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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
-
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1996
OR
-
- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file number: 0-18823
UNIVERSAL INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Minnesota 41-0776502
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(State or jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5000 Winnetka Avenue North, New Hope, Minnesota 55428
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(Address of principal executive offices) (Zip Code)
(612) 533-1169
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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On April 30, 1996 there were 4,893,328 shares of the registrant's $.05 par value
Common Stock outstanding.
This document contains 12 pages.
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UNIVERSAL INTERNATIONAL, INC.
INDEX
PART I FINANCIAL INFORMATION Page
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Item 1. Consolidated Financial Statements:
Consolidated Statements of Operations
for the three months ended March 31,
1996 and 1995................................ 3
Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995......... 4
Consolidated Statements of Cash Flows
for the three months ended March 31,
1996 and 1995................................ 5
Notes to Consolidated Financial Statements... 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 7
PART II OTHER INFORMATION................................. 11
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
2
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UNIVERSAL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
Three months ended
----------------------
March 31, March 31,
1996 1995
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Net sales $16,557 $14,910
Cost of goods sold 10,889 9,592
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Gross margin 5,668 5,318
Selling, general and
administrative expenses 7,228 5,732
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Operating loss (1,560) (414)
Other income (expense):
Miscellaneous income
(expense, net) (6) 8
Interest expense (212) (105)
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(218) (97)
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Loss before non-controlling
interest in subsidiary (1,778) (511)
Non-controlling interest in
subsidiary's net loss 433 199
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Net loss $(1,345) $ (312)
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Net loss per common share $ (.27) $ (.06)
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Weighted average number of common
shares outstanding 4,893 4,893
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See accompanying notes to unaudited
consolidated financial statements
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UNIVERSAL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
March 31, December 31,
1996 1995
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ASSETS (unaudited)
Current assets:
Cash $ 98 $ 811
Accounts receivable, less
allowance for doubtful
accounts of $235 for 1996
and $200 for 1995 4,436 3,432
Inventories 23,401 22,401
Other current assets 1,584 1,472
Deferred income taxes 179 179
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Total current assets 29,698 28,295
Equipment and improvements, net 7,337 7,042
Other assets, net 168 172
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Total assets $37,203 $35,509
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 421 $ 421
Accounts payable 5,772 6,822
Accrued expenses 1,826 2,411
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Total current liabilities 8,019 9,654
Deferred income taxes 526 526
Borrowings under revolving credit
agreement 7,796 2,323
Long-term debt, less current portion 1,355 1,721
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Total liabilities 17,696 14,224
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Non-controlling interest in subsidiary 63 496
Shareholders' equity:
Common stock, $.05 par value,
10,000 shares authorized;
4,893 shares issued and
outstanding for 1996 and 1995 245 245
Additional paid-in capital 22,917 22,917
Accumulated deficit (3,718) (2,373)
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Total shareholders'equity 19,444 20,789
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Total liabilities and
shareholders' equity $37,203 $35,509
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See accompanying notes to unaudited
consolidated financial statements
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UNIVERSAL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (In thousands)
Three months ended
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March 31, March 31,
1996 1995
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Cash flows from operating activities:
Net loss $ (1,345) $ (312)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Depreciation and amortization 238 174
Provision for losses on accounts
receivable 36 15
Provision for inventory obsolescence
and shrinkage 219 203
Non-controlling interest in
subsidiary's net loss (433) (199)
Changes in operating assets and
liabilities:
Accounts receivable (1,040) (629)
Inventories (1,239) (1,190)
Other current assets (112) (113)
Accounts payable (1,050) (583)
Store closing allowance - (202)
Other current liabilities (511) (690)
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Net cash used by operating
activities (5,237) (3,526)
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Cash flows from investing activities:
Additions to equipment and
improvements (583) (49)
Other - 4
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Net cash used by investing
activities (583) (45)
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Cash flows from financing activities:
Net change in borrowings under
revolving credit agreement 5,473 1,561
Payments of long-term debt (366) (34)
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Net cash provided by financing
activities 5,107 1,527
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Net decrease in cash (713) (2,044)
Cash, beginning of period 811 2,991
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Cash, end of period $ 98 $ 947
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Schedule of noncash investing transactions:
Writeoff of equipment and improvements
related to store closings $ 74 $ 633
See accompanying notes to unaudited
consolidated financial statements
5
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The financial statements included in this Form 10-Q have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed, or omitted, pursuant to such rules and regulations. These
financial statements should be read in conjunction with the financial
statements and related notes included in the Company's 1995 Form 10-K.
The financial statements presented herein as of March 31, 1996 and for the
three months then ended reflect, in the opinion of management, all
adjustments necessary, consisting of normal recurring items, for a fair
presentation of financial position and the results of operations for the
periods presented. The results of operations for any interim period are
not necessarily indicative of results for the full year.
2. Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Only Deals, Inc., as well as the full
consolidation of the accounts of its 40.5% owned subsidiary, Odd's-N-End's,
Inc. All significant intercompany accounts and transactions have been
eliminated in consolidation, and the non-controlling interest in Odd's-N-
End's results is presented separately in the financial statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
On December 28, 1994, the Company acquired for $953,000, a 40.5 percent interest
in Odd's-N-End's, Inc. ("Odd's-N-End's"), a Buffalo, New York-based close-out
retailer with 23 retail stores. The Company's investment was under a court
approved plan of reorganization of Odd's-N-End's which emerged from bankruptcy
on December 28, 1994. In early 1995, the Company assumed control over day to
day operations of Odd's-N-End's. Accordingly, commencing in 1995, the Company
is fully consolidating the results of Odd's-N-End's with those of the Company
with elimination of intercompany transactions, including those under a supply
agreement.
In addition, the Company has entered into an agreement, as amended, to advance
up to $3.5 million to Odd's-N-End's, collateralized by a secondary interest in
substantially all assets, with interest payable at prime plus 2.5%. There were
advances totaling $3,139,000 and $2,228,000 under this agreement as of March 31,
1996 and December 31, 1995, respectively.
Results of Operations
The following table sets forth, for the periods indicated, certain items from
the Company's statement of operations expressed as a percentage of net sales.
Three Months
Ended March 31,
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1996 1995
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(unaudited)
Net sales..................................... 100.0% 100.0%
Cost of goods sold............................ 65.8 64.3
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Gross margin.................................. 34.2 35.7
Selling, general and administrative
expenses.................................... 43.6 38.4
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Loss from operations...................... (9.4) (2.7)
Interest and other expenses, net.............. (1.3) (.7)
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Loss before non-controlling interest in
subsidiary............................. (10.7) (3.4)
Non-controlling interest in subsidiary's net
loss........................................ 2.6 1.3
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Net loss...................................... (8.1)% (2.1)%
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7
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FIRST THREE MONTHS OF FISCAL 1996 VERSUS 1995
NET SALES
Net sales for the quarter ended March 31, 1996 increased by $1,647,000 or 11.0%
from the corresponding period last year. Net sales in the first quarter in the
wholesale business decreased $969,000, or 13.6%, from the same period last year.
Management expects that wholesale sales for fiscal 1996 will be approximately
the same as the 1995 fiscal wholesale sales of $29.3 million. Net sales for the
first quarter in the Only Deals retail subsidiary increased by $1,958,000, or
52.0%, from the same period last year. The increase in net sales by Only Deals
was primarily due to the addition of 11 new stores since March 31, 1995. At
March 31, 1996, the Company had 32 Only Deals retail stores in operation
(including one store reserved for closing) compared to 22 (including two stores
reserved for closing) at March 31, 1995. Net sales by Odd's-N-End's for the
first quarter of 1996 were $4,669,000, a 16.4% increase from sales of $4,011,000
from the same period of 1995. This increase was due to increased comparable
store sales of 19.4% from the 22 stores open the entire period in both years,
offset slightly by the closing of one store in early 1996.
GROSS MARGINS
Gross margins for the first quarter of 1996 increased to $5.7 million (34.2% of
net sales), a 6.6% increase over gross margins of $5.3 million (35.7% of net
sales) for the first quarter of 1995. Gross margins for the first quarter of
1996 in the wholesale business decreased 18.6% from gross margins for the same
period last year, primarily as a result of decreased sales. Wholesale gross
margins were 22.2% of sales for the first quarter of 1996 compared to 23.5% for
the first quarter of 1995. Gross margins for the first quarter of 1996 for Only
Deals were $2.4 million, a 44.3% increase from gross margins for the first
quarter of 1995 due to increased sales. Gross margins for Only Deals decreased
as a percent of sales from 44.6% to 42.4% primarily due to increased markdowns
of seasonal merchandise. Gross margins for Odd's-N-End's decreased $101,000 for
the first quarter of 1996, a 6.3% decrease from the first quarter of 1995.
Gross margins as a percent of sales decreased to 32.2% for the first quarter of
1996 compared to 40.0% for the same period of the prior year primarily due to
increased markdowns of seasonal merchandise.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $7.2 million or 43.6% of net
sales in the first quarter of 1996 compared to $5.7 million or 38.4% of net
sales in the first quarter of 1995. This increase primarily resulted from the
significant increase in retail operations, which incur much higher operating
costs than wholesale
8
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operations as a percent of sales. Selling, general and administrative expenses
were 30.2% of net sales for the Company's wholesale business, 57.0% of net sales
for Only Deals and 45.0% of net sales for Odd's-N-End's in the first quarter of
1996, compared to 24.4% of net sales for the wholesale business, 56.2% of net
sales for Only Deals and 46.8% of net sales for Odd's-N-End's for the first
quarter of 1995. The increase in selling, general and administrative expenses
as a percent of sales in the wholesale business was due to the decline in
wholesale sales, since most of the wholesale operating costs are relatively
fixed.
INTEREST
Interest expense increased to $212,000 in the first quarter of 1996 compared to
$105,000 in the first quarter of 1995 due to an increase in borrowings under the
revolving credit facility.
NET LOSS
The Company incurred a net loss of $1.3 million during the first quarter of 1996
as compared to a net loss of $312,000 during the first quarter of 1995. The net
loss in the first quarter was primarily the result of lower wholesale net sales;
seasonally typical lower net sales in the retail business in the first quarter;
lower retail gross margins due to markdowns; and increased selling, general and
administrative expenses due to the significant increase in retail operations.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had working capital of $21.7 million compared to
$18.6 million at December 31, 1995.
The Company has available a $16 million revolving line of credit expiring in
January 1998. The Company may borrow against a borrowing base derived from the
level of qualifying accounts receivable and inventory. The amount available at
March 31, 1996, based on the borrowing base, was $12,628,000, of which there
were outstanding borrowings of $7,796,000 and outstanding letters of credit of
$313,000. The line of credit and related documents restrict the Company from
declaring cash dividends; require maintenance of minimum net worth; limit the
amount of advances during 1996 to Odd's-N-End's to $3.5 million and limit the
amount of annual capital expenditures to $3.5 million in 1996.
Net cash used by operating activities was $5.2 million for the quarter ended
March 31, 1996 principally due to a $1.3 million net loss, a $1.0 million
increase in accounts receivable, a $1.2 million increase in inventories, and a
$1.1 million decrease in accounts payable. Capital expenditures of $0.6
million, payments of long-term debt totaling $0.4 million, and the $5.2 million
net cash used by operating activities were funded primarily by a $5.5 million
increase in borrowings under the revolving credit facility.
9
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The Company intends to expand the Only Deals chain by opening from 15 to 25 new
stores in 1996, of which two stores were opened in the first quarter. Expansion
of the chain will be dependent upon the availability of acceptable locations and
other operational considerations, some of which are beyond the Company's
control. In connection with store openings, working capital would be required
primarily to fund the cost of acquiring additional inventory and the overhead
associated with any new stores. A portion of the inventory needs for new stores
would already be present in the Company's warehouses. After a decision has been
made to open a store, the time required before store completion generally ranges
from one to three months. The Company expects future stores will require an
investment of approximately $290,000 each to open, inclusive of inventory. The
Company intends to finance the Only Deals expansion in 1996 through a
combination of internally generated cash flow and additional borrowings under
its present line of credit.
10
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PART II OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other information.
None.
Item 6. Exhibits and Reports on Form 8-K.
The Company filed a Form 8-K dated January 17, 1996 with respect to
(i) entering into the $16 million revolving credit facility with
BankAmerica Business Credit, Inc. and (ii) entering into the $3.5
million revolving credit facility with Odd's-N-End's.
11
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIVERSAL INTERNATIONAL, INC.
DATE: May 14, 1996 By: /s/
--------------------------------
Mark H. Ravich
Chief Executive Officer
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 98
<SECURITIES> 0
<RECEIVABLES> 4,436
<ALLOWANCES> 0
<INVENTORY> 23,401
<CURRENT-ASSETS> 29,698
<PP&E> 7,337
<DEPRECIATION> 0
<TOTAL-ASSETS> 37,203
<CURRENT-LIABILITIES> 8,019
<BONDS> 9,151
0
0
<COMMON> 245
<OTHER-SE> 19,199
<TOTAL-LIABILITY-AND-EQUITY> 37,203
<SALES> 16,557
<TOTAL-REVENUES> 16,557
<CGS> 10,889
<TOTAL-COSTS> 10,889
<OTHER-EXPENSES> 6,801
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 212
<INCOME-PRETAX> (1,345)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,345)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,345)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
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