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, 1995
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 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
September 30
-------------------
1995 1994*
--------- ---------
Net sales........................................... $11,910 $20,119
Cost of sales....................................... (6,031) (11,112)
Selling, general and administrative expenses........ (5,707) (9,415)
Amortization of goodwill............................ (180) (180)
--------- ---------
Operating Loss ($8) ($588)
Interest expense - net.............................. (1,724) (2,756)
Gain from reduction of liability for postretirement
benefits other than pensions (Note C).............. 10,731
Other income ....................................... 14 81
Minority interest in net earnings of subsidiary..... (162) (226)
Provision for income taxes.......................... (25) (25)
--------- ---------
Earnings (Loss) From Continuing Operations $8,826 ($3,514)
Discontinued operations - net loss prior
to sale (Notes A and B)........................... (575)
--------- ---------
Net Earnings (Loss) $8,826 ($4,089)
Dividends applicable to preferred stock (Note E).... 1,125 1,125
--------- ---------
Net Earnings (Loss) Applicable to Common Shares $7,701 ($5,214)
========= =========
Average common shares outstanding................... 17,845 17,845
Earnings (Loss) per common share:
Continuing operations.............................. $0.43 ($0.26)
Discontinued operations............................ 0.00 (0.03)
--------- ---------
Net Earnings (Loss) per Common Share $0.43 ($0.29)
========= =========
----------
* The amounts for 1994 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 $8,209,000 during the first
quarter of fiscal 1996 which ended September 30, 1995, to $11,910,000
from $20,119,000 during last year's first fiscal quarter, which has
been restated to report separately the results of continuing and
discontinued operations. This decrease is primarily the result of
the sale of the Company's retail outlet store operation in January
1995, which had contributed approximately $5,500,000 to net sales in
the last year's first fiscal quarter. During the quarter ended
September 30, 1995, the Company's remaining operation, its 79%-owned
costume jewelry subsidiary, Victoria Creations, Inc., reported a 19%
decrease in net sales as compared to the same period last year. Both
that operation's branded label merchandise and its private label
business showed decreases in sales. The decreases are attributable
to limitations on the borrowing of cash from the operation's senior
secured lender. The limitations on borrowing constrained the
operation's ability to purchase raw materials needed to accept orders
for finished goods for shipment during the quarter. The limitations
were lessened at the end of July 1995 when the Company renegotiated
its long-term debt with its lender. See Note F of Notes to
Consolidated Financial Statements for details of the refinancing.
Sales of out-of-season merchandise (which is sold at lower than the
operation's normal margin) also declined in the current year's
quarter as compared to last year's quarter reflecting the operation's
focus on forecasting and inventory control which reduced the
quantities of inventory available for such sales. Unit sales,
excluding out-of-season merchandise, for the current year's quarter
decreased 20% from those of the comparable quarter last year while
average unit prices remained constant.
For the quarter ended September 30, 1995, the Company reported an
operating loss of $8,000 versus an operating loss of $588,000 in last
year's quarter, as restated. Significantly reduced corporate
overhead expenses and, to some extent, the sale of the retail outlet
store operation, which reported an operating loss of $361,000 during
last year's first quarter, more than offset reduced operating income
of the Company's costume jewelry subsidiary. That subsidiary
reported an operating profit of $1,289,000 during this year's quarter
as compared to an operating profit of $1,977,000 during the same
period last year. The decreased operating results were primarily the
result of the decreased sales referred to above. Gross profit, as a
percentage of net sales, for the current quarter was the same as that
of the three months ended September 30, 1994. The operation's
<PAGE>
selling, general and administrative expenses decreased 15% in the
current year's quarter from those of last year's quarter primarily as
the result of reductions of sales volume related expenses such as
advertising and royalties expenses and to the operation's continued
emphasis on expense control.
Interest expense for the Company decreased in the first quarter of
fiscal 1996 by $1,032,000 to $1,724,000 from $2,756,000 in the same
quarter of fiscal 1995, primarily as the result of decreased interest
rates on the secured loans renegotiated as discussed in Note F of
Notes to Consolidated Financial Statements.
During the quarter ended September 30, 1995, earnings from
continuing operations included a non-cash gain of $10,731,000
resulting from the Company's discontinuance of the Company-sponsored
medical plan for certain of its employees and its retirees as further
discussed in Note C of Notes to Consolidated Financial Statements.
Net losses of discontinued operations, prior to their sale, amounted
to $575,000 in the quarter ended September 30, 1994.
LIQUIDITY_AND_CAPITAL_RESOURCE
During the quarter ended September 30, 1995, the Company depended
primarily 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 and requirements. Working
capital increased to $10,817,000 at September 30, 1995 from
$7,730,000 at June 30, 1995. The Company's current ratio increased
to 1.65 to 1.0 at September 30, 1995 as compared to 1.41 to 1.0 at
June 30, 1995.
As discussed in Note F of Notes to Consolidated Financial Statements,
effective July 31, 1995, the Company and its 79%-owned subsidiary,
Victoria Creations, Inc., each renegotiated its borrowing
arrangements with that its senior secured lender. Currently,
short-term needs for working capital are are obtained from borrowings
under the renegotiated revolving loan facility or from the proceeds
from the sale of assets.
The Company does not anticipate substantial increased needs for
long-term borrowings.
During recent years, the Company has incurred significant losses from
operations and as of September 30, 1995 has a stockholders' equity
deficit. As discussed in the Company's 1995 Annual Report on Form
10-K, in June 1994, the Company reduced its senior secured
indebtedness by approximately $63,400,000. While that was a
substantial, positive development for the Company, as of June 30,
1995, the Company's independent auditors' report stated that the
recurring losses from operations, net deficiency in stockholders'
equity and significant debt owed by the Company raise substantial
doubt as to the Company's ability to continue as a going concern.
The Company's ability to continue as a going concern depends on its
ability to improve the
<PAGE>
profitability of its existing operation and
the possible development of other business activities. With regard
to the development of other business activities, the Company has
taken certain steps toward establishing, through a subsidiary, a
reinsurance business. This subsidiary is seeking seek 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 improving the
profitability of its existing operation or establishing a profitable
business in the insurance field.
See Note C of Notes to Consolidated Financial Statements for
information regarding the Company's application, filed in September
1995 with the Internal Revenue Service, for a waiver of the minimum
funding standard as to its pension plan, the status of certain
scheduled payments to the plan and the possibility that the Company
may have to apply for voluntary termination of the plan.
As discussed in Note I of Notes to Consolidated Financial Statements,
in October 1995, the Company sold certain land and buildings located
in South Carolina that were not being used in its ongoing business.
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.
UNITED MERCHANTS AND MANUFACTURERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(000 omitted)
-------------------
Sep 30 June 30
1995 1995
ASSETS --------- ---------
Current Assets:
Cash............................................... $814 $965
Receivables, net of allowances of $3,462,000 at
September 30, 1995 and $2,481,000 at June 30, 1995 8,160 7,419
Inventories (Note G)............................... 16,663 16,430
Prepaid expenses and other current assets.......... 1,364 1,113
Net assets of discontinued operations.............. 412 689
--------- ---------
Total Current Assets $27,413 $26,616
Property, Plant and Equipment (Note G).............. $12,610 $12,565
Less accumulated depreciation and amortization..... 8,053 7,924
--------- ---------
$4,557 $4,641
Goodwill............................................ 20,482 20,662
Other Assets and Deferred Charges (Note G).......... 6,282 6,509
--------- ---------
$58,734 $58,428
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Trade payables..................................... $5,542 $6,418
Accrued expenses and sundry liabilities (Note G)... 11,054 12,468
--------- ---------
Total Current Liabilities $16,596 $18,886
Long-Term Debt (Note F)............................. 84,613 81,071
Other Long-Term Liabilities (Note G)................ 7,947 17,881
Minority Interest................................... 1,786 1,624
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)........................ (127,590) (136,416)
Unrealized pension liability adjustment............ (3,587) (3,587)
Notes receivable from stock purchase agreement..... (4,000) (4,000)
--------- ---------
Total Stockholders' Equity (Deficit) ($52,208) ($61,034)
--------- ---------
$58,734 $58,428
========= =========
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
-------------------
1995 1994*
--------- ---------
Cash Flows from Operating Activities:
Net earnings (loss)................................ $8,826 ($4,089)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization.................... 309 401
Minority interest................................ 162 226
Amortization of bond discount.................... 292 252
Gain from reduction of liability for
postretirement benefits other than pensions..... (10,731)
Decrease (increase) in assets:
Receivables....................................... (741) (1,441)
Inventories....................................... (233) (2,473)
Prepaid expenses and other current items.......... (251) (211)
Other assets...................................... 227 183
Increase (decrease) in liabilities:
Trade payables ................................... (876) 1,580
Accrued expenses and sundry liabilities........... (345) (705)
Other long-term liabilities....................... (272) 102
--------- ---------
Net Cash Used for Operating Activities ($3,633) ($6,175)
Cash Flows from Investing Activities:
Additions to property, plant and equipment......... ($45) ($39)
Net change in assets of discontinued operations
prior to sale..................................... 277 (672)
--------- ---------
Net Cash Provided by (used for) Investing Activities $232 ($711)
Cash Flows from Financing Activities:
Increase (decrease) in long-term debt.............. $3,250 $6,968
--------- ---------
Net Cash Provided by Financing Activities $3,250 $6,968
--------- ---------
Increase (Decrease) in Cash ($151) $82
Cash at beginning of period......................... 965 662
--------- ---------
Cash at end of period $814 $744
========= =========
----------
Supplemental disclosures of cash flow information:
Interest........................................... $1,168 $3,109
Income Taxes....................................... 25 25
* The amounts for 1994 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, 1994, the Company closed a
significant operation (see Note B below). Accordingly, the financial
statements for the three months ended September 30, 1994 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, 1995.
Liquidity - During each of the three years ended June 30, 1995, the
Company incurred significant losses from operations and as of September
30, 1995 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, 1995, the Company's independent auditors' report
stated that the recurring losses from operations, net deficiency in
stockholders' equity and 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
In January 1995, the Company sold its retail outlet store operations for
cash and the assumption by the buyer of certain of the operation's
liabilities. The statements of operations and cash flows presented herein
include the results of the retail store operations for the quarter ended
September 30, 1994. Net sales for the three months ended September 30,
1994 include net sales of $5.5 million and operating loss for the 1994
quarter includes operating losses of $361,000 from these operations.
In December 1994, the Company announced that it would close its Buffalo
Mill division, which was its Apparel Textiles segment. Accordingly, the
financial statements for the three months ended September 30, 1994 have
been restated to report the results of this operation as a discontinued
operation.
9
<PAGE>
NOTE C - BENEFITS
Pension Plans:
Current liabilities include $5.1 million computed to be the amount
required to be paid by the Company to its pension plan during the year
ending June 30, 1996 to meet the minimum funding standard. On September
15, 1995, the Company filed with the Internal Revenue Service ("IRS") an
application for a waiver of the minimum funding standard as to its pension
plan. If approved by the IRS, the Company's payment to its pension fund
due March 15, 1996, estimated to be approximately $2.9 million, for the
year ended June 30, 1995 would be deferred until the Company's cash flow
improves. In addition to the payment for the 1995 fiscal year mentioned
above, the Company is scheduled to make payments of approximately $730,000
each quarter, beginning October 15, 1995, for the 1996 fiscal year. As of
November 14, 1995, the Company had not made the first of these quarterly
payments. Depending on the course of events, the Company may have to
apply for voluntary termination of its plan.
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.
Effective August 31, 1995, the Company discontinued the Company-sponsored
medical plan for its employees, other than those of its 79%-owned
subsidiary, Victoria Creations, Inc., and its retirees. The
discontinuance resulted in a non-cash gain of $10.7 million from the
reduction of a portion of the Company's liability for postretirement
benefits other than pension. The discontinuance will reduce the Company's
ongoing cash expenses by more than $1 million a year.
NOTE D - INCOME TAXES
The provisions for income taxes for the three months ended September 30,
1995 and 1994 varied from the expected relationship to loss before income
taxes since the losses before income taxes 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
<PAGE>
NOTE F - LONG-TERM DEBT
Long-term debt consists of the following:
(000 omitted)
------------------
Sep 30 June 30
1995 1995
-------- --------
Secured term loans - see below.................... $ 15,613 $ 12,000
Revolving loans - see below....................... 14,525 15,784
3 1/2% Senior Subordinated Secured Debentures
due 2009 (net of unamortized discount of
$46,652,000 at September 30, 1995 and
$46,908,000 at June 30, 1995).................... 22,490 22,234
5% Subordinated Notes due 2019:
Issued to former senior lender................... 30,000 30,000
Issued in settlement of lawsuit (net of
unamortized discount of $20,911,000 at
September 30, 1995 and $20,947,000 at
June 30, 1995).................................. 1,089 1,053
Other............................................. 896
-------- --------
Total Long-Term Debt $ 84,613 $ 81,071
======== ========
The revolving loans fluctuate based on the Company's cash availability or
requirements. The term loans and revolving loans are secured by
substantially all of the Company's assets.
Effective July 31, 1995, the Company and its 79%-owned subsidiary,
Victoria Creations, Inc. ("Victoria"), each renegotiated its borrowing
arrangements with its current lender. Under the terms of the amended
agreements, the Company's borrowings under the revolving and term loans
with the lender were converted to a term loan. This term loan will be
repayable from collections of certain accounts receivable and sales of
inventory other than those of Victoria and a portion of the proceeds of
sales of the Company's other assets, primarily real property. The term
loan matures July 31, 2000 and bears interest at the rate of 12% a year.
The new arrangements for Victoria consist of a $5.0 million term loan due
June 15, 2000 and a revolving loan, based on Victoria's eligible accounts
receivable and inventories, having a term ending June 15, 1998. The
revolving loan will be renewed automatically for successive one year
periods thereafter unless terminated by either party upon thirty days
notice. These loans bear interest at prime rate plus 3 1/2%, or currently
12 1/4% a year.
11
<PAGE>
NOTE G - SUPPLEMENTAL BALANCE SHEET INFORMATION
Supplemental information regarding certain balance sheet captions is as
follows:
(000 omitted)
------------------
Sep 30 June 30
1995 1995
-------- --------
Inventories:
Raw materials...................................... $ 4,996 $ 5,120
Work in process.................................... 692 484
Finished goods..................................... 10,975 10,826
-------- --------
$ 16,663 $ 16,430
======== ========
Property, plant and equipment:
Land and buildings................................. $ 3,596 $ 3,596
Machinery, equipment and other..................... 9,014 8,969
-------- --------
$ 12,610 $ 12,565
Less accumulated depreciation and amortization...... 8,053 7,924
-------- --------
Net Property, Plant and Equipment $ 4,557 $ 4,641
======== ========
Other assets and deferred charges:
Long-term assets held for sale...................... $ 3,059 $ 3,260
Interest receivable - sale of stock................. 1,914 1,873
Deferred royalty expenses........................... 272 350
Deposits............................................ 309 291
Other............................................... 728 735
-------- --------
$ 6,282 $ 6,509
======== ========
Accrued expenses and sundry liabilities:
Accrued pension liability........................... $ 5,116 $ 5,116
Accrued compensation expenses....................... 1,410 1,428
Accrued workers compensation........................ 1,214 1,095
Accrued taxes other than payroll.................... 758 735
Accrued shutdown costs.............................. 643 711
Accrued interest.................................... 607 1,210
Postretirement benefits other than pension.......... 300 1,370
Other............................................... 1,006 803
-------- --------
$ 11,054 $ 12,468
======== ========
12
<PAGE>
(000 omitted)
------------------
Sep 30 June 30
1995 1995
-------- --------
Other long-term liabilities:
Postretirement benefits other than pension.......... $ 3,692 $ 13,355
Deferred shutdown costs............................. 3,452 3,732
Accrued pension liability........................... 794 794
Other............................................... 9 0
-------- --------
$ 7,947 $ 17,881
======== ========
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.
NOTE I - SUBSEQUENT EVENT
During October 1995, the Company sold, for $3.2 million in cash, certain
land and buildings located in South Carolina that were not being used in
its ongoing business. The sale resulted in a gain of approximately
$875,000 that will be reported in the three months ended December 31,
1995. The proceeds were used to reduce the Company's indebtedness to its
senior secured lender.
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 during quarter - None
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 14, 1995 By /s/ Norman R. Forson
Norman R. Forson
Senior Vice President and
Corporate Comptroller
14
<PAGE>
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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