SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
Commission File # 1-3185
UNITED MERCHANTS AND MANUFACTURERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1426280
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1650 Palisade Avenue, Teaneck, N.J. 07666
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 837-1700
Indicate by check mark whether the registrant (1) has filed all documents
and reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 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 [ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [X] No [ ]
As of November 11, 1994, there were 17,845,000 shares of Common Stock, Par
Value $1 per share, outstanding.
1
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UNITED MERCHANTS AND MANUFACTURERS, INC.
AND SUBSIDIARIES
FORM 10-Q
- I N D E X -
Page
Number
Part I Financial Information
Consolidated Statement of Operations.............................. 3
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 4
Consolidated Balance Sheet........................................ 7
Consolidated Statement of Cash Flows.............................. 8
Notes to Consolidated Financial Statements........................ 9
Part II Other Information
Items............................................................. 13
Signatures........................................................ 13
2
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PART I - FINANCIAL INFORMATION
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(000 omitted)
-------------------
Three Months Ended
September 30
-------------------
1994 1993*
--------- ---------
Net sales........................................... $26,567 $27,873
Cost of sales....................................... 17,568 17,686
Selling, general and administrative expenses........ 10,145 10,501
--------- ---------
Operating Loss ($1,146) ($314)
Interest expense - net.............................. (2,756) (3,117)
Other income ....................................... 64 75
Minority interest in net earnings of subsidiary..... (226) (33)
Provision for income taxes.......................... (25) (25)
--------- ---------
Loss From Continuing Operations ($4,089) ($3,414)
Discontinued operations - net earnings prior
to sale (Notes A and B)........................... 1,228
Cumulative effect of change in accounting
principle for postretirement benefits other
than pensions - no income tax effect (Note C)..... (15,303)
--------- ---------
Net Loss ($4,089) ($17,489)
Dividends applicable to preferred stock (Note E).... 1,125 1,125
--------- ---------
Net Loss Applicable to Common Shares ($5,214) ($18,614)
========= =========
Average common shares outstanding................... 17,845 17,845
Loss per common share:
Continuing operations.............................. ($0.29) ($0.25)
Discontinued operations............................ 0.00 0.07
Change in accounting principle..................... 0.00 (0.86)
--------- ---------
Net Loss per Common Share ($0.29) ($1.04)
========= =========
----------
* The amounts for 1993 have been restated to report separately the
results of continuing and discontinued operations.
See Notes to Consolidated Financial statements.
3
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated net sales of United Merchants and Manufacturers,
Inc. ("UM&M" or the "Company") decreased by $1,306,000 during the
first quarter of fiscal 1995 which ended September 30, 1994, to
$26,567,000 from $27,873,000 during last year's first fiscal quarter,
which has been restated to report separately the results of
continuing and discontinued operations. The Company's apparel
textiles segment reported lower sales in the current year's first
quarter as compared to last year's quarter reflecting decreased unit
sales of the majority of the segment's products due, in part, to
later shipment dates for certain of the segment's basic products this
year as compared to last year. The lower unit shipments were offset
to some extent by higher average selling prices on certain of the
segment's other products. The accessories and apparel segment's
retail outlet store operation, experienced decreased sales in this
quarter as compared to last year, primarily as the result of
increased competition resulting from an increased variety and number
of competitor's retail outlet stores available to the consumer and a
net decrease in the number of stores operated by the Company during
this year's quarter as compared to the same period last year. These
decreases more than offset a 33% increase in sales in this year's
quarter as compared to the same quarter last year of the segment's
costume jewelry operation. Both the operation's branded label
merchandise and its private label business contributed to the
increase in sales. Consumer interest continued strong for that
operation's branded label merchandise, while the operation continued
to emphasize unique product development to provide growth in its
private label programs for its customers.
For the quarter ended September 30, 1994, the Company reported an
operating loss of $1,146,000 versus an operating loss of $314,000 in
last year's quarter, as restated. The Company's apparel segment
reported an operating loss in the current year's first quarter as
compared to an operating profit in the same quarter last year
reflecting the decreased volume referred to above and lower gross
profit margins reflecting price pressures on certain of the commodity
products sold by that segment. Reduced sales of that segment in this
year's quarter also resulted in reduced plant activity levels and
underabsorption of fixed expenses. The accessories and apparel
segment reported an increased operating profit for the quarter ended
September 30, 1994 as compared to the September quarter last year as
a result of increased operating profits of that segment's costume
jewelry subsidiary, resulting from the significantly increased volume
referred to above, which more than offset an increased operating loss
4
<PAGE>
of the segment's retail outlet store operation. The increased
operating loss reported by the retail outlet store operation in this
year's quarter primarily reflects the decrease in sales referred to
above, despite somewhat improved gross profit margins.
Interest expense decreased in the first quarter of fiscal 1995
by $361,000 to $2,756,000 from $3,117,000 as compared to the same
quarter of fiscal 1994. The positive impact of significantly reduced
average borrowings during the current year's quarter was offset to a
large extent by higher borrowing rates.
Net earnings of discontinued operations, prior to their sale,
amounted to $1,228,000 in the quarter ended September 30, 1993.
The net results for the quarter ended September 30, 1993 include
an extraordinary, non-cash charge of $15,303,000 representing the
cumulative effect of a change in accounting principle for
postretirement benefits other than pensions. See Note C of Notes to
Consolidated Financial Statements for further discussion of this
change.
LIQUIDITY AND CAPITAL RESOURCE
During recent years and for the three months ended September 30,
1994, the Company incurred significant losses from operations and, as
of September 30, 1994, has a stockholders' equity deficit. As
discussed in the Company's Annual Report on Form 10-K, the Company
refinanced its senior debt as of June 30, 1994 and thereby reduced
the total indebtedness of the Company. While this was a substantial,
positive development for the Company, as of June 30, 1994, the
Company's independent auditors' report stated that recurring losses
from operations, net deficiency in stockholders' equity and the
significant debt owed by the Company raise substantial doubt as to
the Company's ability to continue as a going concern. The Company's
financial statements have been prepared assuming that the Company
will continue as a going concern and do not include any adjustments
that might result from the outcome of this uncertainty. As also
discussed in the Company's Annual Report on Form 10-K, in the future,
the Company's strategy is to continue to pay down part of its debt
through the sale of certain assets and to refinance the remainder at
more beneficial terms. In addition, the Company has taken steps
toward establishing, through a subsidiary, a reinsurance business.
Subject to completion of certain financing and administrative
agreements, this subsidiary plans to acquire certain types of
existing life insurance policies and other long-term annuity
contracts from mainly life insurance companies. Over a period of
time, the Company is hopeful that it will generate profits and
positive cash flow as it services these policies. There can be no
assurances that the Company will succeed in reducing or refinancing
its indebtedness or in establishing a profitable insurance business.
5
<PAGE>
During the first quarter of fiscal 1995, the Company depended on
borrowings to finance its operations. The amounts which the Company
borrows under its revolving loan agreements fluctuate based on the
Company's cash availability or requirements. Working capital
increased to $31,904,000 at September 30, 1994 from $28,086,000 at
June 30, 1994. The Company's current ratio of 2.9 to 1.0 at
September 30, 1994 is the same as at June 30, 1994.
The Company has not declared or paid any cash dividends on its
10% Cumulative Preferred Stock in order to retain its available cash
for use in its operations.
6
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UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(000 omitted)
-------------------
Sep 30 June 30
1994 1994
ASSETS --------- ---------
Current Assets:
Cash............................................... $756 $662
Receivables, net of allowances of $2,581,000 at
September 30, 1994 and $2,372,000 at June 30, 1994 17,381 15,286
Inventories (Note G)............................... 28,280 24,760
Prepaid expenses and other current assets.......... 2,099 1,826
--------- ---------
Total Current Assets $48,516 $42,534
Property, Plant and Equipment (Note G).............. $38,018 $37,447
Less accumulated depreciation and amortization..... 26,945 26,327
--------- ---------
$11,073 $11,120
Goodwill............................................ 21,202 21,383
Other Assets and Deferred Charges (Note G).......... 8,394 8,525
--------- ---------
$89,185 $83,562
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Trade payables..................................... $7,233 $5,122
Accrued expenses and sundry liabilities (Note G)... 9,379 9,326
--------- ---------
Total Current Liabilities $16,612 $14,448
Long-Term Debt (Note F)............................. 87,779 80,559
Other Long-Term Liabilities (Note G)................ 20,902 20,800
Minority Interest................................... 2,120 1,894
Stockholders' Equity (Deficit):
Preferred stock, par value $1 per share; 10,000,000
shares authorized; 450,000 shares outstanding..... $450 $450
Common stock, par value $1 per share: 40,000,000
shares authorized; 17,845,000 shares outstanding
(excluding 22,800 shares held in treasury)........ 17,845 17,845
Capital in excess of par value..................... 64,674 64,674
Retained earnings (deficit)........................ (112,563) (108,474)
Unrealized pension liability adjustment............ (4,634) (4,634)
Notes receivable from stock purchase agreement..... (4,000) (4,000)
--------- ---------
Total Stockholders' Equity (Deficit) ($38,228) ($34,139)
--------- ---------
$89,185 $83,562
========= =========
See Notes to Consolidated Financial Statements.
7
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (000 omitted)
-------------------
Three Months Ended
September 30
-------------------
1994 1993*
--------- ---------
Cash Flows from Operating Activities:
Net loss........................................... ($4,089) ($17,489)
Adjustments to reconcile net loss to net cash
used for operating activities:
Change in accounting principle for post-retirement
benefits other than pensions.................... 15,303
Depreciation and amortization.................... 799 857
Minority interest................................ 226 33
Amortization of bond discount.................... 252 190
Decrease (increase) in assets:
Receivables....................................... (2,095) 1,474
Inventories....................................... (3,520) (230)
Prepaid expenses and other current items.......... (273) (380)
Other assets...................................... 131 168
Increase (decrease) in liabilities:
Trade payables ................................... 2,111 (4,737)
Accrued expenses and sundry liabilities........... 53 2,467
Other long-term liabilities....................... 102 (1,452)
--------- ---------
Net Cash Used for Operating Activities ($6,303) ($3,796)
Cash Flows from Investing Activities:
Additions to property, plant and equipment......... ($571) ($331)
Net change in assets of discontinued operations
prior to sale..................................... 1,814
--------- ---------
Net Cash Provided by (used for) Investing Activities ($571) $1,483
Cash Flows from Financing Activities:
Increase in notes payable.......................... $3,372
Increase (decrease) in long-term debt.............. $6,968 (127)
--------- ---------
Net Cash Provided by Financing Activities $6,968 $3,245
--------- ---------
Increase in Cash $94 $932
Cash at beginning of period......................... 662 1,032
--------- ---------
Cash at end of period $756 $1,964
========= =========
----------
Supplemental disclosures of cash flow information:
Interest........................................... $2,756 $2,958
Income Taxes....................................... 25 25
* The amounts for 1993 have been restated to report separately the
results of continuing and discontinued operations.
See Notes to Consolidated Financial Statements.
8
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION AND LIQUIDITY
Basis of Presentation - The accompanying consolidated financial statements
of United Merchants and Manufacturers, Inc. ("UM&M" or the "Company") and
its subsidiaries have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. Subsequent to September 30, 1993, the Company sold two
significant operations (see Note B below). Accordingly, the financial
statements for the three months ended September 30, 1993 have been
restated to report separately the results of continuing and discontinued
operations. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. The results of operations of interim periods are
subject to year-end audit and adjustments and are not necessarily
indicative of the results of operations of the fiscal year. For further
information, refer to the consolidated financial statements and footnotes
included thereto in the Company's Annual Report on Form 10-K for the year
ended June 30, 1994.
Liquidity - During each of the three years ended June 30, 1994 and for the
current three months, the Company has incurred significant losses from
operations and as of September 30, 1994 has a stockholders' equity
deficit. As discussed in the Company's Annual Report on Form 10-K, the
Company refinanced its senior debt as of June 30, 1994 and thereby reduced
the total indebtedness of the Company. While this was a substantial,
positive development for the Company, as of June 30, 1994, the Company's
independent auditors' report stated that the recurring losses from
operations, net deficiency in stockholders' equity and the significant
debt owed by the Company raise substantial doubt as to the Company's
ability to continue as a going concern. The consolidated financial
statements have been prepared assuming that the Company will continue as a
going concern and do not include any adjustments that might result from
the outcome of this uncertainty.
NOTE B - DISPOSITIONS AND TERMINATIONS OF CERTAIN OPERATIONS
During the quarter ended June 30, 1994, the Company sold substantially all
of the assets (other than accounts receivable) and business, as a going
concern, of its Clarkesville Mill operations. The sale resulted in a gain
of approximately $3.2 million. Also during the quarter, the Company
determined that the non-cash proceeds from the sale of two operations in
fiscal 1993 were uncollectable and, therefore, recognized a loss on sale
of those operations of $5.1 million.
9
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During the quarter ended March 31, 1994, the Company sold substantially
all of the assets (other than accounts receivable) and business, as a
going concern, of its Uniblend operation. The sale resulted in a gain of
approximately $5.1 million.
The proceeds from these two transactions, along with the collection of the
accounts receivable of the operations, were used to reduce the Company's
indebtedness.
Net sales, prior to disposition, of the above mentioned operations sold
were $18.4 million and operating income was $0.9 million for the three
months ended September 30, 1993.
NOTE C - CHANGE IN ACCOUNTING PRINCIPLE FOR POSTRETIREMENT BENEFITS OTHER
THAN PENSIONS
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions". The statement requires accrual of the cost
of providing postretirement benefits, including medical and life insurance
coverage, during the active service period of the employee rather than the
pay-as-you-go (cash) basis which the company used prior to adoption. The
company elected to immediately recognize the accumulated postretirement
benefit obligation equal to the discounted present value of expected
future benefit payments attributed to employees service rendered prior to
July 1, 1993. This resulted in a one-time, non-cash charge against
earnings of $15.3 million as of July 1, 1993.
NOTE D - INCOME TAXES
The provisions for income taxes for the three months ended September 30,
1994 and 1993 varied from the expected relationship to loss before income
taxes since the operating losses did not result in income tax benefits.
The provisions consist of amounts for state and local income taxes.
NOTE E - DIVIDENDS APPLICABLE TO PREFERRED STOCK
The Company has not declared nor paid any cash dividends on its 10%
Cumulative Preferred Stock in order to retain its available cash for use
in its operations. For financial statement purposes, cumulative preferred
dividends are deducted from the results of operations in determining
earnings applicable to common shares whether or not such dividends are
declared or paid.
10
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NOTE F - LONG-TERM DEBT
Long-term debt consists of the following:
(000 omitted)
------------------
Sep 30 June 30
1994 1994
-------- --------
Secured promissory notes.......................... $ 12,000 $ 12,000
Revolving loans................................... 23,284 16,316
3 1/2% Senior Subordinated Secured Debentures
due 2009 (net of unamortized discount of
$47,606,000 at September 30, 1994 and
$47,827,000 at June 30, 1994).................... 21,536 21,315
5% Subordinated Notes due 2019:
Issued to former senior lender................... 30,000 30,000
Issued in settlement of lawsuit (net of
unamortized discount of $21,041,000 at
September 30, 1994 and $21,072,000 at
June 30, 1994).................................. 959 928
-------- --------
Total Long-Term Debt $ 87,779 $ 80,559
======== ========
The revolving loans fluctuate based on the Company's cash availability or
requirements. The secured promissory notes and revolving loans are
secured by substantially all of the Company's assets.
NOTE G - SUPPLEMENTAL BALANCE SHEET INFORMATION
Supplemental information regarding certain balance sheet captions is as
follows:
(000 omitted)
------------------
Sep 30 June 30
1994 1994
-------- --------
Inventories:
Raw materials...................................... $ 8,600 $ 6,347
Work in process.................................... 2,367 1,800
Finished goods..................................... 17,313 16,613
-------- --------
$ 28,280 $ 24,760
======== ========
11
<PAGE>
(000 omitted)
------------------
Sep 30 June 30
1994 1994
-------- --------
Property, plant and equipment:
Land and buildings................................. $ 5,083 $ 5,083
Machinery, equipment and other..................... 31,841 31,801
Construction-in-progress........................... 1,094 563
-------- --------
$ 38,018 $ 37,447
Less accumulated depreciation and amortization...... 26,945 26,327
-------- --------
Net Property, Plant and Equipment $ 11,073 $ 11,120
======== ========
Other assets and deferred charges:
Long-term assets held for sale...................... $ 4,404 $ 4,952
Interest receivable - sale of stock................. 1,744 1,710
Deferred pension cost............................... 765 765
Deposits............................................ 355 352
Other............................................... 1,126 746
-------- --------
$ 8,394 $ 8,525
======== ========
Accrued expenses and sundry liabilities:
Accrued compensation expenses....................... $ 2,709 $ 1,449
Postretirement benefits other than pension.......... 1,108 1,108
Accrued workers compensation........................ 989 1,493
Accrued taxes other than payroll.................... 905 1,643
Accrued professional fees........................... 798 442
Accrued shutdown costs.............................. 744 703
Accrued interest.................................... 603 1,208
Accrued royalties expense........................... 442 342
Accrued insurance................................... 368 454
Other............................................... 713 484
-------- --------
$ 9,379 $ 9,326
======== ========
Other long-term liabilities:
Postretirement benefits other than pension.......... $ 14,021 $ 14,021
Accrued pension liability........................... 6,217 6,137
Other............................................... 664 642
-------- --------
$ 20,902 $ 20,800
======== ========
NOTE H - LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits. It is not expected that
these suits will result in judgements which in the aggregate would have a
material adverse effect on the Company's financial position.
12
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UNITED MERCHANTS AND MANUFACTURERS, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 2. Changes in Securities
Information required under this item is contained in Part I,
Note F of Notes to Consolidated Financial Statements, which is
incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(A) Reports on Form 8-K:
As stated in the Registrant's Annual Report on Form 10-K for the
year ended June 30, 1994, Registrant filed a report on Form 8-K
on July 14, 1994 regarding the Registrant's refinancing as of
June 30, 1994.
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.
UNITED MERCHANTS AND MANUFACTURERS, INC.
(Registrant)
Date: November 11, 1994 By /s/ Norman R. Forson
Norman R. Forson
Senior Vice President and
Corporate Comptroller
13
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UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX TO EXHIBIT
The following exhibit is being filed herewith:
Exhibit No.
(27) Financial Data Schedule as of and for the quarter ended September
30, 1994 is filed herewith as Exhibit EX-1.
E-1
<PAGE>
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<NAME> UNITED MERCHANTS AND MANUFACTURERS, INC.
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<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> SEP-30-1994
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<RECEIVABLES> 19,962
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0
450
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