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 01-31-99 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_______
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 01-31-99 816,000
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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 Ended January 31, 1999
(unaudited) and July 31, 1998
Statements of Income and Retained 4
Earnings - Three Months ended January 31, 1999
and 1998. (unaudited)
Statements of Income and Retained Earnings 5
Six Months ended January 31, 1999 and
January 31, 1998. (unaudited)
Statements of Cash Flows - Six months ended 6
January 31, 1999 and 1998. (unaudited)
Notes to Financial Statements as of and for the Six Months 7-8
Ended January 31, 1999
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
2
ITEM 1. FINANCIAL STATEMENTS
UNIVERSAL MFG. CO.
BALANCE SHEETS
January 31,
1999 July 31,
(Unaudited) 1998
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,380,280 $1,234,007
Accounts receivable 1,873,345 2,141,099
Inventories 3,267,798 2,611,961
Income taxes recoverable 54,522 23,545
Prepaid expenses 21,354 19,798
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Total current assets 6,597,299 6,030,410
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Deferred Income Taxes 24,188 24,188
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Lease Receivable 0 0
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PROPERTY - At cost
Land 120,499 120,499
Buildings 1,406,747 1,406,747
Machinery and equipment 1,013,923 1,013,923
Furniture and fixtures 289,074 264,924
Trucks and automobiles 844,934 870,579
Construction-in-Progress 36,015 0
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Total property 3,711,192 3,676,672
Less accumulated depreciation (2,253,056) (2,201,225)
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Property - net 1,458,136 1,475,447
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$8,079,623 $7,530,045
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $2,889,100 $2,199,744
Dividends payable 122,400 163,200
Payroll taxes 36,401 27,828
Accrued compensation 37,180 81,495
Accrued local taxes 19,153 17,570
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Total current liabilities 3,104,234 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 4,141,527 4,206,346
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Total stockholders' equity 4,975,389 5,040,208
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$8,079,623 $7,530,045
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3
UNIVERSAL MFG. CO.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
Three Months Ended
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January 31, January 31,
1999 1998
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NET SALES $4,267,938 $4,794,903
COST OF GOODS SOLD 3,721,348 3,999,027
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GROSS PROFIT 546,590 795,876
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 724,304 513,472
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INCOME/(LOSS) FROM OPERATIONS (177,714) 282,404
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OTHER INCOME:
Interest 19,722 12,097
Other income 6,209 5,346
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Total other income 25,931 17,443
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INCOME/(LOSS) BEFORE INCOME TAXES (151,783) 299,847
INCOME TAX EXPENSE/(BENEFIT) (60,435) 116,941
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NET INCOME/(LOSS) (91,348) 182,906
RETAINED EARNINGS, Beginning of period 4,355,275 3,808,875
DIVIDENDS (122,400) (204,000)
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RETAINED EARNINGS, End of period $4,141,527 $3,787,781
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PER COMMON SHARE INFORMATION:
Earnings/(Loss) per common share ($0.11) $0.22
Dividends per common share 0.15 0.25
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4
UNIVERSAL MFG. CO.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
Six Months Ended
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January 31, January 31,
1999 1998
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NET SALES $9,259,667 $9,493,294
COST OF GOODS SOLD 7,692,184 7,461,399
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GROSS PROFIT 1,567,483 2,031,895
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,270,624 1,056,143
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INCOME FROM OPERATIONS 296,859 975,752
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OTHER INCOME:
Interest 45,919 26,223
Other income 17,126 8,155
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Total other income 63,045 34,378
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INCOME BEFORE INCOME TAXES 359,904 1,010,130
INCOME TAXES 139,123 393,953
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NET INCOME 220,781 616,177
RETAINED EARNINGS, Beginning of period 4,206,346 3,851,093
DIVIDENDS (285,600) (408,000)
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RETAINED EARNINGS, End of period $4,141,527 $4,059,270
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PER COMMON SHARE INFORMATION:
Earnings per common share $0.27 $0.76
Dividends per common share 0.35 0.50
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5
UNIVERSAL MFG. CO.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
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January 31, January 31,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 220,781 $ 616,177
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 114,490 62,512
Gain on sale of property 3,423 0
Changes in operating assets and liabilities:
Accounts receivable 266,807 170,360
Inventories (655,842) (1,409,943)
Prepaid expenses (1,557) (133,111)
Income taxes recoverable (30,977) (8,123)
Lease receivable 0 6,445
Accounts payable 679,595 702,764
Payroll taxes 8,571 10,938
Accrued compensation (37,733) (33,372)
Accrued local taxes 1,583 (3,176)
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Net cash flows from operating activities 569,141 (18,529)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property (96,468) (116,294)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (326,400) (408,000)
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NET CHANGE IN CASH AND CASH EQUIVALENTS 146,273 (542,823)
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 $1,380,280 $ 338,566
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Income taxes $ 170,100 $ 403,955
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6
UNIVERSAL Mfg. Co.
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE SIX MONTHS
ENDED JANUARY 31, 1999 (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:
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
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
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, 1999, and the results of operations and cash flows for the
three and six month period ending January 31, 1999 and January 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 January 31, 1999 are $116,251. The remaining
amount of $33,474 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Effective October 1, 1998, Universal Manufacturing Co. signed a new sales
agreement with Ford Motor Company. This agreement establishes the Company as
a Ford Authorized Distributor and as such, authorizes the Company to
distribute to Ford and Lincoln-Mercury dealerships. Currently, we distribute
Company remanufactured parts, Ford Motor Company remanufactured components
and Motorcraft branded products - a new line for us. With the new agreement
we now directly compete with other Ford Authorized Distributors in our major
markets.
The sales agreement with Ford requires and competition dictates, that
same-day delivery service be offered to as many dealerships as possible. This
standard required the addition of trucks, drivers, warehouse space, warehouse
personnel, computer system enhancements, and sales personnel. As of yet,
sales revenue has not increased correspondingly with the added costs, thus
the adverse effect in earnings.
Other factors have contributed to the reduced earnings. For a few product
lines, such as starters and alternators, sales of lower margin Ford
remanufactured units displaced units remanufactured by us. Also, some one
time costs were incurred by liquidation of discontinued parts and cores.
Sales were also adversely affected by product returns on deauthorized
products and mild weather throughout most of the quarter.
We have initiated an aggressive marketing program for Motorcraft and Ford
remanufactured parts, with positive initial results. We are also aggressively
seeking alternative markets for our remanufactured products. We are
optomistic that these efforts combined with additional distribution
opportunities planned by Ford Motor Company should return us to normal
profitability in the near future.
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
9
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. Of the
fifty surveys sent, approximately fifty percent have replied. All replies
indicate the supplier will be compliant before year end 1999. We will
initiate a follow-up to those suppliers who have not responded.
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
The Company filed a Form 8-K on October 20, 1998.
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.
2/18/99 /s/ Donald D. Heupel
Date_________ _______________________________________________________
Donald D. Heupel, President and Chief Financial Officer
11