-------------- -----------
6
UNIVERSAL Mfg. Co.
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE SIX MONTHS
ENDED JANUARY 31, 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
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.
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
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 January 31, 1998, and the results of operations and cash flows for the three
and six month periods ending January 31, 1998 and January 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 $13,687 and the unearned income is $6,091, as
of January 31, 1998. These amounts are shown on a net basis for financial
statement purposes.
8
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 January 31, 1998 are $90,113. The remaining
amount of $59,612 has been recorded, as a liability, in the accompanying
financial statements.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Sales for the first six months of fiscal 1997-98 were 1.6% lower than a year
ago. This sales decrease is the result of the unusually mild winter and the
de-authorization of brake shoes in August of 1997.
Earnings from operations increased during the second quarter as a result of the
purchase of fuel pump seed units a year ago.
The lower cash balance for January 31, 1998, compared to July 31, 1997, is due
to increased investment in inventories. Inventories were increased to
participate in expanded distribution programs for Ford Motor Company. Accounts
Payable increases are also due to the expansion of inventories and to a change
in accrual procedures, which recognizes product receipt prior to invoicing.
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
Item 5. OTHER INFORMATION NONE
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.
10
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 3-3-98 /s/ Donald D. Heupel
-------- --------------------------------------------------------
Donald D. Heupel, President and Chief Financial Officer
11