<PAGE>
NORTH STAR UNIVERSAL, INC.
1993 ANNUAL REPORT
<PAGE>
COMPANY PROFILE
As a parent company, North Star Universal, Inc. provides management and
financial resources for the development and growth of its operating businesses.
North Star's direct and indirect wholly owned subsidiaries include Americable,
Transition Engineering and C.E. Services. Americable is a provider of voice and
data communications networking products, systems and services. Transition
Engineering designs and manufactures connectivity devices used in local area
network applications. C.E. Services remarkets, reconfigures, refurbishes and
warehouses mainframe computers and peripherals and provides related technical
and maintenance services. As of December 31, 1993, North Star also owned a
38 percent interest in Michael Foods, Inc. (NASDAQ:MIKL), and a 40 percent
interest in CorVel Corporation (NASDAQ:CRVL).
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1993 1992 1991
- - -------------------------------------------------------------------------------
OPERATIONS:
<S> <C> <C> <C>
Revenues $107,485 $86,363 $71,575
Operating income (loss) 651 (585) (1,356)
Income (loss) from continuing operations (11,872) (1,637) 10,899
Discontinued operations -- -- (598)
Net income (loss) (11,872) (1,637) 10,301
---------------------------------
---------------------------------
Income (loss) per share:
Continuing operations $ (1.26) $ (.17) $ 1.07
Discontinued operations -- -- (.06)
---------------------------------
Net income (loss) $ (1.26) $ (.17) $ 1.01
---------------------------------
---------------------------------
FINANCIAL POSITION:
Long-term debt $43,194 $41,849 $41,451
Shareholders' equity 34,675 61,083 63,246
---------------------------------
---------------------------------
</TABLE>
North Star believes that a significant portion of its shareholder value will
ultimately be derived from the value of its subsidiaries and holdings in Michael
Foods and CorVel. The following summarizes the net book value of the Company as
of the end of the past three years along with the market value of its
investments in Michael Foods and CorVel. The market value of the Company's
Michael Foods and CorVel investments is based on the closing market price and
share holdings as of the respective dates.
<TABLE>
<CAPTION>
As of December 31,
(In thousands) 1993 1992 1991
- - -------------------------------------------------------------------------------
BOOK VALUE
Assets -
<S> <C> <C> <C>
Michael Foods $ 59,025 $ 66,654 $ 66,629
CorVel 10,083 8,159 7,133
Computer group 18,352 17,117 18,179
Cash and other, net 7,059 9,657 11,225
---------------------------------
94,519 101,587 103,166
Liabilities -
Subordinated debentures (39,579) (38,899) (37,567)
Deferred income taxes(1) (20,265) (1,605) (2,353)
---------------------------------
Net book value $ 34,675 $ 61,083 $ 63,246
---------------------------------
---------------------------------
MARKET VALUE(2)
Michael Foods $ 58,840 $ 74,469 $109,405
CorVel 41,344 21,656 37,013
---------------------------------
---------------------------------
<FN>
(1) At December 31, 1993, the Company recorded an $18.7 million deferred
income tax liability relating to temporary differences between the financial and
tax reporting of its investment in Michael Foods. (See Note 9 to Consolidated
Financial Statements.)
(2) The market value of the Company's holdings in Michael Foods and CorVel does
not take into account any income taxes on the gain that may be recognized upon a
taxable disposition of such shares.
</TABLE>
<PAGE>
TO OUR SHAREHOLDERS
North Star's businesses were characterized by a year of transition.
Good overall operating results were overshadowed by Michael Foods decision to
discontinue its reduced cholesterol liquid whole egg joint venture. Apart from
this one time event, there were many positive developments within our companies
that bode well for the future.
Since 1990, and particularly following the CorVel Corporation public
offering in 1991, we have focused on strengthening our financial position and
building our three computer businesses -- Americable, C.E. Services and
Transition Engineering. Each of these businesses increased their revenue base
during a difficult and competitive period for the computer industry. Again in
1993, each of these companies has demonstrated an adaptability to market changes
and has found new opportunities amidst the challenges.
During 1993, C.E. Services contributed the greatest revenue and profit
gains within our computer group. These results are due largely to the strong
growth in its remarketing business for computer systems, features and parts.
Traditionally engaged in providing technical services to large computer leasing
customers, C.E. Services is using its technical expertise to carve out a
leadership role in the large secondary market for IBM mainframe equipment. This
knowledge provides it with a competitive advantage in adapting to the rapidly
changing mainframe market. As this market evolves, C.E. Services is well
positioned to fulfill the needs of customers who are downsizing their systems or
converting to alternative hardware solutions.
Americable posted improved operating results in its domestic market,
but was challenged by an extremely competitive market in Canada. In response,
the company scaled back and consolidated its Canadian operations into its
Minneapolis region. This consolidation resulted in restructuring charges in the
fourth quarter of approximately $1.9 million. Despite this setback, Americable
built upon its reputation for superior service across a broad product line with
its "One Company, One Call" approach. With an experienced technical staff, the
company made progress in extending its core distribution business into more
value-added products and services within its U.S. operations. These include
custom cable assemblies for the OEM market and value added projects involving
the design and implementation of local (LAN) and wide (WAN) area networks. The
company continues to work closely with its customers in providing new products
and services based upon their changing requirements.
Our third computer company, Transition Engineering, enjoyed another
year of sustained growth in sales and earnings. A good measure of this growth
came from international sales. As the year progressed, Transition made
significant investments in sales and engineering personnel. These investments
have started to yield a stream of new product introductions targeting the
hardware market for local area networks. This market is growing and changing
technologically at a phenomenal rate. Transition's strategy is to introduce new
products in a timely manner, taking advantage of opportunities to improve upon
the quality and performance of competing products. This strategy is working as
Transition adds more products to broaden its product line.
Michael Foods, which represents North Star's largest equity holding,
experienced a year of mixed results in 1993. On the positive side, the company
advanced its strategic thrust to convert from a commodity processor to a value-
added producer serving foodservice, retail and industrial ingredient markets.
Michael Foods posted strong volume and earnings gains in a number of product
lines, including Easy Eggs(TM) and refrigerated potato products. These gains,
however, were offset in the fourth quarter by charges of $34 million to write-
off its investment in its reduced cholesterol liquid whole egg joint venture and
other restructuring charges. Despite this disappointment, Michael Foods remains
focused on the innovation and development of value-added food products. Its
financial position after the restructuring is sound, with good cash flow.
Operationally, we believe its modern processing facilities and direct sales
organization provide a solid basis for achieving improved results.
<PAGE>
North Star's other investment interest is CorVel Corporation. During
1993, CorVel made considerable progress integrating its many cost containment
and patient management services for the workers compensation marketplace. These
efforts culminated with the launch of Advocacy(TM), a program that ties together
CorVel's component services into a managed care continuum. An important element
in CorVel's strategy is the expansion of its preferred provider organization.
Now operating in 20 states, this organization contributed significantly to
CorVel's earnings momentum in the past year. As in 1993, the coming years are
expected to bring fundamental changes to the health care industry. With
national marketing programs and dynamic information systems, CorVel is prepared
to aggressively participate in this changing market.
North Star remains committed to its number one priority -- improving
long term shareholder value. We are fortunate to have many enterprising people
throughout our companies who look for opportunities and are excited about
meeting new challenges. We are confident that we can succeed in guiding our
businesses through a competitive era and achieve our goals. As much as ever, we
are grateful for your continued support.
Sincerely,
/s/ Jeffrey J. Michael
Jeffrey J. Michael
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MARCH 14, 1994
<PAGE>
MANAGEMENT'S 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. Michael
Foods is a food processing and distribution company founded by North Star in
1987. Following a series of public offerings by Michael Foods and stock sales
by North Star, the Company owned a 38 percent interest in Michael Foods at
December 31, 1993. CorVel is a provider of managed care services founded by
North Star in 1988. Following an initial public offering in 1991, and other
equity transactions of CorVel, the Company's ownership interest in CorVel is
approximately 40 percent at December 31, 1993. 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 and manufactures 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 years ended December 31, 1993 (in
thousands).
<TABLE>
<CAPTION>
Years ended December 31, 1993 1992 1991
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
C.E. Services $ 60,729 $ 44,338 $ 34,568
Americable 38,266 35,885 34,005
Transition Engineering 10,025 7,062 3,841
Eliminations (1,535) (922) (839)
---------------------------------
$107,485 $ 86,363 $ 71,575
---------------------------------
---------------------------------
Gross Profit
C.E. Services $ 11,669 $ 9,216 $ 7,697
Americable 10,254 9,648 9,947
Transition Engineering 3,903 2,701 1,599
---------------------------------
$ 25,826 $ 21,565 $ 19,243
---------------------------------
---------------------------------
Operating Income (Loss)
C.E. Services $ 2,794 $ 1,024 $ 118
Americable 179 (466) 331
Transition Engineering 918 533 380
Restructuring charges (1,953) -- --
Corporate expenses (1,287) (1,676) (2,185)
---------------------------------
$ 651 $ (585) $(1,356)
---------------------------------
---------------------------------
</TABLE>
<PAGE>
RESULTS OF OPERATION --
1993 VERSUS 1992
Consolidated revenues increased $21.1 million or 24.5% to $107.5
million from $86.4 million in 1992. The $16.4 million or 37% net increase in
revenues at C.E. Services includes approximately $19.2 million of higher sales
resulting from its expanded selling efforts and higher demand of used mainframe
systems and features, particularly IBM 4381 and 3090 product lines. Sales from
the remarketing of used mainframes and peripherals consisted of 84% and 72% of
C.E. Services' revenues in 1993 and 1992, respectively. This increase was offset
by decreased sales of approximately $2.8 million in technical service and
warehousing revenues due primarily to reduced pricing resulting from maturing
product life cycle of certain IBM mainframes. Sales from C.E. Services' European
operations increased approximately $5.1 million or 64% to $13.2 million for the
year. C.E. Services' ability to maintain its historical levels of sales growth
is dependent upon its ability to adapt to changing technologies and the
availability of products within the secondary mainframe market.
Revenues at Americable's U.S. operations increased $3.7 million or
12.4% to $33.6 million due primarily to higher demand of networking products and
services. This was offset by decreased sales of approximately $1.3 million in
its Canadian operations. Sales from Canadian operations consisted of 12% and
17% of Americable's revenues in 1993 and 1992, respectively. During the past
three years, Americable's Canadian operations have experienced significant
competition which has adversely impacted its sales. In December 1993,
Americable implemented a restructuring plan involving the consolidation of its
Canadian sales and customer support activities into its U.S. operations.
Americable believes that its revenues will be adversely impacted through the
loss of a substantial portion of these revenues.
Revenues at Transition Engineering increased approximately $3 million,
or 42%. This includes approximately $1.3 million of sales resulting from new
product introductions and approximately $500,000 of sales from new customers.
Sales to international customers were approximately $3.1 million in 1993, an
increase of $1.3 million or 71% from the previous year. Transition
Engineering's ability to maintain its present level of sales and its continued
sales growth is highly dependent upon its ability to offer new products that
meet customer's demands in a rapidly changing market, particularly in light of
the relatively short life cycle of its products.
Consolidated gross profit, as a percent of revenues, decreased to 24%
in 1993 as compared to 25% in 1992. The 1992 amount reflects charges of
$490,000 related to inventory writedowns at Americable and Transition
Engineering. Margins at Americable, exclusive of these charges, decreased to
26.8% in 1993, from 28% in 1992, due primarily to increased competition
particularly within its Canadian operations. In addition, margins at C.E.
Services decreased slightly due primarily to reduced pricing of technical
services resulting from increased competition and maturing product life cycle of
certain IBM mainframes. North Star expects the declining trends in consolidated
gross margins to continue in 1994 due to increased competition within each of
its computer businesses.
The Company's selling, general and administrative expenses increased
$1.1 million, or 5%, to $23.2 million from $22.1 million in 1993. This includes
increased expenses of approximately $800,000 at Transition Engineering due
primarily to the addition of sales and engineering personnel and increased
research and development expenses related to new product introductions and
additional administrative and support personnel needed to support overall
growth. In addition, general and administrative expenses at C.E. Services
increased approximately $600,000 due primarily to higher selling expenses
associated with the expanded
<PAGE>
remarketing efforts of used mainframe systems and higher facility costs related
to its expanded United Kingdom operation. These increases were offset by a
decrease in corporate costs of approximately $400,000.
Selling, general and administrative expenses at Americable's U.S.
operations increased approximately $600,000 due primarily to the addition of
sales and technical personnel. This was offset by decreased expenses of
approximately $650,000 at its Canadian operations which was primarily a result
of the downsizing of administrative and support staff and to a lesser extent,
savings incurred from the closure of its Canadian facilities during the year.
The consolidation of Americable's Canadian operations resulted in a
restructuring charge of approximately $1.9 million. This charge includes
approximately $600,000 for the write-off of goodwill and other noncurrent
assets, $700,000 for the reassessment of carrying values of inventory and
receivables and $600,000 for lease and severance obligations and other related
expenses.
During 1992, C.E. Services recorded foreign currency gains of
approximately $100,000. Foreign currency transactions were not significant in
1993. The Company does not believe that the reasonable likely future effects of
changes in currency exchange rates will have a significant impact on its results
of operations or financial position.
Net interest expense was relatively unchanged between years.
The Company's effective consolidated income tax rate was (19.6)% in
1993 and (23.4)% in 1992. See Note 9 to the Consolidated Financial Statements.
Equity in earnings (loss) of unconsolidated subsidiaries was a loss of
$8,967,000 in 1993 versus income of $2,055,000 in 1992. Included in the 1993
amount is a loss of $6.2 million for the Company's share of Michael Foods' net
loss for the year and a $3.7 million net deferred tax provision. For 1993,
Michael Foods recorded a net loss of $16.3 million which included charges for
the disposal of its reduced cholesterol liquid whole egg product line and other
restructuring charges. This loss was offset by an increase in the Company's
equity in earnings of CorVel of approximately $350,000 due to increased profits
at that company.
In the fourth quarter of 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. Previously, the Company did not record this potential deferred tax
liability as it expected any future dispositions of its Michael Foods holdings
would be completed in a tax-free manner. While a tax-free disposition of its
Michael Foods holdings continues to be the Company's preferred course of action,
North Star has recorded the deferred tax liability since it may have taxable
dispositions in future periods.
North Star currently has no plans to sell its Michael Foods holdings.
However, depending on market conditions, North Star's strategic objective and
other factors, the Company may from time-to-time sell all or a portion of its
Michael Foods holdings. Further, the recording of this liability in no way
precludes North Star from completing a tax-free transaction and has no cash flow
impact on the Company. The portion of this liability related to the Company's
share of Michael Foods public offering proceeds and other equity transactions of
$15 million, was charged to additional paid-in capital and the portion related
to Michael Foods unremitted earnings of $3.7 million, was charged to equity in
earnings (loss) of unconsolidated subsidiaries.
1992 VERSUS 1991
Consolidated revenues increased $14.8 million, or 20.7%, to $86.4
million from $71.6 million in 1991. Revenues at C.E. Services increased $9.7
million, or 28.3%, to $44.3 million from $34.6 million in the previous year.
This was primarily a result of C.E. Services' expanded selling efforts in the
remarketing of mainframe computer systems, features and parts, particularly IBM
4381 and 3090 product lines. Substantially
<PAGE>
all of this increase was due to higher sales from its domestic operations. Sales
from European operations consisted of 18% and 25% of C.E. Services' revenues in
1992 and 1991, respectively.
Americable's revenues increased $1.9 million, or 5.5%, to $35.9
million from $34 million in 1991. This includes increased sales of
approximately $2.9 million attributed to higher demand for networking products
at its U.S. operations. This increase was offset by lower domestic sales of
bulk cable and cable assembly products of approximately $500,000 and a $500,000
decrease in sales at its Canadian operations, due primarily to the overall weak
economic conditions in Canada. Sales from Canadian operations consisted of 17%
and 19% of Americable's sales in 1992 and 1991, respectively. Revenues at
Transition Engineering increased $3.2 million, or 84%, to approximately
$7.1 million in 1992. This increase includes approximately $700,000 of sales
resulting from new product introductions and approximately $1 million of sales
from new customers.
Consolidated gross profit, as a percent of revenue, decreased to 25%
in 1992 as compared to 26.9% in 1991. This decrease reflects charges of
$490,000 related to inventory write-downs at Americable and Transition
Engineering. Margins at Americable, exclusive of these write-downs, decreased
slightly due to increased competition. In addition, margins at C.E. Services
decreased because of a higher mix of lower margin computer feature and part
sales, reduced pricing of technical services and the maturing product cycle of
certain IBM mainframes.
The Company's selling, general and administrative expenses increased
$1.5 million, or 7.5%, to $22.1 million from $20.6 million in 1991. This
includes increases of approximately $950,000 at Transition Engineering due to
the addition of sales and engineering personnel and expenses related to new
product introductions. Selling expenses at Americable's distribution business
increased $500,000 due primarily to new sales personnel and costs associated
with its new catalog and direct mail programs. In addition, general and
administrative expenses at C.E. Services increased approximately $600,000 due to
higher facility costs related to its Chicago facility and the addition of
support personnel. These increases were offset by a decrease in corporate costs
of $500,000 due to the downsizing of the North Star corporate office effected in
1991.
Net interest expense decreased $205,000 to $4,237,000 from $4,442,000
in 1991, primarily from lower debenture interest rates between years.
Investment income of $8,564,000 in 1991 was a result of the sale of
1,172,550 shares of Michael Foods stock in January 1991.
Equity in earnings of unconsolidated subsidiaries decreased $6,888,000
to $2,055,000 from $8,943,000 in the previous year. The Company's equity in
earnings of Michael Foods decreased approximately $6.5 million in 1992, due
primarily to lower profits at that company in addition to North Star's reduced
ownership position between years. Michael Foods' net earnings for 1992 were
$3,850,000, a decrease of $15,817,000, or 80%, from the previous year. In
addition, the Company's equity in earnings of CorVel decreased approximately
$400,000 due primarily to the Company's reduced ownership position between
years.
CAPITAL RESOURCES AND LIQUIDITY
Historically, the Company has experienced cash flow deficits from
operations. Cash used in operations was $2.8 million in 1993 and $3.9 million
in 1992. The Company expects such 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 1993 and 1992, the Company
received dividends of $1,471,000. There can be no assurance that Michael Foods
will continue to declare such dividends.
<PAGE>
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 as
indicated in the table below. At December 31, 1993 and 1992, the Company had
$39.6 million and $38.9 million principal amount of subordinated debentures
outstanding. The weighted average interest of 10.4% and 10.8% at December 31,
1993 and 1992, respectively, accrues annually and is payable monthly, quarterly,
or at maturity. The Company's experience with its debenture program for the
three years ended December 31, 1993, is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Net
New Debentures
Debentures Debentures Debentures Sold
Redeemed Reinvested Sold (Redeemed)*
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1993 $ 5,758 46% $ 6,689 54% $ 6,438 $ 680
1992 5,917 48 6,422 52 7,249 1,332
1991 6,397 48 6,796 52 6,084 (313)
<FN>
*Represents the difference between new debentures sold and debentures redeemed.
</TABLE>
The Company is highly dependent on the continued sales of debentures
under its debenture program. In the event that redemptions substantially exceed
reinvested and newly sold debentures or the program is interrupted for an
extended period, the Company would be required to fund maturities through its
existing cash on hand, bank borrowings and asset sales. The Company believes
that the balance of outstanding debentures will remain relatively unchanged
during 1994. However, there can be no assurance that future reinvested and
newly sold debentures will equal or exceed redemptions. Approximately $12.1
million of debentures are scheduled to mature during 1994.
Long-term debt repayments for the year ended December 31, 1993,
include approximately $5.8 million of scheduled maturities of subordinated
debentures and $700,000 of other debt repayments of Americable and C.E.
Services. Proceeds from long-term debt for the year ended December 31, 1993,
include $4.4 million of new debentures sold along with $2 million of compounded
interest on debentures.
In May 1991, Americable established a $2 million revolving line of
credit and a $3 million term loan with North Star's principal bank. This
facility was used to finance its working capital requirements and reduce North
Star's investment. In June 1993, Americable amended its revolving line of
credit and term loan facility to provide 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% (7.5% at
December 31, 1993). At December 31, 1993, $1,893,000 was outstanding under the
term loan which bears interest at 10.665%. The term loan is payable in monthly
principal installments of $36,000 with a final installment of $893,000 due in
May 1996. In addition, at December 31, 1993, there was $1.4 million outstanding
under the revolving line of credit.
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 (6.5% and 7% at December 31, 1993). During 1993, C.E. Services
used bank borrowings of approximately $4.7 million to finance its working
capital requirements, principally the purchase of inventory related to its
remarketing of mainframe systems. At December 31, 1993, there were no
borrowings outstanding under these facilities.
<PAGE>
North Star maintains a $6.5 million revolving credit facility with
its principal bank that bears interest at the bank's reference rate (6% at
December 31, 1993). At December 31, 1993 and February 28, 1994, the Company had
no borrowings outstanding under this facility. In addition, at December 31,
1993, North Star had approximately $6 million of cash and cash equivalents,
excluding cash of its operating subsidiaries.
During 1994, the Company does not anticipate any significant
acquisitions and its operating plans call for approximately $1 million in
capital expenditures. The Company believes that its available cash and cash
equivalents along with its debenture program and amounts available under its
revolving credit facility and the credit facilities of its operating companies,
will be adequate to meet expected cash requirements.
<PAGE>
Consolidated Statements of Operations
NORTH STAR UNIVERSAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years ended December 31,
(In thousands, except per share amounts) 1993 1992 1991
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $ 107,485 $ 86,363 $ 71,575
OPERATING AND PRODUCT COSTS 81,659 64,798 52,332
-------------------------------
Gross profit 25,826 21,565 19,243
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 23,222 22,150 20,599
RESTRUCTURING CHARGES 1,953 -- --
-------------------------------
Operating income (loss) 651 (585) (1,356)
OTHER INCOME (EXPENSE)
Interest expense (4,472) (4,738) (4,946)
Interest income 206 501 504
-------------------------------
(4,266) (4,237) (4,442)
Investment income -- -- 8,564
-------------------------------
Income (loss) from continuing operations
before income taxes and equity in
earnings (loss) of unconsolidated subsidiaries (3,615) (4,822) 2,766
INCOME TAX PROVISION (BENEFIT) (710) (1,130) 810
-------------------------------
Income (loss) from continuing operations
before equity in earnings (loss) of
unconsolidated subsidiaries (2,905) (3,692) 1,956
EQUITY IN EARNINGS (LOSS) OF
UNCONSOLIDATED SUBSIDIARIES (8,967) 2,055 8,943
-------------------------------
Income (loss) from continuing operations (11,872) (1,637) 10,899
DISCONTINUED OPERATIONS
Loss from operations -- -- (598)
-------------------------------
NET INCOME (LOSS) $ (11,872) $ (1,637) $ 10,301
-------------------------------
-------------------------------
INCOME (LOSS) PER SHARE
Continuing operations $ (1.26) $ (.17) $ 1.07
Discontinued operations -- -- (.06)
-------------------------------
NET INCOME (LOSS) $ (1.26) $ (.17) $ 1.01
-------------------------------
-------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
Consolidated Balance Sheets
NORTH STAR UNIVERSAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
(Dollars In thousands) 1993 1992
- - ----------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 6,981 $ 9,380
Accounts receivable, net of allowances 7,617 8,267
Inventories 10,800 8,448
Prepaid expenses and other 452 482
Net assets of businesses held for sale 857 907
---------------------------
Total current assets 26,707 27,484
PROPERTY AND EQUIPMENT, NET 3,429 2,807
OTHER ASSETS
Goodwill 7,275 8,222
Investment in unconsolidated subsidiaries 69,108 74,813
Other 2,088 2,547
---------------------------
$108,607 $115,873
---------------------------
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to bank $ -- $ 1,300
Current maturities of long-term debt 12,799 12,871
Accounts payable 5,315 5,868
Accrued expenses
Payroll related 1,186 754
Other 3,692 3,158
Income taxes payable 280 256
---------------------------
Total current liabilities 23,272 24,207
LONG-TERM DEBT, LESS CURRENT MATURITIES 30,395 28,978
DEFERRED INCOME TAXES 20,265 1,605
COMMITMENTS -- --
SHAREHOLDERS' EQUITY
Common stock, authorized 100,000,000 shares of
$.25 par value; issued and outstanding
9,438,000 shares in 1993 and 1992 2,360 2,360
Additional paid-in capital 30,937 45,593
Foreign currency translation adjustment (245) (365)
Retained earnings 1,623 13,495
---------------------------
Total shareholders' equity 34,675 61,083
---------------------------
$108,607 $115,873
---------------------------
---------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS.
<PAGE>
Consolidated Statements of Shareholders' Equity
NORTH STAR UNIVERSAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Preferred Stock Common Stock Foreign
------------------ ------------------- Additional Currency
Years ended December 31, 1993, 1992 and 1991 Shares Shares Paid-In Translation Retained
(Dollars in thousands) Issued Amount Issued Amount Capital Adjustment Earnings
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1990 28,829 $ 2,883 9,219,100 $ 2,305 $ 28,636 $ 206 $ 5,193
Exercise of stock options to
acquire common stock -- -- 218,900 55 1,460 -- --
Initial public offering of CorVel -- -- -- -- 3,948 -- --
Effect of equity transactions
of Michael Foods -- -- -- -- 11,484 -- --
Translation adjustment -- -- -- -- -- 20 --
Redemption of preferred stock (28,829) (2,883) -- -- -- -- --
Cash dividends paid on preferred
stock--$14.00 per share -- -- -- -- -- -- (362)
Net income -- -- -- -- -- -- 10,301
------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1991 -- -- 9,438,000 2,360 45,528 226 15,132
Effect of equity transactions of
unconsolidated subsidiaries -- -- -- -- 65 -- --
Translation adjustment -- -- -- -- -- (591) --
Net loss -- -- -- -- -- -- (1,637)
------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1992 -- -- 9,438,000 2,360 45,593 (365) 13,495
Effect of equity transactions of
unconsolidated subsidiaries -- -- -- -- 344 -- --
Deferred income tax adjustment -- -- -- -- (15,000) -- --
Translation adjustment -- -- -- -- -- (198) --
Effect of restructuring charges -- -- -- -- -- 318 --
Net loss -- -- -- -- -- -- (11,872)
------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 -- $ -- 9,438,000 $ 2,360 $ 30,937 $ (245) $ 1,623
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
Consolidated Statements of Cash Flows
NORTH STAR UNIVERSAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years ended December 31,
(In thousands) 1993 1992 1991
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(11,872) $(1,637) $10,301
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Equity in (earnings) loss of unconsolidated subsidiaries 8,967 (2,055) (8,943)
Investment income -- -- (8,564)
Non-cash restructuring charges 1,596 -- --
Discontinued operations -- -- 273
Depreciation and amortization 1,646 1,811 1,559
Deferred income taxes (730) (1,150) (500)
Foreign currency translation adjustment (198) (591) 20
Changes in operating assets and liabilities,
net of effects of restructuring charges
Accounts receivable 482 295 1,049
Inventories (2,863) (1,245) 72
Accounts payable, accruals and other 148 711 (1,131)
--------------------------------------
NET CASH used in operating activities (2,824) (3,861) (5,864)
--------------------------------------
CASH FLOWS FOR INVESTING ACTIVITIES
Capital expenditures (1,920) (617) (1,496)
Proceeds from divestitures -- -- 1,655
Proceeds from sale of Michael Foods stock -- -- 16,318
Change in control of subsidiaries to
equity method of accounting -- -- (4,307)
Other 829 186 350
--------------------------------------
NET CASH provided by (used in) financing activities (1,091) (431) 12,520
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 29,704 7,249 10,984
Payments on long-term debt (29,659) (6,851) (9,923)
Proceeds from notes payable 4,750 5,745 1,820
Payments on notes payable (4,750) (4,445) (12,820)
Proceeds from CorVel initial public offering -- -- 9,900
Proceeds from exercise of stock options -- -- 1,515
Redemption of preferred stock -- -- (2,883)
Preferred stock investment in CorVel -- -- (1,364)
Cash dividends paid on preferred stock -- -- (362)
Cash dividends received from Michael Foods 1,471 1,471 1,471
Other -- -- (76)
--------------------------------------
NET CASH provided by (used in) financing activities 1,516 3,169 (1,738)
--------------------------------------
NET INCREASE (DECREASE) in cash and cash equivalents (2,399) (1,123) 4,918
--------------------------------------
CASH AND CASH EQUIVALENTS at beginning of year 9,380 10,503 5,585
--------------------------------------
CASH AND CASH EQUIVALENTS at end of year $ 6,981 $ 9,380 $10,503
--------------------------------------
--------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
North Star Universal, Inc. ("North Star" or "the Company") is a holding company.
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 and manufactures 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 Company maintains a minority ownership position in Michael Foods, Inc.
("Michael Foods"). In March 1987, the Company founded Michael Foods to
consolidate and focus development of the Company's food businesses. Michael
Foods is engaged principally in the food processing and distribution business.
At the time Michael Foods was organized, the Company was issued 9,000,000 shares
(after giving retroactive effect to a 3-for-2 stock split in May 1991) of
Michael Foods common stock. In September 1990 and January 1991, the Company
sold 472,500 and 1,172,550 shares of its Michael Foods stock, respectively. As
a result of these transactions and other equity transactions of Michael Foods,
the Company's ownership interest in Michael Foods was approximately 38% at
December 31, 1993. The Company's investment in Michael Foods is accounted for
as an unconsolidated subsidiary using the equity method of accounting.
The Company also owns a 40% minority ownership in CorVel Corporation ("CorVel",
formerly FORTIS Corporation) as of December 31, 1993. In January 1988, the
Company founded CorVel to integrate and develop the operations of a number of
health care service companies previously acquired by North Star. In June 1991,
CorVel completed an initial public offering of 1,600,000 shares of its common
stock. Net proceeds from the offering were approximately $14.4 million of which
$9.9 million was received by North Star. The Company's investment in CorVel is
accounted for as an unconsolidated subsidiary using the equity method of
accounting.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The Company consolidates the accounts of its
majority-owned subsidiaries. All significant intercompany transactions have been
eliminated. Certain of the 1992 and 1991 amounts have been reclassified to
conform with the financial statement presentation used in 1993.
CASH AND CASH EQUIVALENTS The Company considers its highly liquid temporary
investments with original maturities of three months or less to be cash
equivalents.
INVENTORIES Inventories are stated at the lower of average cost (determined on
a first-in, first-out basis) or market. At December 31, inventories consist of
the following (in thousands):
<TABLE>
<CAPTION>
1993 1992
- - -------------------------------------------------------------------------
<S> <C> <C>
Work in process and finished goods $ 8,741 $ 6,513
Purchased parts 2,059 1,935
-----------------------
$ 10,800 $ 8,448
-----------------------
-----------------------
</TABLE>
<PAGE>
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation
and amortization for financial reporting purposes are provided on the straight-
line method over the estimated useful lives of the respective assets. Major
repairs and improvements are capitalized and depreciated. Maintenance and
repairs are charged to expense as incurred.
At December 31, property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
1993 1992
- - ---------------------------------------------------------------------------
<S> <C> <C>
Buildings and improvements $ 1,025 $ 703
Machinery and equipment 6,330 5,242
-------------------------
7,355 5,945
Less-accumulated depreciation and amortization 3,926 3,138
-------------------------
$ 3,429 $ 2,807
-------------------------
-------------------------
</TABLE>
GOODWILL The excess of cost over net assets of purchased businesses is being
amortized on a straight-line basis over periods not exceeding 40 years.
Accumulated amortization was $2,506,000 at December 31, 1993 and $2,033,000 at
December 31, 1992. The Company maintains separate financial records for each of
its acquired entities and evaluates its goodwill annually to determine potential
impairment by comparing the carrying value to the undiscounted future cash flows
of the related assets. The Company modifies the life or adjusts the value of a
subsidiary's goodwill if an impairment is identified. See Note 3 for an
impairment identified during 1993.
INCOME TAXES The consolidated financial statements reflect the implementation
of Statement of Financial Accounting Standards No. 109--Accounting for Income
Taxes ("SFAS 109"), as of January 1, 1993. See Note 9.
EARNINGS PER SHARE Earnings per share are based upon the weighted average
number of shares outstanding during each period (9,438,000 in 1993, 9,438,000 in
1992, and 9,888,000 in 1991) after giving effect to the assumed exercise of
outstanding stock options, except where the effects are antidilutive. Earnings
in 1991 have been adjusted for preferred dividends of $362,000 to arrive at
earnings attributable to common shareholders.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION The Company increased its
investment in unconsolidated subsidiaries by $396,000, $467,000 and $18,285,000
and additional paid-in capital by $344,000, $65,000 and $15,432,000 during 1993,
1992 and 1991, respectively, as a result of equity transactions of Michael Foods
and CorVel. During 1991, the Company decreased its net property by $2,386,000
and long-term debt by $2,520,000 through the sale of land and a building with
the buyer assuming the related debt obligation of the property.
Additional disclosures of cash flow information is as follows:
<TABLE>
<CAPTION>
Years ended December 31, 1993 1992 1991
- - --------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid (received) during the year for:
Interest $ 4,506 $ 4,806 $ 4,937
Income taxes -- (574) (248)
</TABLE>
NOTE 3 - RESTRUCTURING CHARGES
In December 1993, Americable implemented a restructuring plan involving the
closure of its Canadian facilities, operated by Adanac Cable, Ltd., and
consolidation of its Canadian sales and customer support activities within its
U.S. operations. In connection with this consolidation, Americable recorded a
restructuring charge of approximately $1.9 million. This charge includes
approximately $600,000 for the write-off of goodwill and other non-current
assets, $700,000 for the reassessment of the carrying value of inventory and
receivables, and $600,000 for lease and severance obligations and other related
expenses. See Note 15.
NOTE 4 - INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
The Company's unconsolidated subsidiaries consist of its investments in Michael
Foods and CorVel. The following is summarized balance sheet information of the
Company's unconsolidated subsidiaries as of December 31, 1993. The summarized
income statement information for Michael Foods is for the year ended
December 31, 1993. CorVel has a fiscal year end of March 31. The
<PAGE>
summarized income statement information for CorVel is for the twelve month
period ended December 31, 1993 (in thousands):
<TABLE>
<CAPTION>
Michael Foods CorVel
- - -----------------------------------------------------------------
<S> <C> <C>
Current assets $ 83,727 $ 21,096
Noncurrent assets 245,360 9,655
Current liabilities 61,460 5,365
Noncurrent liabilities 112,624 --
Revenues 474,783 76,432
Gross profit 59,818 12,096
Net income (loss) (16,320) 3,882
</TABLE>
At December 31, 1993, CorVel had stock options outstanding to purchase
approximately 968,000 shares of its common stock at various exercise prices.
Assuming the exercise of all these options, the Company's ownership would be
reduced to approximately 32%. If the exercise of these options had occurred at
December 31, 1993, it would have decreased the Company's investment in
unconsolidated subsidiaries, deferred income taxes and additional paid-in
capital by approximately $1,985,000, $794,000 and $1,191,000, respectively.
At December 31, 1993, consolidated retained earnings includes
approximately $7.5 million of unremitted earnings related to the Company's
investment in unconsolidated subsidiaries.
NOTE 5 - DISCONTINUED OPERATIONS
In December 1992, the Company completed the sale of Universal Press & Label. In
March 1991, the Company completed the sale of Whirltronics and announced its
intention to sell its remaining non-computer related manufacturing company,
Eagle Engineering and Manufacturing, Inc. ("Eagle Engineering"). Revenues and
operating income of discontinued operations, including Eagle Engineering, were
$4.4 million and $92,000 in 1993, $6.2 million and $129,000 in 1992 and $6.5
million and $13,000 in 1991, respectively.
NOTE 6 - NOTES PAYABLE
The Company has a revolving credit agreement with its principal bank which
provides for borrowings up to $6.5 million due in January 1995. Borrowings
under the revolving line of credit bear interest at the bank's reference rate
(6.0% at December 31, 1993), and are collateralized by the Company's shares of
Michael Foods common stock. The credit agreement also includes certain
restrictive covenants including limitations on senior indebtedness and business
acquisitions and prohibits cash dividends to common shareholders. The Company
had no borrowings under its it line of credit during the year ended December 31,
1993.
C.E. Services maintains revolving credit facilities with its principal bank
which provide for borrowings up to $3.5 million due May 1994, based on available
eligible accounts receivable and inventory. Borrowings under these revolving
credit facilities bear interest at 1/2% and 1% over the bank's reference rate
(6.5% and 7% at December 31, 1993) and are used to finance the working capital
requirements of C.E. Services. At December 31, 1993, there were no borrowings
outstanding under these facilities.
NOTE 7 - LONG-TERM DEBT
At December 31, long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
1993 1992
- - -----------------------------------------------------------------
<S> <C> <C>
Subordinated debentures $ 39,579 $ 38,899
Revolving line of credit 1,408 --
Term note payable 1,893 2,321
Notes payable for business acquisitions 173 368
Other 141 261
------------------------
43,194 41,849
Less current maturities 12,799 12,871
------------------------
$ 30,395 $ 28,978
------------------------
------------------------
</TABLE>
Aggregate minimum annual principal payments of long-term debt at December 31,
1993, are as follows (in thousands):
<TABLE>
<CAPTION>
Years ending December 31,
- - --------------------------------------------------
<S> <C>
1994 $ 12,799
1995 11,278
1996 6,618
1997 3,672
1998 4,465
1999 and thereafter 4,362
---------
$43,194
---------
---------
</TABLE>
<PAGE>
Subordinated debentures are unsecured and due in varying monthly installments
through 2002. Weighted average interest of 10.4% and 10.8% at December 31, 1993
and 1992, respectively, is payable monthly, quarterly or at maturity.
In May 1991, Americable established a $2 million revolving line of credit
and a $3 million term loan with North Star's principal bank. This facility was
used to finance its working capital requirements and reduce North Star's
investment. In June 1993, Americable amended its revolving line of credit and
term loan facility to provide 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% (7.5% at December 31,
1993). The term loan bears interest at 10.665% and is payable in monthly
principal installments of $36,000 with a final installment of $893,000 due in
May 1996. The credit agreement includes certain restrictive covenants including
minimum net worth requirements, limitations on additional indebtedness and
minimum interest coverage.
Notes payable for business acquisitions are due in varying monthly and
annual installments through January 1994 with interest ranging from 8% to 10%.
NOTE 8 - PREFERRED STOCK
In August 1991, the Company completed the redemption for cash of all of its
outstanding preferred stock at a redemption price of $100 per share plus accrued
but unpaid dividends through the date of redemption.
NOTE 9 - INCOME TAXES
The Company and its consolidated subsidiaries file a consolidated federal income
tax return and separate state income tax returns, where legally required.
Effective June 28, 1991, CorVel has filed its own consolidated federal and state
income tax returns. The provision (benefit) for consolidated income taxes
pertaining to continuing operations, consists of the following (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
- - --------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ -- $ -- $ 880
State 20 20 430
--------------------------------
20 20 1,310
Deferred
Federal (625) (912) (550)
State (105) (238) 50
--------------------------------
(730) (1,150) (500)
--------------------------------
$(710) $(1,130) $ 810
--------------------------------
--------------------------------
</TABLE>
The following is a reconciliation of income taxes at the federal statutory rate
to the effective rate:
<TABLE>
<CAPTION>
Years ended December 31, 1993 1992 1991
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate (34.0)% (34.0)% 34.0%
State income taxes,
net of federal tax benefit (1.6) (3.0) 11.5
Gain on sale of Michael Foods stock -- -- 96.1
Effect of net operating loss carryforwards -- -- (106.8)
Losses producing no current benefit 17.1 10.9 --
Reinstatement of deferred taxes -- -- 5.6
Prior year overaccruals (3.5) -- (23.2)
Goodwill amortization 2.0 1.5 3.4
Dividends from unconsolidated subsidiaries -- 2.1 3.6
Other .4 (.9) 5.1
-----------------------------------
(19.6)% (23.4)% 29.3%
-----------------------------------
-----------------------------------
</TABLE>
Effective January 1, 1993, the Company was required under SFAS 109 to
record deferred income taxes related to the current years' unremitted earnings
or loss from Michael Foods. Deferred income taxes are not required to be
recorded for unremitted earnings and equity transactions which arose prior to
1993 and are expected to be realized in a tax-free manner. In the fourth
quarter of 1993, the Company determined that all future dispositions of Michael
Foods holdings may not be completed in a tax-free manner. Accordingly, 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. The portion of this liability related to the
Company's share of Michael Foods public offering proceeds and other equity
transactions of $15 million, was charged to additional paid-in capital and the
portion related to Michael Foods unremitted earnings of $3.7 million, was
charged to equity in earnings (loss) of unconsolidated subsidiaries. The $3.7
million net deferred tax provision includes a $2.8 million deferred tax benefit
related to the current year loss and $6.5 million of deferred tax expense
related to prior year earnings.
<PAGE>
In addition, at December 31, 1993, the deferred tax liability includes the
initial tax effect of $2.7 million for the difference in the financial reporting
and tax basis of the Company's investment in CorVel following its initial public
offering along with income taxes recorded on the equity in earnings of CorVel of
$690,000 in 1993, $402,000 in 1992 and $153,000 in 1991, respectively.
The tax effects of the cumulative temporary differences resulting in the
net deferred tax liability at December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992
- - ------------------------------------------------------------------
<S> <C> <C>
Investment in Michael Foods $(18,700) $ --
Investment in CorVel (3,945) (3,255)
Depreciation (99) (379)
Accrued expenses not
deductible until paid 1,826 1,440
Other (346) (751)
Net operating loss carryforwards 1,664 1,320
State taxes 125 20
-----------------------
(19,475) (1,605)
Valuation allowance (790) --
-----------------------
$(20,265) $(1,605)
-----------------------
-----------------------
</TABLE>
At December 31, 1993, the valuation allowance represents a reserve for
foreign net operating loss carryforwards which are not expected to be realized
in the future. In addition, at December 31, 1993, the Company had federal net
operating loss carryforwards for income tax purposes of approximately $2.5
million. This amount has been recognized for financial reporting purposes.
NOTE 10 - STOCK OPTION PLANS
In 1986, the Company established an incentive stock option plan and a non-
qualified stock option plan for various executive officers (none of whom are
presently officers of the Company). The Company also maintains a non-qualified
stock option plan for other officers, directors and key employees.
Activity under the stock option plans for the years ended December 31, is
as follows:
<TABLE>
<CAPTION>
1993 1992 1991
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, beginning of year 656,600 615,400 769,000
Granted:
$4.63/share -- 48,700 --
$10.12 to $10.25/share -- -- 67,500
Exercised:
$.94/share -- -- (205,000)
$8.75/share -- -- (13,900)
Cancelled:
$8.75/share -- -- (2,200)
$10.25/share -- (7,500) --
-----------------------------------
Outstanding, end of year 656,600 656,600 615,400
-----------------------------------
-----------------------------------
Exercisable, end of year:
Number of shares 634,140 631,900 497,400
Exercise price per share $.94 $.94 $.94
to $10.12 to $10.12 to $8.75
</TABLE>
<PAGE>
NOTE 11 - COMMITMENTS
The Company leases certain equipment and facilities under operating leases.
Minimum rental payments under such leases which expire at various dates through
2008 are as follows (in thousands):
<TABLE>
<CAPTION>
Years ending December 31,
- - ---------------------------------------------------
<S> <C>
1994 $ 2,465
1995 2,253
1996 1,896
1997 1,827
1998 1,828
1999 and thereafter 7,925
---------
$ 18,194
---------
---------
</TABLE>
Certain of the leases provide for payment of taxes and other expenses by
the Company. Total rent expense on all leases including month-to-month leases
was $2,517,000 in 1993, $2,542,000 in 1992, and $2,229,000 in 1991.
NOTE 12 - EMPLOYEE RETIREMENT PLAN
The Company maintains an incentive savings plan for its employees and employees
of its wholly owned subsidiaries. Full-time employees that meet certain
requirements are eligible to participate in the plan. Contributions are made
annually primarily at the discretion of the Company's Board of Directors.
Contributions of $267,000, $239,000, and $190,000, were charged to operations
in the years ended December 31, 1993, 1992 and 1991, respectively.
NOTE 13 - RELATED PARTY TRANSACTION
The Company has an unsecured note receivable from its majority shareholder and
former chairman of the board of $457,872 at December 31, 1993. The note bears
interest at the Company's principal bank's reference rate plus 1% (7% at
December 31, 1993). A principal payment of $50,000 was made in December 1993.
NOTE 14 - FOURTH QUARTER RESULTS
In the fourth quarter of 1993, the Company recorded losses of approximately $7.7
million along with a net deferred tax provision of approximately $3.1 million
related to its investment in Michael Foods and $1.9 million of restructuring
charges in connection with the consolidation of Americable's Canadian
operations. In the fourth quarter of 1992, the Company recorded non-recurring
charges of $490,000 related to inventory write-offs and an income tax benefit
adjustment of $570,000 to adjust to the Company's annual effective tax rate. The
net effect of these adjustments in the fourth quarter was to increase the net
loss in 1993 by $12.8 million, or $1.36 per share, and increase net income in
1992 by $80,000, or $.01 per share.
NOTE 15 - BUSINESS SEGMENT INFORMATION
The Company's foreign operations consist of C.E. Services' United Kingdom
subsidiary, C.E. Services (Europe) Limited and Americable's Canadian subsidiary,
Adanac Cable, Ltd. As discussed in Note 3, Americable has consolidated its
Canadian sales and customer support activities within its U.S. operations.
Summary financial information by geographic area is as follows:
<TABLE>
<CAPTION>
Years ended December 31, (in thousands) 1993 1992 1991
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
United States $ 89,662 $ 72,334 $ 56,361
Canada 4,616 5,957 6,428
United Kingdom 13,207 8,072 8,786
Operating income (loss)
United States 677 (80) (947)
Canada (195) (219) 174
United Kingdom 169 (286) (583)
Identifiable assets
United States 106,612 111,937 112,093
Canada 137 2,409 2,698
United Kingdom 1,858 1,527 1,564
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders of North Star Universal, Inc.
We have audited the accompanying consolidated balance sheets of North Star
Universal, Inc. and Subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of North Star
Universal, Inc. and Subsidiaries as of December 31, 1993 and 1992, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1993, in conformity
with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for income taxes.
Minneapolis, Minnesota /s/ Grant Thornton
February 24, 1994
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
Year ended December 31,
(In thousands, except per share amounts and ratios) 1993 1992 1991 1990 1989
- - -----------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS DATA(1),(2)
<S> <C> <C> <C> <C> <C>
Revenues $ 107,485 $ 86,363 $ 71,575 $ 553,022 $ 315,074
Operating income (loss) 651 (585) (1,356) 41,038 9,912
Interest expense, net (4,266) (4,237) (4,442) (16,022) (6,223)
Income (loss) from continuing operations before
income taxes, minority interest, and equity in
earnings (loss) of unconsolidated subsidiaries (3,615) (4,822) 2,766 27,109 3,689
Income (loss) from continuing operations (11,872) (1,637) 10,899 5,643 94
Income (loss) from discontinued operations -- -- (598) (1,832) (2,448)
-----------------------------------------------------------------
Net income (loss) $ (11,872) $ (1,637) $ 10,301 $ 3,811 $ (2,354)
-----------------------------------------------------------------
-----------------------------------------------------------------
Income (loss) per common and
common equivalent share:
Income (loss) from continuing operations $ (1.26) $ (.17) $ 1.07 $ .54 $ (.03)
Discontinued operations -- -- (.06) (.19) (.25)
-----------------------------------------------------------------
Net income (loss) $ (1.26) $ (.17) $ 1.01 $ .35 $ (.28)
-----------------------------------------------------------------
-----------------------------------------------------------------
Ratio of earnings to fixed charges .28x .02x 1.53x 2.46x 1.50x
BALANCE SHEET DATA (1),(2)
Total assets $ 108,607 $ 115,873 $ 116,355 $ 354,473 $ 247,364
Long-term debt, including current maturities 43,194 41,849 41,451 149,353 125,399
Shareholders' equity 34,675 61,083 63,246 39,223 35,555
-----------------------------------------------------------------
-----------------------------------------------------------------
<FN>
(1) Amounts in 1991, 1990 and 1989 have been reclassified to give effect to
discontinued operations in those years.
(2) 1990 and 1989 include the consolidated results and balances of Michael
Foods and CorVel. Beginning in 1991, these investments were accounted for under
the equity method of accounting as discussed in Note 1 to the Consolidated
Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited, in thousands,
except per share amounts) First Second Third Fourth(1)
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993
Revenues $ 26,354 $ 29,774 $ 24,047 $ 27,310
Operating income (loss) (156) 774 662 (629)
Interest expense, net (1,032) (1,084) (1,096) (1,054)
Net income (loss) $ (497) $ 573 $ 288 $ (12,236)
---------------------------------------------------
---------------------------------------------------
Income (loss) per share $ (.05) $ .06 $ .03 $ (1.30)
---------------------------------------------------
---------------------------------------------------
1992
Revenues $ 19,001 $ 20,319 $ 22,516 $ 24,527
Operating income (loss) (173) (222) 111 (301)
Interest expense, net (1,110) (1,083) (1,088) (956)
Net income (loss) $ (719) $ (990) $ (135) $ 207
---------------------------------------------------
---------------------------------------------------
Income (loss) per share $ (.07) $ (.10) $ (.01) $ .02
---------------------------------------------------
---------------------------------------------------
<FN>
(1)See Notes 3 and 14 to the Consolidated Financial Statements.
</TABLE>
STOCK INFORMATION
North Star Universal, Inc.'s common stock is traded on the Pacific Stock
Exchange under the symbol NSU and on the National Market System of NASDAQ under
the symbol NSRU since June 19, 1987. The following stock prices were obtained
from NASDAQ reports:
<TABLE>
<CAPTION>
(By Quarter)
1993 Low High
- - ---------------------------------------------------------------------------
<S> <C> <C>
First 4 1/2 7 1/8
Second 3 7/8 5 1/2
Third 4 3/4 6 1/2
Fourth 4 1/2 6 7/8
1992 Low High
- - ---------------------------------------------------------------------------
First 9 7/8 13 3/4
Second 5 1/8 11 1/8
Third 4 1/4 6 3/8
Fourth 4 3/8 7 5/8
</TABLE>
The number of common shareholders of record as of December 31, 1993, was 263. In
addition, the Company estimates that an additional 1,000 shareholders own stock
held for their accounts at brokerage firms and financial institutions. There
were no cash dividends paid in 1993 or 1992 on North Star's common stock.
Management does not anticipate that cash dividends will be paid in the
foreseeable future.
<PAGE>
CORPORATE INFORMATION
CORPORATE ADDRESS
North Star Universal, Inc./610 Park National Bank Building/5353 Wayzata
Boulevard/Minneapolis, Minnesota 55416/(612) 546-7500
BOARD OF DIRECTORS
MILES E. EFRON/Chairman of the Board of the Company
PETER E. FLYNN/Executive Vice President, Chief Financial Officer and Secretary
of the Company
JAMES H. MICHAEL/Retired Chairman of the Board of the Company
JEFFREY J. MICHAEL/President and Chief Executive Officer of the Company
DAVID Z. JOHNSON/Retired Chairman of the Board of Johnson Printing Company
FRED E. STOUT/Retired Chief Executive Officer Superior Water Light & Power
Company
CORPORATE OFFICERS
JEFFREY J. MICHAEL/President and Chief Executive Officer
PETER E. FLYNN/Executive Vice President, Chief Financial Officer and Secretary
SHAREHOLDER INFORMATION
TRANSFER AGENT AND REGISTRAR/Norwest Bank Minneapolis, N.A./161 North Concord
Exchange/P.O. Box 738/South St. Paul, Minnesota 55075
INVESTOR INQUIRIES/Attention:Investor Relations/North Star Universal, Inc./610
Park National Bank Building/5353 Wayzata Boulevard/Minneapolis, Minnesota
55416/(612) 546-7500
FORM 10-K/North Star's Form 10-K report is filed with the Securities and
Exchange Commission and is available to shareholders without charge by writing
to the Company.
