<PAGE>
$40,000,000
NORTH STAR UNIVERSAL, INC.
SIX AND TWELVE MONTH SUBORDINATED
EXTENDIBLE TIME CERTIFICATES
TWO, FIVE AND TEN YEAR SUBORDINATED
FIXED-TERM TIME CERTIFICATES
PROSPECTUS SUPPLEMENT NO. 3
TO PROSPECTUS DATED MARCH 23, 1994
The following information dated November 11, 1994, amends and updates
the Prospectus of North Star Universal, Inc., dated March 23, 1994 (the
"Prospectus"), and should be read in conjunction therewith. Please keep
this Prospectus Supplement with your Prospectus for future reference.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS NOVEMBER 11, 1994
<PAGE>
NORTH STAR UNIVERSAL, INC. AND SUBSIDIARIES
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO AMOUNTS)
The following table sets forth certain summary financial data for the
Company and should be read in conjunction with the Condensed Consolidated
Financial Statements of the Company included in this Prospectus Supplement.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1994
(UNAUDITED)
------------------------------
1994 1993
------------- -------------
<S> <C> <C>
OPERATIONS:
Revenues $ 72,137 $ 80,175
Operating income (loss) (1,518) 1,280
Net income 115 364
------------- -------------
------------- -------------
Income per share $ 0.01 $ 0.04
------------- -------------
------------- -------------
Ratio of earnings to fixed charges (.24)X
-------------
-------------
<CAPTION>
SEPTEMBER 30,
1994 DECEMBER 31,
(UNAUDITED) 1993
------------- -------------
<S> <C> <C>
FINANCIAL POSITION:
Total assets $ 111,337 $ 108,607
Long-term debt 31,757 30,395
Shareholders' equity 35,078 34,675
------------- -------------
------------- -------------
</TABLE>
<PAGE>
North Star Universal, Inc. and Subsidiaries
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATION AND FINANCIAL CONDITION
RESULTS OF OPERATIONS --
THREE MONTHS ENDED SEPTEMBER 30, 1994 vs. THREE MONTHS ENDED SEPTEMBER 30, 1993
Consolidated revenues were relatively unchanged at $24.1 million
versus $24 million in 1993. The 2.7% increase at C.E. Services includes
$1,054,000 of increased revenues from its European operations which was a
result of several large sales of used IBM 3090 equipment. These sales were
part of an effort to reduce inventories of various used IBM 3090 equipment
following the recent introduction of several new IBM systems. This was
offset by lower revenues within C.E. Services domestic operations of
$765,000 due to lower demand for used mainframe systems and technical
services which is attributed to an overall slowdown experienced within the
secondary market of IBM mainframe equipment. C.E. Services does not expect
demand for its products and services to measurably improve through the
first quarter of 1995.
Revenues at Americable, excluding approximately $1.2 million of sales
in 1993 from its Canadian operations which were closed in December 1993,
increased $900,000 or 9% to $10.8 million. This was due primarily to
higher demand for its value-added networking products and services. The
2.8% increase in revenues at Transition Engineering resulted primarily from
higher international demand for its LAN products.
Consolidated gross profit, as a percent of revenues, decreased to
19.5% in 1994 as compared with 27.5% in 1993. The lower margins at C.E.
Services are attributable to a substantial decline in prices of used IBM
systems sold in addition to increased cost of services associated with a
new IBM service contract. Margins at Americable decreased due primarily
to overall lower pricing resulting from increased competition.
The Company's selling, general and administrative expenses decreased
$797,000, or 13.4% to $5,150,000 from $5,947,000 in 1993. C.E. Services
had a decrease in selling, general and administrative expenses of $505,000
due to staff reductions made during the quarter in response to the overall
reduction in revenues and profitability. Operating expenses at Americable
decreased $566,000, which reflects approximately $320,000 of expenses
eliminated through the closure of its Canadian facilities effected in
December 1993. The remaining decrease at Americable includes approximately
$340,000 of expense reductions offset by non-recurring charges of
approximately $100,000 related to a reorganization implemented during the
quarter. Transition Engineering had increased operating expenses of
approximately $332,000, due to increased staffing levels and costs related
to the development and marketing of new products.
The income tax benefit of $440,000 in 1994 and $160,000 in 1993 relate
to the elimination of deferred tax liabilities that will reverse as net
operating losses available for carryforwards are utilized in future
periods. To the extent loss carryforwards are realized in the future,
deferred taxes will be reinstated.
<PAGE>
North Star Universal, Inc. and Subsidiaries
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATION AND FINANCIAL CONDITION
(Continued)
RESULTS OF OPERATIONS --
THREE MONTHS ENDED SEPTEMBER 30, 1994 vs. THREE MONTHS ENDED SEPTEMBER 30, 1993
(Continued)
Equity in earnings of unconsolidated subsidiaries increased $591,000
to $1,153,000 from $562,000 in the previous year. This includes an
increase of $525,000 and $66,000 in the equity in earnings of Michael Foods
and CorVel Corporation, respectively, which is a result of higher earnings
at each of these companies.
NINE MONTHS ENDED SEPTEMBER 30, 1994 vs. NINE MONTHS ENDED SEPTEMBER 30, 1993
Consolidated revenues decreased $8 million or 10% to $72.1 million
from $80.2 million in 1993. The $6.6 million or 15% decrease at C.E.
Services includes approximately $5.4 million of decreased revenues from the
resale of used mainframe systems and features and $1.2 million in lower
technical service and warehousing revenues. Sales from C.E. Services'
European operations decreased approximately $1.5 million or 18% to
approximately $6.7 million for the period. This decline in revenues is
attributable to an overall slowdown experienced within the secondary market
of IBM mainframe equipment. C.E. Services does not expect demand for its
products and services to measurably improve through the first quarter of
1995.
Revenues at Americable, excluding approximately $4 million of sales in
1993 from its Canadian operations which were closed in December 1993,
increased 7.1% to $27.7 million for the period due primarily to higher
demand for its value-added networking products and services. The 9.5%
increase in revenues at Transition Engineering was due to higher product
demand. Sales to international customers accounted for approximately
$476,000 or 66% of the increase for the period.
Consolidated gross profit, as a percent of revenues, decreased to
20.8% in 1994 as compared to 23.8% in 1993. This is primarily a result of
lower margins at C.E. Services which is attributable to a significant price
decline in the secondary market of IBM equipment, increased cost of
services associated with a new IBM service contract and reduced pricing of
technical services due to increased competition and maturing product life
cycle of certain IBM mainframes. Margins at Americable decreased due to
overall lower pricing resulting from increased competition. North Star
does not expect consolidated gross profit margins to measurably improve
throughout the remainder of the year.
The Company's selling, general and administrative expenses decreased
$1.3 million, or 7.3%, to $16.5 million from $17.8 million in 1993. C.E.
Services had lower selling, general and administrative expenses of
approximately $500,000 due primarily to staff reductions implemented during
the third quarter. Operating expenses at Americable decreased
approximately $1.5 million, which reflects approximately $1.1 million of
expenses eliminated through the closure of its Canadian facilities effected
in December 1993. These decreases were offset by increased expenses of
$852,000 at Transition Engineering due primarily to increased staffing
levels and costs related to the development related to the development and
marketing of new products.
<PAGE>
North Star Universal, Inc. and Subsidiaries
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATION AND FINANCIAL CONDITION
(Continued)
RESULTS OF OPERATIONS --
NINE MONTHS ENDED SEPTEMBER 30, 1994 vs. NINE MONTHS ENDED SEPTEMBER 30, 1993
(Continued)
Net interest expense decreased $27,000 to $3,185,000 from $3,212,000
in 1993, primarily due to overall lower weighted average interest on
outstanding debentures between years.
The income tax benefit of $1,480,000 in 1994 and $710,000 in 1993
relate to the elimination of deferred tax liabilities that will reverse as
net operating losses available for carryforward are utilized in future
periods. To the extent loss carryforwards are realized in the future,
deferred taxes will be reinstated.
Equity in earnings of unconsolidated subsidiaries increased $1,752,000
to $3,338,000 from $1,586,000 in the previous year. This includes an
increase of $1,503,000 and $249,000 in the equity in earnings of Michael
Foods and CorVel, respectively, which is a result of higher earnings at
each of these companies. Michael Foods' net earnings for the nine months
ended September 30, 1994, were approximately $10.5 million, an increase of
approximately $6.5 million, or 164% from the previous year.
CAPITAL RESOURCES AND LIQUIDITY
Historically, the Company has experienced cash flow deficits from
operations. Cash used in operations was approximately $5.1 million for the
nine months ended September 30, 1994 as compared to $2.7 million in 1993.
The increase in this amount is primarily a result of the operating losses
incurred at C.E. Services in 1994. The Company expects operating cash flow
deficits to continue. The Company does not have the use of cash flow
generated by Michael Foods other than proceeds from quarterly dividends.
In each of the nine month periods ended September 30, 1994 and 1993, the
Company received dividends of $1,103,000. There can be no assurance that
Michael Foods will continue to declare such dividends.
Likewise, since CorVel's initial public offering in July 1991, the
Company has not had the use of cash generated by CorVel and its
subsidiaries. Since its initial public offering, CorVel has not declared
any dividends, and has indicated that it does not anticipate doing so for
the foreseeable future.
The Company maintains a program whereby it sells subordinated
debentures of various maturities to primarily individual investors. The
debentures are offered on a continuous basis at interest rates that change
from time to time depending on market conditions. Historically, a
substantial portion of maturing debentures have been reinvested in new
debentures. At September 30, 1994, the Company had approximately $41.2
million principal amount of subordinated debentures outstanding.
<PAGE>
North Star Universal, Inc. and Subsidiaries
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATION AND FINANCIAL CONDITION
(Continued)
CAPITAL RESOURCES AND LIQUIDITY (Continued)
For the nine months ended September 30, 1994, approximately $5.6
million or 64% of debenture maturities were reinvested in new debentures.
Included within long-term debt repayments for the nine months ended
September 30, 1994, is approximately $3.2 million of scheduled maturities
of subordinated debentures. Proceeds from long-term debt include
approximately $3.2 million of new debentures sold along with $1.6 million
of compounded interest on debentures. The net activity under the debenture
program for the period resulted in net cash proceeds to the Company of
approximately $1,614,000.
Americable maintains a revolving line of credit and term loan facility
which provides borrowings up to $5.5 million due in May 1996. Borrowings
under the revolving credit facility are based on eligible accounts
receivable and inventory with interest at prime plus 1.5% (9.25% at
September 30, 1994). At September 30, 1994, Americable had outstanding
borrowings of $1.3 million under its revolving line of credit and
$1,571,000 under its term loan.
C.E. Services maintains revolving credit facilities which provide for
borrowings up to $3.5 million with interest at 1/2% and 1% over its bank's
reference rate (8.25% and 8.75% at September 30, 1994). During the nine
months ended September 30, 1994, C.E. Services used bank borrowings of
approximately $3.7 million to finance its working capital requirements,
principally the purchase of inventory related to its remarketing of
mainframe systems. At September 30, 1994, there was $628,000 outstanding
under these facilities. At September 30, 1994, North Star had no
borrowings outstanding under its $6.5 million revolving credit facility and
approximately $4.6 million of cash and cash equivalents, excluding cash of
its operating subsidiaries.
The Company believes that its available cash and cash equivalents
along with its debenture program and amounts available under its revolving
credit facility and the credit facilities of its operating companies, will
be adequate to meet expected cash requirements for the remainder of the
year.
<PAGE>
NORTH STAR UNIVERSAL, INC. AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page
Condensed Consolidated Balance Sheets as of September 30, 1994 and
December 31, 1993 8
Condensed Consolidated Statements of Operations for the Three and
Nine Months ended September 30, 1994 and 1993 9
Condensed Consolidated Statements of Cash Flows for the Nine Months
ended September 30, 1994 and 1993 10
Notes to Condensed Consolidated Financial Statements 11
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
North Star Universal, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,257 $ 6,981
Accounts receivable, net 9,681 7,617
Inventories 10,136 10,800
Prepaid expenses and other 1,245 1,309
------------ ------------
Total current assets 25,319 26,707
Property and equipment, net 3,154 3,429
Investment in unconsolidated subsidiaries 73,904 69,108
Goodwill, net 6,972 7,275
Other assets 1,988 2,088
------------ ------------
$ 111,337 $ 108,607
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank $ 628 $ ---
Current portion of long-term debt 12,425 12,799
Accounts payable and accrued expenses 10,304 10,473
------------ ------------
Total current liabilities 23,357 23,272
Long-term debt, net of current maturities 31,757 30,395
Deferred income taxes 21,145 20,265
Shareholders' Equity
Common stock, $.25 par value
100,000,000 shares authorized,
9,438,000 issued and outstanding 2,360 2,360
Additional paid-in-capital 31,139 30,937
Retained earnings 1,738 1,623
Foreign currency translation adjustment (159) (245)
------------ ------------
Total shareholder's equity 35,078 34,675
------------ ------------
$ 111,337 $ 108,607
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
North Star Universal, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 24,147 $ 24,047 $ 72,137 $ 80,175
Operating and product costs 19,428 17,438 57,149 61,082
--------- --------- --------- ---------
Gross profit 4,719 6,609 14,988 19,093
Selling, general, and administrative expenses 5,150 5,947 16,506 17,813
--------- --------- --------- ---------
Operating income (loss) (431) 662 (1,518) 1,280
Interest expense, net (1,105) (1,096) (3,185) (3,212)
--------- --------- --------- ---------
Loss before income taxes and equity in
earnings of unconsolidated subsidiaries (1,536) (434) (4,703) (1,932)
Income tax benefit (440) (160) (1,480) (710)
--------- --------- --------- ---------
Loss before equity in earnings of
unconsolidated subsidiaries (1,096) (274) (3,223) (1,222)
Equity in earnings of unconsolidated
subsidiaries 1,153 562 3,338 1,586
--------- --------- --------- ---------
Net income $ 57 $ 288 $ 115 $ 364
--------- --------- --------- ---------
--------- --------- --------- ---------
Income per share $ 0.01 $ 0.03 $ 0.01 $ 0.04
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares outstanding 9,846,400 9,858,000 9,704,200 9,706,500
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
North Star Universal, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Net cash used in operating activities $ (5,131) $ (2,688)
Cash flows for investing activities
Captial expenditures (591) (971)
Other 279 555
---------- ----------
Net cash used in investing activities (312) (416)
---------- ----------
Cash flows from financing activities
Proceeds from long-term debt 29,182 3,728
Payments on long-term debt (28,194) (4,287)
Proceeds from notes payable 3,703 235
Payments on notes payable (3,075) ---
Cash dividends received from Michael Foods 1,103 1,103
---------- ----------
Net cash provided by financing activities 2,719 779
---------- ----------
Net decrease in cash and cash equivalents (2,724) (2,325)
Cash and cash equivalents at beginning of period 6,981 9,380
---------- ----------
Cash and cash equivalents at end of period $ 4,257 $ 7,055
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
North Star Universal, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION --
The accompanying unaudited condensed consolidated financial statements
have been prepared by North Star Universal, Inc. ("North Star" or the
"Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The information furnished in the
condensed consolidated financial statements includes normal recurring
adjustments which are, in the opinion of management, necessary for a fair
presentation of such financial statements. Certain information and
footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, it is suggested that these condensed consolidated
financial statements be read in conjunction with the financial statements
and the notes thereto included in the Company's latest annual report on
Form 10-K.
Results for the three and nine months ended September 30 may not
necessarily be indicative of the results to be expected for the full year.
2. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES --
The Company's unconsolidated subsidiaries consist of its
investments in Michael Foods, Inc. ("Michael Foods") and CorVel
Corporation ("CorVel"). CorVel has a fiscal year ended March 31. The
following is summarized balance sheet information of the Company's
unconsolidated subsidiaries as of and for the nine month period ended
September 30, 1994 (in thousands):
<TABLE>
<CAPTION>
Michael Foods CorVel
------------- ------
<S> <C> <C>
Current assets $ 91,951 $ 25,715
Noncurrent assets 245,223 12,199
Current liabilities 68,086 6,685
Noncurrent liabilities 106,439 340
Revenues 375,049 66,561
Gross profit 53,822 11,549
Net income 10,544 4,029
</TABLE>
3. INVENTORIES --
Inventories are stated at the lower of average cost (first-in, first-
out) or market. Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
Work in process and finished goods $ 7,144 $ 8,741
Purchased parts and supplies 2,992 2,059
--------- ---------
$ 10,136 $ 10,800
--------- ---------
--------- ---------
</TABLE>
<PAGE>
North Star Universal, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. EARNINGS PER SHARE --
Earnings per share are based on the average number of shares
outstanding during the period after giving effect to the assumed exercise
of outstanding stock options, except where the effects are antidilutive.
5. INCOME TAXES --
Deferred income taxes arise from temporary differences between
financial and tax reporting. To the extent the Company's financial
reporting basis in its investments in unconsolidated subsidiaries exceeds
its tax basis, and is not expected to be realized in a tax-free manner, the
Company records a deferred tax liability. In the fourth quarter of 1993,
the Company determined that all future dispositions of its Michael Foods
holdings may not be completed in a tax-free manner. Accordingly, at
December 31, 1993, the Company recorded a deferred tax liability of
approximately $18.7 million related to the accounting for temporary
differences between financial and tax reporting of its investment in
Michael Foods.
At September 30, 1994, the deferred tax liability includes a
cumulative tax effect of approximately $20.3 million and $4.7 million for
the differences in the financial reporting and tax basis of the Company's
investments in Michael Foods and CorVel, respectively.
6. RECLASSIFICATIONS --
Certain 1993 amounts have been reclassified to conform with the
financial statement presentation used in 1994. Such reclassifications had
no impact on previously reported retained earnings or net income.
<PAGE>
PART II - OTHER INFORMATION
North Star Universal, Inc. and Subsidiaries
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits were filed with this report on Form 10-Q
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1994.
