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 December 31, 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 February 10, 1995, there were 17,845,000 shares of Common Stock, Par
Value $1 per share, outstanding.
1
<PAGE>
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............................................................. 14
Signatures........................................................ 14
2
<PAGE>
PART I - FINANCIAL INFORMATION
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(000 omitted)
-----------------------------------------
Three Months Ended Six Months Ended
December 31 December 31
------------------- -------------------
1994 1993* 1994 1993*
--------- --------- --------- ---------
Net sales........................ $16,975 $16,017 $37,094 $33,581
Cost of sales.................... 10,606 10,033 21,718 18,230
Selling, general and
administrative expenses......... 8,701 9,828 18,116 19,700
Loss on termination of certain
operation (Note B).............. 500 500
--------- --------- --------- ---------
Operating Loss ($2,832) ($3,844) ($3,240) ($4,349)
Interest expense................. (2,933) (3,151) (5,689) (6,268)
Loss on sale of operation -
(Note B)........................ (835) (835)
Amortization of goodwill......... (180) (180) (360) (360)
Other income .................... 129 114 210 189
Minority interest in net
(earnings) losses of subsidiary. 223 419 (3) 386
Provision for income taxes....... (25) (25) (50) (50)
--------- --------- --------- ---------
Loss from Continuing Operations ($6,453) ($6,667) ($9,967) ($10,452)
Discontinued operations (Notes A and B):
Net earnings (loss) prior to sale
or closing..................... 43 2,085 (532) 3,684
Loss on closing................. (7,900) (7,900)
Cumulative effect of change in
accounting principle for post-
retirement benefits other than
pensions - no income tax effect
(Note C)........................ (15,303)
--------- --------- --------- ---------
Net Loss ($14,310) ($4,582) ($18,399) ($22,071)
Dividends applicable to preferred
stock (Note E).................. 1,125 1,125 2,250 2,250
--------- --------- --------- ---------
Net Loss Applicable
to Common Shares ($15,435) ($5,707) ($20,649) ($24,321)
========= ========= ========= =========
Average common shares outstanding 17,845 17,845 17,845 17,845
Loss per common share:
Continuing operations........... ($0.42) ($0.44) ($0.68) ($0.71)
Discontinued operations......... (0.44) 0.12 (0.47) 0.21
Change in accounting principle.. 0.00 0.00 0.00 (0.86)
--------- --------- --------- ---------
Net Loss per Common Share ($0.86) ($0.32) ($1.15) ($1.36)
========= ========= ========= =========
* 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") increased by $958,000 and $3,513,000 in the
quarter and six months ended December 31, 1994, respectively, as compared
to last year's second fiscal quarter and first six months, which have been
restated to report separately the results of continuing and discontinued
operations. The increase in net sales in the current year's three and six
months, as compared to the same periods last year, is the result of
increased sales of 32% and 33%, respectively, of the Apparel and
Accessories segment's costume jewelry operation, which more than offset
decreased sales of that segment's retail outlet store operation. As
discussed below, the retail outlet store operation was sold in January
1995. The increases in the sales of the costume jewelry operation reflect
increased volume for all branded label merchandise as well as all current
private label lines plus the expansion of the operation's private label
business into new markets.
For the quarter and six months ended December 31, 1994, the Company
reported operating losses of $2,832,000 and $3,240,000, respectively, as
compared to operating losses of $3,844,000 and $4,349,000, respectively,
for the same periods last year. Operating results for this year's quarter
and six-month period include operating losses of the Apparel and
Accessories segment's retail outlet store operation of $855,000 and
$1,216,000, respectively, as compared to operating losses of $580,000 and
$673,000, respectively, in last year's quarter and six months. Operating
results for the current year's quarter and six months also include a
provision of $500,000 for operating losses of the retail stores from
December 31, 1994 to the date of sale. The Apparel and Accessories
segment's costume jewelry operation reported operating earnings in the
quarter and six months ended December 31, 1994, as compared to operating
losses in the same periods last year, primarily as the result of the
increased volume referred to above, improved gross profit margins
reflecting increased absorption of manufacturing and distribution overhead
and improved purchasing procedures and sourcing and decreases, as a
percentage of net sales, in selling, general and administrative expenses.
Interest expense decreased by $218,000 and $579,000 in the current
year's quarter and six months from the same periods last year. The
positive impact of significantly reduced average borrowings during the
current year's periods was offset to a large extent by a higher borrowing
rate.
Loss from continuing operations for the three and six months ended
December 31, 1994 includes a provision for a non-recurring, non-cash loss
of $835,000 on the sale of the Company's retail outlet store operation.
4
<PAGE>
Net earnings of discontinued operations for the current year's first
fiscal quarter amounted to $43,000 as compared to net earnings of
$2,085,000 during last year's comparable quarter. During the first six
months of the current fiscal year, the Company reported losses from
discontinued operations of $532,000 as compared to earnings of $3,684,000
in last year's first six months. Net results for the current year's
quarter and six months are after a provision for a non-recurring loss on
the termination of the Company's Apparel Textiles segment of $7,900,000,
including estimated losses from operations from December 31, 1994 through
the shutdown date, of which approximately $5,200,000 represents a non-cash
loss. See Note B of Notes to Consolidated Financial Statements for
discussion of discontinued operations.
The net results for the six months ended December 31, 1993 include an
extraordinary, non-cash charge of $15,303,000 representing the cumulative
effect of a change in accounting principle for post retirement benefits
other than pensions. See Note C of Notes to Consolidated Financial
Statements for further discussion of this change.
LIQUIDITY AND CAPITAL RESOURCES
During recent years and for the six months ended December 31, 1994,
the Company has incurred significant losses from operations and as of
December 31, 1994 has a stockholders' equity deficit. As discussed in the
Company's Annual Report on Form 10-K, the Company reduced its senior debt
as of June 30, 1994 and refinanced the remainder at higher interest
rates. 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. The Company cannot continue to operate under the terms
of its present agreements, particularly the high interest rate, with its
current lender other than on a very short-term basis. Therefore, the
Company is aggressively exploring alternative financing methods in order
to repay the current lender. Such alternative financing arrangements may
include borrowing from another financial institution at reasonable market
terms, the sale of stock by a subsidiary or a combination of both. There
can be no assurance that such refinancing is available.
In addition, the Company has taken steps toward establishing, through
a subsidiary, a reinsurance business. Subject to completion of certain
financing and administrative agreements, including the refinancing of debt
referred to above, 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 establishing a profitable insurance business.
5
<PAGE>
During the first six months of fiscal 1996, 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.
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
<PAGE>
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(000 omitted)
-------------------
Dec 31 June 30
1994 1994*
ASSETS --------- ---------
Current Assets:
Cash............................................... $2,105 $662
Receivables, net of allowances of $1,579,,000 at
December 31, 1994 and $1,704,000 at June 30, 1994 5,953 9,757
Inventories (Note G)............................... 19,342 21,380
Prepaid expenses and other current assets.......... 1,529 1,456
Net assets of discontinued operations (Note A)..... 7,582 14,193
--------- ---------
Total Current Assets $36,511 $47,448
Property, Plant and Equipment (Note G).............. $14,206 $14,799
Less accumulated depreciation and amortization..... 8,601 8,888
--------- ---------
$5,605 $5,911
Goodwill............................................ 21,022 21,383
Other Assets and Deferred Charges (Note G).......... 8,399 8,512
--------- ---------
$71,537 $83,254
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Trade payables..................................... $4,574 $4,870
Accrued expenses and sundry liabilities (Note G)... 12,879 9,270
--------- ---------
Total Current Liabilities $17,453 $14,140
Long-Term Debt (Note F)............................. 84,329 80,559
Other Long-Term Liabilities (Note G)................ 20,396 20,800
Minority Interest................................... 1,897 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)........................ (126,873) (108,474)
Unrealized pension liability adjustment............ (4,634) (4,634)
Notes receivable from stock purchase agreement..... (4,000) (4,000)
--------- ---------
Total Stockholders' Equity (Deficit) ($52,538) ($34,139)
--------- ---------
$71,537 $83,254
========= =========
* The amounts for June 30, 1994 have been restated to report separately
the assets and liabilities and net assets of continuing and
discontinued operations.
See Notes to Consolidated Financial Statements.
7
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (000 omitted)
-------------------
Six Months Ended
December 31
-------------------
1994 1993*
--------- ---------
Cash Flows from Operating Activities:
Net loss........................................... ($18,399) ($22,071)
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.................... 806 876
Minority interest................................ 3 (386)
Amortization of bond discount.................... 505 380
Accrued loss on sale or shutdown of operations... 9,235
less cash portion of accruals................... (3,204)
Decrease (increase) in assets:
Receivables....................................... 3,804 6,423
Inventories....................................... 2,038 2,653
Prepaid expenses and other current items.......... (73) (134)
Other assets...................................... 113 277
Increase (decrease) in liabilities:
Trade payables ................................... (296) (4,290)
Accrued expenses and sundry liabilities........... 2,774 138
Other long-term liabilities....................... (404) (1,502)
--------- ---------
Net Cash Used for Operating Activities ($3,098) ($2,333)
Cash Flows from Investing Activities:
Additions to property, plant and equipment......... ($242) ($171)
Disposition of equipment........................... 103 0
Net change in assets of discontinued operations
prior to sale or shutdown......................... 1,415 7,307
--------- ---------
Net Cash Provided by Investing Activities $1,276 $7,136
Cash Flows from Financing Activities:
Increase in notes payable.......................... ($4,378)
Increase (decrease) in long-term debt.............. $3,265 (467)
--------- ---------
Net Cash Provided by (used for) Financing Activities $3,265 ($4,845)
--------- ---------
Increase in Cash $1,443 ($42)
Cash at beginning of period......................... 662 1,008
--------- ---------
Cash at end of period $2,105 $966
========= =========
----------
Supplemental disclosures of cash flow information:
Interest paid...................................... $5,184 $5,888
Income taxes paid.................................. 50 50
* 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 December 31, 1993, the Company sold two
significant operations and closed another (see Note B below).
Accordingly, the financial statements for the three and six months ended
December 31, 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 and six months, the Company has incurred significant losses
from operations and as of December 31, 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 OF CERTAIN OPERATIONS
Sale of Portion of Accessories and Apparel Segment:
In January 1995, the Company sold the retail outlet store operations of
its Accessories and Apparel segment for cash and the assumption by the
buyer of certain of the operation's liabilities. The financial statements
presented herein include the results of the retail outlet store operations
through December 31, 1994. During the quarter ended December 31, 1994,
the Company recognized a loss of $1.3 million for the sale and the loss
9
<PAGE>
from operations from December 31, 1994 to date of sale. For the three and
six months ended December 31, 1994, net sales of these operations were
$4.3 million and $9.8 million and operating loss was $0.9 million and
$1.2 million, respectively. For the three and six months ended December
31, 1993, net sales of these operations were $6.4 million and $13.2
million and operating loss was $0.6 million and $0.7 million,
respectively.
Discontinued Operations:
In December 1994, the Company announced that it would close its Buffalo
Mill division, which was its Apparel Textiles segment, on or about
February 17, 1995. The Company has made a provision for losses of
$7.9 million for the closing and ongoing costs of the division.
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.
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 the two sale transactions, together with the collection
of the accounts receivable of all three of the discontinued operations
mentioned above, were or will be used to reduce the Company's indebtedness.
The financial statements and notes thereto presented herein have been
restated to reflect the three discontinued operations as such. For the
three and six months ended December 31, 1994, net sales of the Apparel
Textile segment were $8.9 million and $15.3 million and operating income
(loss) was $0.1 million and ($0.5) million, respectively. For the three
and six months ended December 31, 1993, net sales of the three operations
were $27.9 million and $56.5 million and operating income was $1.3 million
and $2.6 million, respectively.
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
10
<PAGE>
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 and six months ended
December 31, 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.
NOTE F - LONG-TERM DEBT
Long-term debt consists of the following:
(000 omitted)
------------------
Dec 31 June 30
1994 1994
-------- --------
Secured promissory notes.......................... $ 12,000 $ 12,000
Revolving loans................................... 19,581 16,316
3 1/2% Senior Subordinated Secured Debentures
due 2009 (net of unamortized discount of
$47,385,000 at December 31, 1994 and
$47,827,000 at June 30, 1994).................... 21,757 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 $21,009,000 at
December 31, 1994 and $21,072,000 at
June 30, 1994).................................. 991 928
-------- --------
Total Long-Term Debt $ 84,329 $ 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.
11
<PAGE>
NOTE G - SUPPLEMENTAL BALANCE SHEET INFORMATION
Supplemental information regarding certain balance sheet captions is as
follows:
(000 omitted)
------------------
Dec 31 June 30
1994 1994*
-------- --------
Inventories:
Raw materials...................................... $ 5,448 $ 5,551
Work in process.................................... 606 705
Finished goods..................................... 13,288 15,124
-------- --------
$ 19,342 $ 21,380
======== ========
Property, plant and equipment:
Land and buildings................................. $ 3,502 $ 3,502
Machinery, equipment and other..................... 10,704 11,297
-------- --------
$ 14,206 $ 14,799
Less accumulated depreciation and amortization...... 8,601 8,888
-------- --------
Net Property, Plant and Equipment $ 5,605 $ 5,911
======== ========
Other assets and deferred charges:
Long-term assets held for sale...................... $ 4,398 $ 4,952
Interest receivable - sale of stock................. 1,785 1,710
Deferred pension cost............................... 765 765
Deposits............................................ 417 352
Other............................................... 1,034 733
-------- --------
$ 8,399 $ 8,512
======== ========
Accrued expenses and sundry liabilities:
Accrued compensation expenses....................... $ 1,601 $ 1,363
Postretirement benefits other than pension.......... 1,238 1,108
Accrued workers compensation........................ 1,192 1,493
Accrued taxes other than payroll.................... 893 1,643
Accrued professional fees........................... 635 442
Accrued shutdown costs.............................. 4,664 703
Accrued interest.................................... 1,208 1,208
Accrued royalties expense........................... 463 342
Accrued insurance................................... 474 454
Other............................................... 511 514
-------- --------
$ 12,879 $ 9,270
======== ========
12
<PAGE>
(000 omitted)
------------------
Dec 31 June 30
1994 1994*
-------- --------
Other long-term liabilities:
Postretirement benefits other than pension.......... $ 13,688 $ 14,021
Accrued pension liability........................... 6,281 6,137
Other............................................... 427 642
-------- --------
$ 20,396 $ 20,800
======== ========
* The amounts for June 30, 1994 have been restated to report separately
the assets and liabilities of continuing and discontinued operations.
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.
13
<PAGE>
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:
On December 28, 1994, Registrant filed a report on Form 8-K
stating that Registrant will close its Buffalo Mill Division on
or about February 17, 1995.
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: February 14, 1995 By /s/ Norman R. Forson
Norman R. Forson
Senior Vice President and
Corporate Comptroller
14
<PAGE>
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