<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 MAY 15, 1995
The following information dated November 13, 1995, amends and updates the
Prospectus of North Star Universal, Inc., dated May 15, 1995 (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 13, 1995
<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, 1995
(UNAUDITED)
---------------------------
OPERATIONS: 1995 1994
----------- -----------
<S> <C> <C>
Revenues $ 40,593 $ 34,820
Operating income (loss) 453 (483)
Income from continuing operations 2,060 1,037
Discontinued operations (3,025) (922)
Net income (loss) (965) 115
----------- -----------
----------- -----------
Income (loss) per share:
Continuing operations $ .22 $ .11
Discontinuing operations (.32) (.10)
----------- -----------
Income (loss) per share $ (.10) $ .01
----------- -----------
----------- -----------
Ratio of earnings to fixed charges .19X
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
September 30,
1995 December 31,
FINANCIAL POSITION: (Unaudited) 1994
----------- -----------
<S> <C> <C>
Total assets $ 109,682 $ 111,093
Long-term debt 44,522 45,061
Shareholders' equity 33,439 34,196
----------- -----------
----------- -----------
</TABLE>
<PAGE>
North Star Universal, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 September 30, 1995, the Company owned a 38% interest in Michael Foods and a
35% ownership interest in CorVel. The common stock of each of Michael Foods and
CorVel is included on the NASDAQ National Market System under the symbols MIKL
and CRVL. The Company's investments in Michael Foods and CorVel are accounted
for as unconsolidated subsidiaries using the equity method of accounting.
On May 5, 1995, the Company sold C.E. Services, Inc. through the sale of
its shares of Dalworth Holdings, Inc., a holding company for C.E. Services,
Inc., Bridging Solutions Corporation, Commercial Computer Services, Inc. and
C.E. Services (Europe) Limited (collectively "C.E. Services") for approximately
$2.5 million cash. C.E. Services is a third-party provider of systems, parts and
services for mainframe computers and peripherals. Following the sale of C.E.
Services, the Company's continuing operations consist of Americable, Inc.
("Americable") and Transition Networks, Inc., formerly Transition Engineering
("Transition"). Americable is a provider of connectivity and networking
products and services. Transition designs, manufactures and markets
connectivity devices used in local area network ("LAN") applications.
The following are unaudited summarized operating results for each of the
Company's continuing operations for the three and nine months ended September 30
(in thousands).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------
1995 1994 1995 1994
---------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Americable $ 11,281 $ 10,842 $ 31,050 $ 27,704
Transition Networks 3,567 2,964 10,656 8,281
Eliminations (509) (468) (1,113) (1,165)
---------------------------------------------
$ 14,339 $ 13,338 $ 40,593 $ 34,820
---------------------------------------------
---------------------------------------------
Gross Profit
Americable $ 2,553 $ 2,283 $ 7,551 $ 6,367
Transition Networks 1,377 1,148 3,967 3,252
---------------------------------------------
$ 3,930 $ 3,431 $ 11,518 $ 9,619
---------------------------------------------
---------------------------------------------
Selling, General and Administrative Expenses
Americable $ 2,267 $ 2,099 $ 6,658 $ 6,368
Transition Networks 1,176 1,054 3,328 2,945
Corporate 398 212 1,079 789
---------------------------------------------
$ 3,841 $ 3,365 $ 11,065 $ 10,102
---------------------------------------------
---------------------------------------------
Operating Income (Loss)
Americable $ 286 $ 184 $ 893 $ (1)
Transition Networks 201 94 639 307
Corporate (398) (212) (1,079) (789)
---------------------------------------------
$ 89 $ 66 $ 453 $ (483)
---------------------------------------------
---------------------------------------------
</TABLE>
<PAGE>
North Star Universal, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 vs. THREE MONTHS ENDED SEPTEMBER 30, 1994
Consolidated revenues increased $1 million or 7.5%, to $14.3 million from
$13.3 million in 1994.
Revenues at Americable increased approximately $439,000 or 4%, to $11.3
million. This includes increased revenues of approximately $890,000 resulting
from higher demand of networking products and services. Offsetting these
increases was approximately $450,000 of decreased sales of cable assemblies and
other connectivity products due primarily to lower mix of volume to contractors
and resellers.
Revenues at Transition increased approximately $603,000 or 20%, to $3.6
million which includes increased sales of approximately $345,000 or 17%, to
domestic customers and approximately $258,000 or 26% to international customers.
Overall, these increases are primarily a result of new product introductions and
higher product demand from both new and existing customers. Sales from new
product introductions and enhancements accounted for approximately $1.1 million
or 32% of net sales for the period.
Consolidated gross profit, as a percent of revenues, increased to 27.4% in
1995 as compared to 25.7% in 1994. Increased margins at Americable are
primarily attributable to a higher mix of value-added networking service revenue
and, to a lesser extent, improved pricing of cable assemblies. Margins at
Transition were relatively unchanged between years.
The Company's selling, general and administrative expenses increased
$476,000 or 14.1%, to $3.8 million from $3.4 million in 1994. Operating
expenses at Americable increased approximately 8% for the period which is
primarily a result of higher sales commissions and the addition of technical and
engineering personnel. Transition had increased operating expenses of
approximately $122,000 or 11.6%, which reflects costs related to moving to a new
facility, along with higher promotional and advertising expenses associated with
new product introductions and company name change. In addition, corporate
expenses increased approximately $186,000 due primarily to higher professional
fees.
Net interest expense decreased $36,000 to $1,045,000 from $1,081,000 in
1994, due primarily to lower borrowing levels at Americable and Transition
between years.
The income tax benefits of $325,000 in 1995 and $400,000 in 1994 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.
<PAGE>
North Star Universal, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (CONTINUED)
Equity in earnings of unconsolidated subsidiaries increased $200,000 to
$1,353,000 from $1,153,000 in the previous year. This includes increases of
$134,000 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. Further information with respect to the results of operations of
Michael Foods and CorVel is contained in the Management's Discussion and
Analysis of Financial Condition and Results of Operation section of their
respective quarterly reports on Form 10-Q as filed with the Securities and
Exchange Commission.
The loss from discontinued operations for 1994 includes the operating and
disposition losses of C.E. Services which was sold May 5, 1995 (see Note 2 to
the Notes to Condensed Consolidated Financial Statements).
<PAGE>
North Star Universal, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1995 vs. NINE MONTHS ENDED SEPTEMBER 30, 1994
Consolidated revenues increased $5.8 million or 16.6%, to $40.6 million
from $34.8 million in 1994.
Revenues at Americable increased approximately $3.3 million or 12.1%, to
$31.1 million. This includes increased revenues of approximately $3.5 million
resulting from higher demand from networking products and services. Of this
amount, approximately $2.7 million of sales were attributable to higher volume
of networking products with a large end user customer of which such increase may
not continue for the remainder of 1995. Offsetting these increases was
approximately $200,000 of decreased sales of other connectivity products due to
lower mix of volume to contractors and resellers.
Revenues at Transition increased approximately $2.4 million or 29%, to
$10.7 million which includes increased sales of approximately $1.3 million or
24%, to domestic customers and approximately $1.1 million or 37% to
international customers. Overall, these increases are primarily a result of new
product introductions and higher product demand from both new and existing
customers. Sales from new product introductions and enhancements accounted for
approximately $4.4 million or 41% of net sales for the period. Transition'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, increased to 28.4% in
1995 as compared to 27.6% in 1994. Increased margins at Americable are
primarily attributable to a higher mix of value-added networking service
revenue, and, to a lesser extent, improved manufacturing efficiencies within its
cable assembly operation. Decreased margins at Transition was a result of lower
pricing on certain product lines due to increased competition.
The Company's selling, general and administrative expenses increased
$963,000 or 9.5%, to $11.1 million from $10.1 million in 1994. Operating
expenses at Americable increased approximately $290,000 or 4.6% for the period
which is primarily a result of higher sales salaries and commissions and the
addition of technical and engineering personnel. These increases were offset by
an overall general and administrative expense reduction effected in both the
third quarter of 1994 and second quarter of 1995. Americable expects, however,
that its sales and marketing expenses, as a percentage of revenues, may increase
during the year through the addition of sales and technical personnel in new
geographic locations. These anticipated increases in operating expenses may
result in lower operating profits at Americable, if the company is unable to
maintain current gross profit margins and continued sales growth.
<PAGE>
North Star Universal, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (CONTINUED)
Transition had increased operating expenses of approximately $383,000 or
13%, which is primarily due to increased sales and marketing expenses associated
with its distributor conference, advertising and participation in trade shows.
In addition, this increase reflects the addition of administrative and technical
support personnel and related facility expenses needed to support its overall
growth. Transition believes that its research and development expenses will
increase in order to achieve market acceptance of new products. There can be no
assurances, however, that its research and development efforts will result in
commercially successful new products in the future. In addition Transition
believes that sales and marketing expenses may continue to increase in terms of
absolute dollars in an effort to differentiate its products and enhance its
competitive position. These anticipated increases in operating expenses may
result in lower operating profit at Transition, if the company is unable to
maintain its current gross profit margins and continued sales growth.
Corporate expenses increased approximately $290,000, or 37% primarily due
to higher professional fees.
The income tax benefits of $860,000 in 1995 and $1,340,000 in 1994 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 $547,000 to
$3,885,000 from $3,338,000 in the previous year. This includes increases of
$364,000 and $183,000 in the equity in earnings of Michael Foods and CorVel
Corporation, respectively, which is a result of higher earnings at each of these
companies. Further information with respect to the results of operations of
Michael Foods and CorVel is contained in the Management's Discussion and
Analysis of Financial Condition and Results of Operation section of their
respective annual and quarterly reports as filed on Forms 10-K and 10-Q with the
Securities and Exchange Commission.
The loss from discontinued operations for the period includes the operating
and disposition losses of C.E. Services which was sold May 5, 1995 (see Note 2
to the Notes to Condensed Consolidated Financial Statements). The loss from
operations, net of income tax benefits, was $934,000 in 1995 versus $922,000 in
1994 which is attributable to the significant reduction in the domestic and
international demand for used mainframe systems and features at C.E. Services.
For the quarter ended June 30, 1995, the Company recorded a loss on disposition
of approximately $2.1 million, net of an income tax benefit of $1.3 million,
related to this sale.
<PAGE>
North Star Universal, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
CAPITAL RESOURCES AND LIQUIDITY
Historically, the Company has experienced cash flow deficits from
operations. Cash used in operations was $3.4 million for the nine months ended
September 30, 1995, as compared to $5.1 million 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, 1995 and 1994,
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, 1995, the
Company had approximately $42.4 million principal amount of subordinated
debentures outstanding.
For the nine months ended September 30, 1995, approximately $4.6 million or
55% of debenture maturities were reinvested in new debentures. Included within
long-term debt repayments for the nine months ended September 30, 1995, is
approximately $3.7 million of redemptions of subordinated debentures. Proceeds
from long-term debt include approximately $3.2 million of new debentures sold
along with approximately $1.4 million of compounded interest on debentures. The
net activity under the debenture program for the period ended September 30, 1995
resulted in net cash proceeds to the Company of approximately $938,000.
Americable and Transition maintain 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%, (10.25% at September
30, 1995). At September 30, 1995, there were outstanding borrowings of $983,000
under the revolving line of credit and $1.2 million under the term loan.
At September 30, 1995, North Star had no borrowings outstanding under its
$6.5 million revolving credit facility and approximately $3.9 million of cash
and cash equivalents, excluding cash of its operating subsidiaries. As
previously discussed, on May 5, 1995, the Company sold C.E. Services for $2.5
million cash. 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, 1995 and
December 31, 1994 10
Condensed Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1995 and 1994 11
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1995 and 1994 12
Notes to Condensed Consolidated Financial Statements 13
<PAGE>
North Star Universal, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
-----------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 4,117 $ 5,102
Accounts receivable, net 8,718 8,980
Inventories 6,679 7,994
Prepaid expenses and other current assets 1,265 1,293
----------------------------------
Total current assets 20,779 23,369
Property and equipment, net 1,547 3,747
Investment in unconsolidated subsidiaries 81,170 75,663
Goodwill, net 4,999 6,816
Other assets 1,187 1,498
----------------------------------
$ 109,682 $ 111,093
----------------------------------
----------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable to bank $ - $ 600
Current portion of long-term debt 12,344 12,518
Accounts payable and accrued expenses 10,226 9,678
Income taxes payable 296 333
----------------------------------
Total current liabilities 22,866 23,129
Long-term debt, net of current maturities 32,178 32,543
Deferred income taxes 21,199 21,225
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 31,095 31,015
Retained earnings (deficit) (16) 949
Foreign currency translation adjustment - (128)
----------------------------------
Total shareholders' equity 33,439 34,196
----------------------------------
$ 109,682 $ 111,093
----------------------------------
----------------------------------
</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,
-----------------------------------------------
1995 1994 1995 1994
-----------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 14,339 $ 13,338 $ 40,593 $ 34,820
Operating and product costs 10,409 9,907 29,075 25,201
-----------------------------------------------
Gross profit 3,930 3,431 11,518 9,619
Selling, general,
and administrative expenses 3,841 3,365 11,065 10,102
-----------------------------------------------
Operating income (loss) 89 66 453 (483)
Interest expense, net (1,045) (1,081) (3,138) (3,158)
-----------------------------------------------
Loss before income taxes and
equity in earnings of
unconsolidated subsidiaries (956) (1,015) (2,685) (3,641)
Income tax benefit (325) (400) (860) (1,340)
-----------------------------------------------
Loss before equity in
earnings of unconsolidated
subsidiaries (631) (615) (1,825) (2,301)
Equity in earnings of
unconsolidated subsidiaries 1,353 1,153 3,885 3,338
-----------------------------------------------
Income from continuing
operations 722 538 2,060 1,037
Discontinued operations
Loss from operations, net of
income tax benefits - (481) (934) (922)
Loss on disposition, net of
income tax benefit - - (2,091) -
-----------------------------------------------
- (481) (3,025) (922)
-----------------------------------------------
Net income (loss) $ 722 $ 57 $ (965) $ 115
-----------------------------------------------
-----------------------------------------------
Income (loss) per share
Continuing operations $ 0.07 $ 0.06 $ 0.22 $ 0.11
Discontinued operations - (0.05) (0.32) (0.10)
-----------------------------------------------
Income (loss) per share $ 0.07 $ 0.01 $ (0.10) $ 0.01
-----------------------------------------------
-----------------------------------------------
Weighted average shares
outstanding 9,838,400 9,846,400 9,438,000 9,704,200
-----------------------------------------------
-----------------------------------------------
</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>
1995 1994
----------------------------------
<S> <C> <C>
Net cash used in operating activities $ (3,402) $ (5,131)
Cash flows from investing activities
Capital expenditures (458) (591)
Proceeds from divestiture 2,500 -
Other (221) 279
----------------------------------
Net cash provided by (used in)
investing activities 1,821 (312)
----------------------------------
Cash flow from financing activities
Proceeds from long-term debt 45,958 29,182
Payments on long-term debt (46,465) (28,194)
Proceeds from notes payable - 3,703
Payments on notes payable - (3,075)
Cash dividends received from Michael Foods 1,103 1,103
----------------------------------
Net cash provided by financing activities 596 2,719
----------------------------------
Net decrease in cash and cash equivalents (985) (2,724)
Cash and cash equivalents
at beginning of period 5,102 6,981
----------------------------------
Cash and cash equivalents
at end of period $ 4,117 $ 4,257
----------------------------------
----------------------------------
</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. Discontinued Operations --
On May 5, 1995, the Company completed the sale of its shares in Dalworth
Holdings, Inc. and subsidiaries, including C.E. Services Inc. (collectively
"C.E. Services") to Amdahl Corporation for $2.5 million cash. The loss on
disposition was approximately $2.1 million, net of an income tax benefit of
approximately $1.3 million. The accompanying condensed consolidated statements
of operations have been restated for all periods presented to reflect C.E.
Services as discontinued operations. The following are summarized results of
operations and financial position for C.E. Services. Results for the period
ended September 30, 1995 reflect the results of operations of C.E. Services
through the date of sale (in thousands):
<TABLE>
<CAPTION>
Results of Operations Nine Months Ended September 30,
1995 1994
----------------------------------
<S> <C> <C>
Revenues $ 6,442 $ 37,317
Gross profit 1,233 5,369
Pretax loss (1,414) (1,062)
Income tax benefit 480 140
Loss from operations (934) (922)
Financial Position As of December 31, 1994
----------------------------------
Current assets $ 4,786
Property and equipment, net 2,161
Goodwill and other assets 1,908
Total liabilities (2,799)
-----------
Net assets of C.E. Services $ 6,056
-----------
-----------
</TABLE>
<PAGE>
North Star Universal, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. 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 and
income statement information of the Company's unconsolidated subsidiaries as of,
and for the nine month period ended September 30, 1995 (in thousands):
<TABLE>
<CAPTION>
Michael Foods CorVel
----------------------------------
<S> <C> <C>
Current assets $ 95,891 $ 36,015
Noncurrent assets 242,649 13,337
Current liabilities 69,049 8,037
Noncurrent liabilities 93,877 896
Revenues 393,821 79,732
Gross profit 59,908 14,513
Net income 12,144 5,151
</TABLE>
4. 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,
1995 1994
---------------------------------
<S> <C> <C>
Work in process and finished goods $ 5,230 $ 4,775
Purchased parts and supplies 1,449 3,219
---------------------------------
$ 6,679 $ 7,994
---------------------------------
---------------------------------
</TABLE>
5. 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.
6. 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
investment 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. At September 30, 1995, the deferred tax liability includes a
cumulative tax effect of approximately $22.9 million and $5.7 million for the
differences in the financial reporting and tax basis of the Company's
investments in Michael Foods and CorVel, respectively.
7. Reclassifications --
Certain 1994 amounts have been reclassified to conform with the financial
statement presentation used in 1995. Such reclassifications had no impact on
previously reported retained earnings or net income.
