<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. 2
TO PROSPECTUS DATED MARCH 23, 1994
The following information dated August 12, 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 AUGUST 12, 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>
SIX MONTHS ENDED
JUNE 30, 1994
(UNAUDITED)
-----------------------
OPERATIONS: 1994 1993
--------- ------------
<S> <C> <C>
Revenues $ 47,990 $ 56,128
Operating income (loss) (1,087) 618
Net income (loss) 58 76
--------- ---------
--------- ---------
Income (loss) per share $ 0.01 $ 0.01
--------- ---------
--------- ---------
Ratio of earnings to fixed charges (.28)X
---------
---------
June 30,
1994 December 31,
FINANCIAL POSITION: (Unaudited) 1993
----------- ------------
Total assets $111,003 $108,607
Long-term debt 43,738 43,194
Shareholders' equity 34,914 34,675
-------- --------
-------- --------
</TABLE>
<PAGE>
North Star Universal, Inc. and Subsidiaries
MANAGEMENT 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.
At June 30, 1994, the Company owned a 38% interest in Michael Foods and a 39%
ownership interest in CorVel. 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, manufactures and markets 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 and six month periods ended June
30 (in thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1994 1993 1994 1993
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues
C.E. Services $ 12,465 $ 17,767 $ 26,508 $ 33,385
Americable 9,111 9,832 16,862 18,722
Transition Engineering 2,857 2,530 5,317 4,679
Eliminations (432) (355) (697) (658)
----------- ------------ ----------- -----------
$ 24,001 $ 29,774 $ 47,990 $ 56,128
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Gross Profit
C.E. Services $ 1,657 $ 3,227 $ 4,081 $ 5,512
Americable 2,045 2,554 4,084 5,072
Transition Engineering 1,092 1,025 2,104 1,900
----------- ------------ ----------- -----------
$ 4,794 $ 6,806 $ 10,269 $ 12,484
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Operating Income (Loss)
C.E. Services $ (604) $ 824 $ (538) $ 891
Americable (37) (75) (185) (122)
Transition Engineering 83 376 213 529
Corporate expenses (294) (351) (577) (680)
----------- ------------ ----------- -----------
$ (852) $ 774 $ (1,087) $ 618
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
<PAGE>
North Star Universal, Inc. and Subsidiaries
MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATION AND FINANCIAL CONDITION
RESULTS OF OPERATIONS --
THREE MONTHS ENDED JUNE 30, 1994 vs. THREE MONTHS ENDED JUNE 30, 1993
Consolidated revenues decreased $5.8 million or 19% to $24 million from $30
million in 1993. The $5.3 million or 29.8% decrease at C.E. Services includes
approximately $4.5 million of decreased revenues from the resale of used
mainframe systems and features and approximately $800,000 of lower technical
service and warehousing revenues. Sales from C.E. Services' European
operations decreased approximately $200,000 or 8% to approximately $2.1 million
for the period. This decline in revenues 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 during the remainder of 1994.
Revenues at Americable, excluding approximately $1.2 million of sales in
1993 from its Canadian operations which were closed in December 1993, increased
$442,000 or 5% to $9.1 million. This was due primarily to higher demand for its
value-added networking products and services. The 12.9% increase in revenues at
Transition Engineering resulted primarily from higher demand for its LAN
products.
Consolidated gross profit, as a percent of revenues, decreased to 20% in
1994 as compared to 22.9% in 1993. The decreased margins at C.E. Services is
attributed to a higher mix of lower margin product sales and increased cost of
services due primarily to costs associated with a new IBM service contract. In
addition, margins at Americable decreased due to overall lower pricing resulting
from increased competition.
The Company's selling, general and administrative expenses decreased
$386,000, or 6.4% to $5,646,000 from $6,032,000 in 1993. Operating expenses at
Americable decreased $547,000 which reflects approximately $360,000 of expenses
eliminated through the closure of its Canadian facilities effected in December
1993. This was offset by increased expenses of approximately $360,000 at
Transition Engineering due primarily to increased staffing levels and costs
related to the development and marketing of new products.
Net interest expense decreased $40,000 to $1,044,000 from $1,084,000 in
1993, primarily due to overall lower weighted average interest on outstanding
debentures between years.
The income tax benefit of $650,000 in 1994 and $130,000 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
MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATION AND FINANCIAL CONDITION
(Continued)
RESULTS OF OPERATIONS --
THREE MONTHS ENDED JUNE 30, 1994 vs. THREE MONTHS ENDED JUNE 30, 1993
(Continued)
Equity in earnings of unconsolidated subsidiaries increased $405,000 to
$1,158,000 from $753,000 in the previous year. This includes an increase of
$337,000 and $68,000 in the equity in earnings of Michael Foods and CorVel
Corporation, respectively, which is a result of higher earnings at each of these
companies.
SIX MONTHS ENDED JUNE 30, 1994 vs. SIX MONTHS ENDED JUNE 30, 1993
Consolidated revenues decreased $8.1 million or 14.5% to $48 million from
$56.1 million in 1993. The $6.9 million or 20.6% decrease at C.E. Services is
primarily due to lower demand experienced within its domestic and European
operations for used mainframe systems and features. Sales from C.E. Services'
European operations decreased approximately $2.5 million or 38% to approximately
$4 million for the period. C.E. Services does not expect demand for its
products and services to measurably improve during the remainder of 1994.
Revenues at Americable, excluding approximately $2.8 million of sales in
1993 from its Canadian operations, which were closed in December 1993,
increased 5.9% to $16.9 million for the period due primarily to higher demand
for its value-added networking products and services. The 13.6% increase in
revenues at Transition Engineering was due primarily to higher product demand.
Sales to international customers accounted for approximately $264,000 or 41% of
the increase for the period.
Consolidated gross profit, as a percent of revenues, decreased to 21.4% in
1994 as compared to 22.2% in 1993. This is primarily a result of lower margins
at C.E. Services which is attributed to a higher mix of lower margin product
sales in addition to reduced pricing of technical services due to increased
competition and maturing product life cycle of certain IBM mainframes. In
addition, 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
$510,000, or 4.3%, to $11,356,000 from $11,866,000 in 1993. Operating expenses
at Americable decreased $925,000 which reflects approximately $746,000 of
expenses eliminated through the closure of its Canadian facilities effected in
December 1993. This was offset by increased expenses at Transition Engineering
due primarily to increased staffing levels and costs related to the development
and marketing of new products. These increases were offset by a decrease in
corporate costs due to reduced corporate staff between years.
Net interest expense decreased $36,000 to $2,080,000 from $2,116,000 in
1993, primarily due to overall lower weighted average interest on outstanding
debentures between years.
<PAGE>
The income tax benefit of $1,040,000 in 1994 and $550,000 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 $1,161,000 to
$2,185,000 from $1,024,000 in the previous year. This includes an increase of
$978,000 and $183,000 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 six months ended June 30, 1994, were
approximately $7 million, an increase of approximately $4.2 million, or 161%
from the previous year.
CAPITAL RESOURCES AND LIQUIDITY
Historically, the Company has experienced cash flow deficits from
operations. Cash used in operations was approximately $3.3 million for the six
months ended June 30, 1994 as compared to $841,000 in 1993. 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 six month periods ended June 30, 1994 and 1993, the
Company received dividends of $736,000. 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 June 30, 1994, the
Company had approximately $40.5 million principal amount of subordinated
debentures outstanding.
For the six months ended June 30, 1994, approximately $4 million or 64% of
debenture maturities were reinvested in new debentures. Included within long-
term debt repayments for the six months ended June 30, 1994, is approximately
$2.2 million of scheduled maturities of subordinated debentures. Proceeds from
long-term debt include approximately $2.0 million of new debentures sold along
with $1.1 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 $896,000.
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% (8.75% at June 30, 1994). At June
30, 1994, Americable had outstanding borrowings of $1.4 million under its
revolving line of credit and $1,755,000 under its term loan.
<PAGE>
North Star Universal, Inc. and Subsidiaries
MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATION AND FINANCIAL CONDITION
(Continued)
CAPITAL RESOURCES AND LIQUIDITY (Continued)
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 June 30, 1994). During the six months ended
June 30, 1994, C.E. Services used bank borrowings of approximately $1.9 million
to finance its working capital requirements, principally the purchase of
inventory related to its remarketing of mainframe systems. As June 30, 1994,
there was $760,000 outstanding under these facilities. At June 30, 1994, North
Star had no borrowings outstanding under its $6.5 million revolving credit
facility and approximately $5 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 resolving 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 June 30, 1994 and
December 31, 1993 8
Condensed Consolidated Statements of Operations for the Three and Six Months
ended June 30, 1994 and 1993 9
Condensed Consolidated Statements of Cash Flows for the Six Months ended
June 30, 1994 and 1993 10
Notes to Condensed Consolidated Financial Statements 11
<PAGE>
North Star Universal, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
---------- ---------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,540 $ 6,981
Accounts receivable, net 8,317 7,617
Inventories 11,331 10,800
Prepaid expenses and other 1,262 1,309
---------- ---------
Total current assets 26,450 26,707
Property and equipment, net 3,284 3,429
Investment in unconsolidated subsidiaries 72,233 69,108
Goodwill, net 7,043 7,275
Other assets 1,993 2,088
---------- ---------
$ 111,003 $ 108,607
---------- ---------
---------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank $ 760 $ --
Current portion of long-term debt 12,607 12,799
Accounts payable and accrued expenses 10,822 10,473
---------- ---------
Total current liabilities 24,189 23,272
Long-term debt, net of current maturities 31,131 30,395
Deferred income taxes 20,769 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 31,068 30,937
Retained earnings 1,681 1,623
Foreign currency translation adjustment (195) (245)
---------- ---------
Total shareholder's equity 34,914 34,675
---------- ---------
$ 111,003 $ 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 Six Months Ended
June 30, June 30,
---------------------- -------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 24,001 $ 29,774 $ 47,990 $ 56,128
Operating and product costs 19,207 22,968 37,721 43,644
--------- --------- --------- ---------
Gross profit 4,794 6,806 10,269 12,484
Selling, general, and administrative expenses 5,646 6,032 11,356 11,866
--------- --------- --------- ---------
Operating income (loss) (852) 774 (1,087) 618
Interest expense, net (1,044) (1,084) (2,080) (2,116)
--------- --------- --------- ---------
Loss before income taxes and equity in
earnings of unconsolidated subsidiaries (1,896) (310) (3,167) (1,498)
Income tax benefit (650) (130) (1,040) (550)
--------- --------- --------- ---------
Loss before equity in earnings of
unconsolidated subsidiaries (1,246) (180) (2,127) (948)
Equity in earnings of unconsolidated
subsidiaries 1,158 753 2,185 1,024
--------- --------- --------- ---------
Net income (loss) $ (88) $ 573 $ 58 $ 76
--------- --------- --------- ---------
--------- --------- --------- ---------
Income (loss) per share $ (0.01) $ 0.06 $ 0.01 $ 0.01
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares outstanding 9,438,000 9,823,400 9,633,100 9,630,700
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
North Star Universal, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
Net cash used in operating activities $ (3,335) $ (841)
Cash flows for investing activities
Capital expenditures (419) (443)
Other 273 433
---------- ---------
Net cash used in investing activities (146) (10)
---------- ---------
Cash flows from financing activities
Proceeds from long-term debt 14,540 2,427
Payments on long-term debt (13,996) (3,700)
Proceeds from notes payable 1,875 --
Payments on notes payable (1,115) --
Cash dividends received from Michael Foods 736 736
---------- ---------
Net cash provided by (used in) financing activities 2,040 (537)
---------- ---------
Net decrease in cash and cash equivalents (1,441) (1,388)
Cash and cash equivalents at beginning of period 6,981 9,380
---------- ---------
Cash and cash equivalents at end of period $ 5,540 $ 7,992
---------- ---------
---------- ---------
</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 six months ended June 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 six
month period ended June 30, 1994 (in thousands):
<TABLE>
<CAPTION>
Michael Foods CorVel
------------- ----------
<S> <C> <C>
Current assets $ 89,484 $ 23,552
Noncurrent assets 243,473 12,065
Current liabilities 59,862 5,790
Noncurrent liabilities 113,120 --
Revenues 247,171 43,640
Gross profit 35,499 7,541
Net income 6,904 2,627
</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>
June 30, December 31,
1994 1993
----------- ----------
<S> <C> <C>
Work in process and finished goods $ 8,562 $ 8,741
Purchased parts and supplies 2,769 2,059
----------- ----------
$ 11,331 $ 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 June 30, 1994, the deferred tax liability includes a cumulative tax
effect of approximately $19.1 million and $4.4 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>
SIGNATURES
Pursuant to the requirement 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.
NORTH STAR UNIVERSAL, INC.
--------------------------
(Registrant)
Date August 12, 1994 b/s/ Jeffrey J. Michael
--------------- -----------------------
Jeffrey J. Michael
President and Chief Executive Officer
Date August 12, 1994 b/s/ Peter E. Flynn
--------------- --------------------
Peter E. Flynn
Executive Vice President,
Chief Financial Officer
and Secretary
(Principal Financial and Accounting
Officer)
