-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, H7XRlG5RO8cPxRMyq9oa6IPbMjD6djavSdOokgQa1Q1JgYP93Rl1xIqLaZ4mxG2k iwjhVU6TP6Ikv1Z+10sV9w== 0000912057-94-002670.txt : 19940822 0000912057-94-002670.hdr.sgml : 19940822 ACCESSION NUMBER: 0000912057-94-002670 CONFORMED SUBMISSION TYPE: ARS PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940812 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH STAR UNIVERSAL INC CENTRAL INDEX KEY: 0000768158 STANDARD INDUSTRIAL CLASSIFICATION: 5140 IRS NUMBER: 410498850 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: ARS SEC ACT: 1934 Act SEC FILE NUMBER: 001-10134 FILM NUMBER: 94543846 BUSINESS ADDRESS: STREET 1: 5353 WAYZATA BLVD STREET 2: PARK NATIONAL BANK BLDG STE 610 CITY: MINNEAPOLIS STATE: MN ZIP: 55416 BUSINESS PHONE: 612-941-7600 MAIL ADDRESS: STREET 1: 610 PARK NATIONAL BANK BUILDING STREET 2: 5353 WAYZATA BOULEVARD CITY: MINNEAPOLIS STATE: MN ZIP: 55416 ARS 1 FORM 424B3 $40,000,000 NORTH STAR UNIVERSAL, INC. SIX AND TWELVE MONTH SUBORDINATED EXTENDIBLE TIME CERTIFICATES TWO, FIVE AND TEN YEAR SUBORDINATED FIXED-TERM TIME CERTIFICATES PROSPECTUS SUPPLEMENT NO. 2 TO PROSPECTUS DATED MARCH 23, 1994 The following information dated August 12, 1994, amends and updates the Prospectus of North Star Universal, Inc., dated March 23, 1994 (the "Prospectus"), and should be read in conjunction therewith. Please keep this Prospectus Supplement with your Prospectus for future reference. THE DATE OF THIS PROSPECTUS SUPPLEMENT IS AUGUST 12, 1994 NORTH STAR UNIVERSAL, INC. AND SUBSIDIARIES SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AND RATIO AMOUNTS) The following table sets forth certain summary financial data for the Company and should be read in conjunction with the Condensed Consolidated Financial Statements of the Company included in this Prospectus Supplement.
SIX MONTHS ENDED JUNE 30, 1994 (UNAUDITED) ----------------------- OPERATIONS: 1994 1993 --------- ------------ Revenues $ 47,990 $ 56,128 Operating income (loss) (1,087) 618 Net income (loss) 58 76 --------- --------- --------- --------- Income (loss) per share $ 0.01 $ 0.01 --------- --------- --------- --------- Ratio of earnings to fixed charges (.28)X --------- --------- June 30, 1994 December 31, FINANCIAL POSITION: (Unaudited) 1993 ----------- ------------ Total assets $111,003 $108,607 Long-term debt 43,738 43,194 Shareholders' equity 34,914 34,675 -------- -------- -------- --------
North Star Universal, Inc. and Subsidiaries MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND FINANCIAL CONDITION GENERAL North Star Universal, Inc. ("North Star" or "the Company") is a holding company. The Company's three key holdings consist of Michael Foods, Inc. ("Michael Foods"), CorVel Corporation ("CorVel") and its computer businesses. At June 30, 1994, the Company owned a 38% interest in Michael Foods and a 39% ownership interest in CorVel. The Company's investments in Michael Foods and CorVel are accounted for as unconsolidated subsidiaries using the equity method of accounting. The Company's continuing operations consist of Americable, Inc., Transition Engineering, Inc., and C.E. Services, Inc., (including its United Kingdom subsidiary, C.E. Services (Europe) Limited). Americable is a provider of voice and data communications networking products, systems and services. Transition Engineering designs, manufactures and markets connectivity devices used in local area network ("LAN") applications. C.E. Services remarkets, reconfigures, refurbishes and warehouses mainframe computers and peripherals and provides related technical and maintenance services. The following is unaudited summarized operating results for each of the Company's continuing operations for the three and six month periods ended June 30 (in thousands).
Three Months Ended Six Months Ended June 30, June 30, -------------------------- -------------------------- 1994 1993 1994 1993 ----------- ------------ ----------- ----------- Revenues C.E. Services $ 12,465 $ 17,767 $ 26,508 $ 33,385 Americable 9,111 9,832 16,862 18,722 Transition Engineering 2,857 2,530 5,317 4,679 Eliminations (432) (355) (697) (658) ----------- ------------ ----------- ----------- $ 24,001 $ 29,774 $ 47,990 $ 56,128 ----------- ------------ ----------- ----------- ----------- ------------ ----------- ----------- Gross Profit C.E. Services $ 1,657 $ 3,227 $ 4,081 $ 5,512 Americable 2,045 2,554 4,084 5,072 Transition Engineering 1,092 1,025 2,104 1,900 ----------- ------------ ----------- ----------- $ 4,794 $ 6,806 $ 10,269 $ 12,484 ----------- ------------ ----------- ----------- ----------- ------------ ----------- ----------- Operating Income (Loss) C.E. Services $ (604) $ 824 $ (538) $ 891 Americable (37) (75) (185) (122) Transition Engineering 83 376 213 529 Corporate expenses (294) (351) (577) (680) ----------- ------------ ----------- ----------- $ (852) $ 774 $ (1,087) $ 618 ----------- ------------ ----------- ----------- ----------- ------------ ----------- -----------
North Star Universal, Inc. and Subsidiaries MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND FINANCIAL CONDITION RESULTS OF OPERATIONS -- THREE MONTHS ENDED JUNE 30, 1994 vs. THREE MONTHS ENDED JUNE 30, 1993 Consolidated revenues decreased $5.8 million or 19% to $24 million from $30 million in 1993. The $5.3 million or 29.8% decrease at C.E. Services includes approximately $4.5 million of decreased revenues from the resale of used mainframe systems and features and approximately $800,000 of lower technical service and warehousing revenues. Sales from C.E. Services' European operations decreased approximately $200,000 or 8% to approximately $2.1 million for the period. This decline in revenues is attributed to an overall slowdown experienced within the secondary market of IBM mainframe equipment. C.E. Services does not expect demand for its products and services to measurably improve during the remainder of 1994. Revenues at Americable, excluding approximately $1.2 million of sales in 1993 from its Canadian operations which were closed in December 1993, increased $442,000 or 5% to $9.1 million. This was due primarily to higher demand for its value-added networking products and services. The 12.9% increase in revenues at Transition Engineering resulted primarily from higher demand for its LAN products. Consolidated gross profit, as a percent of revenues, decreased to 20% in 1994 as compared to 22.9% in 1993. The decreased margins at C.E. Services is attributed to a higher mix of lower margin product sales and increased cost of services due primarily to costs associated with a new IBM service contract. In addition, margins at Americable decreased due to overall lower pricing resulting from increased competition. The Company's selling, general and administrative expenses decreased $386,000, or 6.4% to $5,646,000 from $6,032,000 in 1993. Operating expenses at Americable decreased $547,000 which reflects approximately $360,000 of expenses eliminated through the closure of its Canadian facilities effected in December 1993. This was offset by increased expenses of approximately $360,000 at Transition Engineering due primarily to increased staffing levels and costs related to the development and marketing of new products. Net interest expense decreased $40,000 to $1,044,000 from $1,084,000 in 1993, primarily due to overall lower weighted average interest on outstanding debentures between years. The income tax benefit of $650,000 in 1994 and $130,000 in 1993 relate to the elimination of deferred tax liabilities that will reverse as net operating losses available for carryforwards are utilized in future periods. To the extent loss carryforwards are realized in the future, deferred taxes will be reinstated. North Star Universal, Inc. and Subsidiaries MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND FINANCIAL CONDITION (Continued) RESULTS OF OPERATIONS -- THREE MONTHS ENDED JUNE 30, 1994 vs. THREE MONTHS ENDED JUNE 30, 1993 (Continued) Equity in earnings of unconsolidated subsidiaries increased $405,000 to $1,158,000 from $753,000 in the previous year. This includes an increase of $337,000 and $68,000 in the equity in earnings of Michael Foods and CorVel Corporation, respectively, which is a result of higher earnings at each of these companies. SIX MONTHS ENDED JUNE 30, 1994 vs. SIX MONTHS ENDED JUNE 30, 1993 Consolidated revenues decreased $8.1 million or 14.5% to $48 million from $56.1 million in 1993. The $6.9 million or 20.6% decrease at C.E. Services is primarily due to lower demand experienced within its domestic and European operations for used mainframe systems and features. Sales from C.E. Services' European operations decreased approximately $2.5 million or 38% to approximately $4 million for the period. C.E. Services does not expect demand for its products and services to measurably improve during the remainder of 1994. Revenues at Americable, excluding approximately $2.8 million of sales in 1993 from its Canadian operations, which were closed in December 1993, increased 5.9% to $16.9 million for the period due primarily to higher demand for its value-added networking products and services. The 13.6% increase in revenues at Transition Engineering was due primarily to higher product demand. Sales to international customers accounted for approximately $264,000 or 41% of the increase for the period. Consolidated gross profit, as a percent of revenues, decreased to 21.4% in 1994 as compared to 22.2% in 1993. This is primarily a result of lower margins at C.E. Services which is attributed to a higher mix of lower margin product sales in addition to reduced pricing of technical services due to increased competition and maturing product life cycle of certain IBM mainframes. In addition, margins at Americable decreased due to overall lower pricing resulting from increased competition. North Star does not expect consolidated gross profit margins to measurably improve throughout the remainder of the year. The Company's selling, general and administrative expenses decreased $510,000, or 4.3%, to $11,356,000 from $11,866,000 in 1993. Operating expenses at Americable decreased $925,000 which reflects approximately $746,000 of expenses eliminated through the closure of its Canadian facilities effected in December 1993. This was offset by increased expenses at Transition Engineering due primarily to increased staffing levels and costs related to the development and marketing of new products. These increases were offset by a decrease in corporate costs due to reduced corporate staff between years. Net interest expense decreased $36,000 to $2,080,000 from $2,116,000 in 1993, primarily due to overall lower weighted average interest on outstanding debentures between years. The income tax benefit of $1,040,000 in 1994 and $550,000 in 1993 relate to the elimination of deferred tax liabilities that will reverse as net operating losses available for carryforward are utilized in future periods. To the extent loss carryforwards are realized in the future, deferred taxes will be reinstated. Equity in earnings of unconsolidated subsidiaries increased $1,161,000 to $2,185,000 from $1,024,000 in the previous year. This includes an increase of $978,000 and $183,000 in the equity in earnings of Michael Foods and CorVel, respectively, which is a result of higher earnings at each of these companies. Michael Foods' net earnings for the six months ended June 30, 1994, were approximately $7 million, an increase of approximately $4.2 million, or 161% from the previous year. CAPITAL RESOURCES AND LIQUIDITY Historically, the Company has experienced cash flow deficits from operations. Cash used in operations was approximately $3.3 million for the six months ended June 30, 1994 as compared to $841,000 in 1993. The Company expects operating cash flow deficits to continue. The Company does not have the use of cash flow generated by Michael Foods other than proceeds from quarterly dividends. In each of the six month periods ended June 30, 1994 and 1993, the Company received dividends of $736,000. There can be no assurance that Michael Foods will continue to declare such dividends. Likewise, since CorVel's initial public offering in July 1991, the Company has not had the use of cash generated by CorVel and its subsidiaries. Since its initial public offering, CorVel has not declared any dividends, and has indicated that it does not anticipate doing so for the foreseeable future. The Company maintains a program whereby it sells subordinated debentures of various maturities to primarily individual investors. The debentures are offered on a continuous basis at interest rates that change from time to time depending on market conditions. Historically, a substantial portion of maturing debentures have been reinvested in new debentures. At June 30, 1994, the Company had approximately $40.5 million principal amount of subordinated debentures outstanding. For the six months ended June 30, 1994, approximately $4 million or 64% of debenture maturities were reinvested in new debentures. Included within long- term debt repayments for the six months ended June 30, 1994, is approximately $2.2 million of scheduled maturities of subordinated debentures. Proceeds from long-term debt include approximately $2.0 million of new debentures sold along with $1.1 million of compounded interest on debentures. The net activity under the debenture program for the period resulted in net cash proceeds to the Company of approximately $896,000. Americable maintains a revolving line of credit and term loan facility which provides borrowings up to $5.5 million due in May 1996. Borrowings under the revolving credit facility are based on eligible accounts receivable and inventory with interest at prime plus 1.5% (8.75% at June 30, 1994). At June 30, 1994, Americable had outstanding borrowings of $1.4 million under its revolving line of credit and $1,755,000 under its term loan. North Star Universal, Inc. and Subsidiaries MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND FINANCIAL CONDITION (Continued) CAPITAL RESOURCES AND LIQUIDITY (Continued) C.E. Services maintains revolving credit facilities which provide for borrowings up to $3.5 million with interest at 1/2% and 1% over its bank's reference rate (8.25% and 8.75% at June 30, 1994). During the six months ended June 30, 1994, C.E. Services used bank borrowings of approximately $1.9 million to finance its working capital requirements, principally the purchase of inventory related to its remarketing of mainframe systems. As June 30, 1994, there was $760,000 outstanding under these facilities. At June 30, 1994, North Star had no borrowings outstanding under its $6.5 million revolving credit facility and approximately $5 million of cash and cash equivalents, excluding cash of its operating subsidiaries. The Company believes that its available cash and cash equivalents along with its debenture program and amounts available under its resolving credit facility and the credit facilities of its operating companies, will be adequate to meet expected cash requirements for the remainder of the year. NORTH STAR UNIVERSAL, INC. AND SUBSIDIARIES INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Page Condensed Consolidated Balance Sheets as of June 30, 1994 and December 31, 1993 8 Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 1994 and 1993 9 Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 1994 and 1993 10 Notes to Condensed Consolidated Financial Statements 11 North Star Universal, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
June 30, December 31, 1994 1993 ---------- --------- (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 5,540 $ 6,981 Accounts receivable, net 8,317 7,617 Inventories 11,331 10,800 Prepaid expenses and other 1,262 1,309 ---------- --------- Total current assets 26,450 26,707 Property and equipment, net 3,284 3,429 Investment in unconsolidated subsidiaries 72,233 69,108 Goodwill, net 7,043 7,275 Other assets 1,993 2,088 ---------- --------- $ 111,003 $ 108,607 ---------- --------- ---------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable to bank $ 760 $ -- Current portion of long-term debt 12,607 12,799 Accounts payable and accrued expenses 10,822 10,473 ---------- --------- Total current liabilities 24,189 23,272 Long-term debt, net of current maturities 31,131 30,395 Deferred income taxes 20,769 20,265 Shareholders' Equity Common stock, $.25 par value 100,000,000 shares authorized, 9,438,000 issued and outstanding 2,360 2,360 Additional paid-in-capital 31,068 30,937 Retained earnings 1,681 1,623 Foreign currency translation adjustment (195) (245) ---------- --------- Total shareholder's equity 34,914 34,675 ---------- --------- $ 111,003 $ 108,607 ---------- --------- ---------- ---------
See accompanying notes to condensed consolidated financial statements. North Star Universal, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except per share amounts)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ------------------- 1994 1993 1994 1993 --------- --------- --------- --------- Revenues $ 24,001 $ 29,774 $ 47,990 $ 56,128 Operating and product costs 19,207 22,968 37,721 43,644 --------- --------- --------- --------- Gross profit 4,794 6,806 10,269 12,484 Selling, general, and administrative expenses 5,646 6,032 11,356 11,866 --------- --------- --------- --------- Operating income (loss) (852) 774 (1,087) 618 Interest expense, net (1,044) (1,084) (2,080) (2,116) --------- --------- --------- --------- Loss before income taxes and equity in earnings of unconsolidated subsidiaries (1,896) (310) (3,167) (1,498) Income tax benefit (650) (130) (1,040) (550) --------- --------- --------- --------- Loss before equity in earnings of unconsolidated subsidiaries (1,246) (180) (2,127) (948) Equity in earnings of unconsolidated subsidiaries 1,158 753 2,185 1,024 --------- --------- --------- --------- Net income (loss) $ (88) $ 573 $ 58 $ 76 --------- --------- --------- --------- --------- --------- --------- --------- Income (loss) per share $ (0.01) $ 0.06 $ 0.01 $ 0.01 --------- --------- --------- --------- --------- --------- --------- --------- Weighted average shares outstanding 9,438,000 9,823,400 9,633,100 9,630,700 --------- --------- --------- --------- --------- --------- --------- ---------
See accompanying notes to condensed consolidated financial statements. North Star Universal, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, (Unaudited) (In thousands)
1994 1993 ---------- --------- Net cash used in operating activities $ (3,335) $ (841) Cash flows for investing activities Capital expenditures (419) (443) Other 273 433 ---------- --------- Net cash used in investing activities (146) (10) ---------- --------- Cash flows from financing activities Proceeds from long-term debt 14,540 2,427 Payments on long-term debt (13,996) (3,700) Proceeds from notes payable 1,875 -- Payments on notes payable (1,115) -- Cash dividends received from Michael Foods 736 736 ---------- --------- Net cash provided by (used in) financing activities 2,040 (537) ---------- --------- Net decrease in cash and cash equivalents (1,441) (1,388) Cash and cash equivalents at beginning of period 6,981 9,380 ---------- --------- Cash and cash equivalents at end of period $ 5,540 $ 7,992 ---------- --------- ---------- ---------
See accompanying notes to condensed consolidated financial statements. North Star Universal, Inc. and Subsidiaries NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION -- The accompanying unaudited condensed consolidated financial statements have been prepared by North Star Universal, Inc. ("North Star" or the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in the condensed consolidated financial statements includes normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of such financial statements. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. Results for the three and six months ended June 30 may not necessarily be indicative of the results to be expected for the full year. 2. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES -- The Company's unconsolidated subsidiaries consist of its investments in Michael Foods, Inc. ("Michael Foods") and CorVel Corporation ("CorVel"). CorVel has a fiscal year ended March 31. The following is summarized balance sheet information of the Company's unconsolidated subsidiaries as of and for the six month period ended June 30, 1994 (in thousands):
Michael Foods CorVel ------------- ---------- Current assets $ 89,484 $ 23,552 Noncurrent assets 243,473 12,065 Current liabilities 59,862 5,790 Noncurrent liabilities 113,120 -- Revenues 247,171 43,640 Gross profit 35,499 7,541 Net income 6,904 2,627
3. INVENTORIES -- Inventories are stated at the lower of average cost (first-in, first-out) or market. Inventories consist of the following (in thousands):
June 30, December 31, 1994 1993 ----------- ---------- Work in process and finished goods $ 8,562 $ 8,741 Purchased parts and supplies 2,769 2,059 ----------- ---------- $ 11,331 $ 10,800 ----------- ---------- ----------- ----------
North Star Universal, Inc. and Subsidiaries NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. EARNINGS PER SHARE -- Earnings per share are based on the average number of shares outstanding during the period after giving effect to the assumed exercise of outstanding stock options, except where the effects are antidilutive. 5. INCOME TAXES -- Deferred income taxes arise from temporary differences between financial and tax reporting. To the extent the Company's financial reporting basis in its investments in unconsolidated subsidiaries exceeds its tax basis, and is not expected to be realized in a tax-free manner, the Company records a deferred tax liability. In the fourth quarter of 1993, the Company determined that all future dispositions of its Michael Foods holdings may not be completed in a tax- free manner. Accordingly, at December 31, 1993, the Company recorded a deferred tax liability of approximately $18.7 million related to the accounting for temporary differences between financial and tax reporting of its investment in Michael Foods. At June 30, 1994, the deferred tax liability includes a cumulative tax effect of approximately $19.1 million and $4.4 million for the differences in the financial reporting and tax basis of the Company's investments in Michael Foods and CorVel, respectively. 6. RECLASSIFICATIONS -- Certain 1993 amounts have been reclassified to conform with the financial statement presentation used in 1994. Such reclassifications had no impact on previously reported retained earnings or net income. SIGNATURES Pursuant to the requirement 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. NORTH STAR UNIVERSAL, INC. -------------------------- (Registrant) Date August 12, 1994 b/s/ Jeffrey J. Michael --------------- ----------------------- Jeffrey J. Michael President and Chief Executive Officer Date August 12, 1994 b/s/ Peter E. Flynn --------------- -------------------- Peter E. Flynn Executive Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----