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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 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
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Commission File Number 0-18823
UNIVERSAL INTERNATIONAL, INC.
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(Exact name of the registrant as specified in its charter)
MINNESOTA 41-0776502
- -------------------------------- -------------------
(State or other 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 Office) (Zip Code)
Registrant's telephone number: (612) 533-1169
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title Of Each Class
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Common Stock, $0.05 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of 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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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. YES X NO .
----- -----
As of March 24, 1997, 4,893,328 shares of common stock of the Registrant
were outstanding of which 3,659,788 shares were held by non-affiliates, and the
aggregate market value of the common stock of the Registrant as of that date
(based upon the $1.38 last reported sale price of the common stock at that date
by the NASDAQ National Market System), held by non-affiliates was approximately
$5,051,000.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Registrant's definitive proxy statement to be filed
pursuant to Regulation 14A are incorporated by reference in this Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
Universal International, Inc. ("Universal" or the "Company") is one of the
nation's largest buyers and sellers of quality "close-out" merchandise at the
wholesale level. The Company, through its wholly owned subsidiary, Only Deals,
Inc. ("Only Deals"), owns and operates 51 retail stores offering close-out
merchandise in 8 states in the Upper Midwest. The Company's wholesale and
retail operations sell consumer goods in a variety of categories including toys,
food, health and beauty aids, housewares, and many others.
During 1994, the Company entered into a supply agreement with one of its
wholesale customers and in late 1994 the Company made a 40.5% equity investment
in this customer, Odd's-N-End's, Inc. ("Odd's-N-End's"). Odd's-N-End's owns and
operates 22 retail stores offering close-out merchandise in New York state. In
early 1995, the Company entered into a financing arrangement with Odd's-N-End's,
and assumed control over day to day operations of Odd's-N-End's. Accordingly,
commencing in 1995, the results of Odd's-N-End's are consolidated with those of
the Company for financial reporting purposes. Advances under this financing
agreement were $3,602,000 as of December 31, 1996.
During 1996 the Company formed a 95%-owned subsidiary, Universal
Asset-Based Services, Inc. ("Asset-Based Services"), which provides inventory
valuation and liquidation services to a wide range of financial institutions,
retailers and manufacturers.
The Company was incorporated under the laws of Minnesota in 1956. The
principal executive offices of the Company are located at 5000 Winnetka Avenue
North, New Hope, Minnesota, 55428, and its telephone number is (612) 533-1169.
Subsequent to December 31, 1996, the Company was in technical default on
several provisions of its revolving credit agreement. As a result of these
defaults, the lender reduced the credit line from $16 million to $12.5 million
and increased the interest rate on the outstanding borrowings from prime plus
1.5% (the prime rate at December 31, 1996 was 8.25%) to prime plus 3.5%. The
loan agreement is continuing subject to monthly renewals; however, the lender
has indicated its intent to further reduce the credit line to $11 million as of
April 30, 1997 and $10 million as of May 31, 1997. The outstanding borrowings
on the line totaled $10.4 million as of March 31, 1997. These conditions, as
well as the Company's operating results for 1996, raise a concern as to the
Company's ability to continue as a going concern.
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The Company is currently in the process of negotiating financing with a
number of new potential lenders to replace its current credit line and to
refinance the Odd's-N-End's bank notes payable, which currently include balloon
payments of $1,275,000 on January 2, 1998. Management believes that a new
credit facility will be obtained in the near future. The Company is also in the
process of substantially reducing the wholesale inventories and restructuring
and downsizing wholesale operations to minimize the impact of the reduction of
the credit line and to focus more Company resources on retail operations.
Management believes that a significant reduction in inventories together with a
new credit facility will be sufficient to satisfy the Company's planned
operating requirements through December 31, 1997. However, there can be no
assurance that the Company will obtain replacement financing or, if available,
that the amount obtained will be equal to the present line of credit or that the
terms will be satisfactory.
The following is information relating to the Company's business segments:
As of and for the
Years Ended December 31,
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1996 1995 1994
---- ---- ----
(In Thousands)
Revenues:
Wholesale (1) $ 26,678 $ 29,315 $ 34,851
Retail:
Only Deals 37,412 24,127 22,335
Odd's-N-End's 22,451 23,528 -
Asset-Based Services 1,089 - -
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$ 87,630 $ 76,970 $ 57,186
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Operating Income (Loss):
Wholesale $ (1,219) $ 2,005 $ (301)
Retail:
Only Deals (1,004) 51 (1,109)
Odd's-N-End's (1,167) (766) -
Asset-Based Services 324 - -
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$ (3,066) $ 1,290 $ (1,410)
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Total Assets:
Wholesale $ 21,883 $ 21,456 $ 21,637
Retail:
Only Deals 14,742 7,768 5,709
Odd's-N-End's 5,891 6,285 -
Asset-Based Services 357 - -
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$ 42,873 $ 35,509 $ 27,346
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(1) Revenues in 1996 include sales of $1,897 to an affiliated non-consolidated
joint venture. Revenues in 1994 include sales to Odd's-N-End's, which was
not an affiliated entity until December 28, 1994.
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Wholesale Operation
In its wholesale operation the Company purchases large quantities of
quality merchandise, primarily consumer goods, on a close-out basis at prices
generally ranging from 10% to 50% of the original wholesale price. Close-out
products become available for such reasons as discontinuance of an item, changes
in products or packaging, over-production, excess inventory or financial
considerations. Merchandise acquired by the Company is resold at prices that
are targeted to be substantially below the original wholesale price. The
Company sells the products it acquires primarily at various trade shows as well
as through a product showroom in Minneapolis, through independent sales
representatives, and by its direct sales force and telemarketing. The
independent sales representatives generally do not sell or distribute products
from the Company's competitors. The Company purchases merchandise from a large
number of manufacturers and other sources and resells that merchandise to its
base of over 1,200 customers. The wholesale operation operates primarily out of
two leased facilities.
Retail Operations
Universal, through Only Deals, owns and operates 51 retail stores in eight
states in the Upper Midwest, under the name "Only Deals." The stores range from
approximately 3,500 to 16,000 square feet. During 1996, the Company opened 21
new stores, closed one store that had previously been reserved for closure and
continued to reserve for store closing for one additional store. In early 1997,
the Company closed this store.
Universal, through its 40.5% ownership of Odd's-N-End's, also operates 22
retail stores under the name "Odd's-N-End's" in New York State.
Supply of Close-Out Merchandise
The Company requires a significant number of close-out consumer products to
operate its businesses. While historically the supply for these products has,
on a short-term basis, fluctuated, the Company does not anticipate having a
significant problem sourcing an adequate supply of merchandise.
Seasonality
Universal has experienced a limited amount of seasonality in the past in
the wholesale operation. However, the growth in the retail operation has caused
the fourth quarter to provide a significantly larger percentage of yearly
revenues. Correspondingly, the first and second quarters have been negatively
impacted by the weakness of retailing in these periods.
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Significant Customers
During 1994, the Company's largest wholesale customer, Odd's-N-End's, Inc.,
accounted for 17.4% of wholesale revenues pursuant to a supply agreement entered
into in 1994. In accordance with the supply agreement, the Company provided
Odd's-N-End's with merchandise under a cost-plus arrangement. In early 1995,
the Company assumed control over the day to day operations of Odd's-N-End's,
Inc. Accordingly, commencing in 1995, the Company began consolidating the
results of Odd's-N-End's, Inc. with elimination of intercompany transactions,
including sales under the supply agreement.
The top 25 wholesale customers, excluding sales to Odd's-N-End's, accounted
for 40%, 40% and 37% of the Company's wholesale revenues in 1996, 1995 and 1994,
respectively. No single customer accounted for 10% or more of wholesale
revenues for the years 1996 and 1995.
Competition
Both the wholesale and retail operations have competition for the
purchasing of products. The principal factors in competing for the purchasing
of products include the reputation of the purchaser, the purchaser's ability to
pay for the merchandise and the purchase price. The Company believes it is
positioned to compete favorably with its competitors due to the experience of
its buying staff. The Company's retail operations operate in a highly
competitive environment, competing with discount stores, chain stores and other
retailers. Many of these competitors have longer established relations with
suppliers and consumers as well as substantially greater financial resources and
wider distribution capabilities than the Company. Large retailers enjoy a
competitive advantage of economies of scale in both the purchase and sale of
merchandise. These retailers are often unable to take advantage of close-out
merchandise purchases, however, due to the limited quantities of merchandise
sometimes available for purchase and the fact that the goods cannot be
reordered.
Employees
At March 22, 1997, the Company, including Only Deals personnel, had 296
full-time employees, of whom 8 were involved in the purchase of close-out goods,
124 were involved in warehousing and administration, and 164 were involved in
the retail operations. Also, 659 employees were employed in a part-time
capacity in the retail operations. In addition, Odd's-N-End's had 71 full-time
and 212 part-time employees at March 22, 1997. None of the Company's, Only
Deals, or Odd's-N-End's employees are covered by a collective bargaining
agreement.
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ITEM 2. PROPERTIES
The Company's executive offices and its primary wholesale warehouse are
located at 5000 Winnetka Avenue North in New Hope, Minnesota. This facility has
210,000 square feet and is currently being fully utilized by the Company. The
Company has a 10-year lease for this warehouse which commenced in 1989 and
expires on July 31, 2000 and contains a right of first refusal to purchase the
facility. Another facility in New Hope near the Company's headquarters which
has 185,000 of square feet, is fully utilized for warehousing and distribution
for the retail operations. The current term for this lease is through December
31, 1997. The Company also leases approximately 75,000 square feet of space in
Plymouth, Minnesota for warehousing and distribution for both the wholesale and
retail operations. This lease expires on September 30, 1997. The Company
intends to let the leases on the two additional warehouses expire during 1997
and plans to consolidate distribution operations into its primary warehouse by
December 31, 1997.
All of the Company's stores are leased. Only Deals leases approximately
470,000 square feet of retail space for its 51 stores. Only Deals stores
average 9,200 gross square feet. Only Deals store leases expire in April 1997
through January 2003. Odd's-N-End's leases approximately 220,000 square feet of
retail space for its 22 operating stores, an average of 10,000 square feet per
store. Odd's-N-End's store leases expire in January 1998 through January 2004.
Some store leases have renewal options. For certain Only Deals store leases,
the Company has set provisions which allow the Company (and in some cases, the
landlord) to terminate the lease if stores do not obtain pre-established sales
levels at the end of a specified period of time from the lease commencement
date, or if other conditions are not met.
ITEM 3. LEGAL PROCEEDINGS
The Company experiences routine litigation in the normal course of its
business. The Company does not believe that any pending litigation will have a
material adverse effect on the financial condition, results of operations, or
cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of 1996.
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ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information concerning the executive
officers of the Company as of March 21, 1997.
Name Age Position
- ---------------- --------- ----------------
Norman J. Ravich 70 Chairman of the Board
Mark H. Ravich 44 Chief Executive Officer
Wesley J. Laseski 61 President
Richard L. Ennen 44 President of Only Deals, Inc.
Robert R. Langer 41 Chief Operating Officer - Only Deals
L. Jack Roth 49 Executive Vice President-Buying
James A. Patineau 43 Chief Financial Officer
Norman J. Ravich, the Company's founder, has been Chairman of the Board and
a Director of the Company since its incorporation in 1956. Mr. Ravich is
engaged on a full-time basis as a buyer and seller of the Company's merchandise.
Mark H. Ravich became Chief Executive Officer of the Company in September,
1990. Mr. Ravich has provided the Company with extensive financial and other
consulting services since 1984 and has been a Director of the Company since
1979. For the past 15 years, he has been President and controlling shareholder
of Tri-Star Development Corp. and Tri-Star Management, Inc., a real estate
development company and property management company, respectively. Mr. Ravich
is also a director of Odd's-N-End's, Inc. He is the son of Norman J. Ravich.
Wesley J. Laseski became President of the Company in March, 1993. Since
May, 1992, Mr. Laseski has been President and Chief Executive Officer of Wes
Laseski and Associates, a consulting and investment firm. Prior thereto, Mr.
Laseski was President, Chairman and Director of Spearhead Industries, Inc., a
seasonal production marketing firm.
Richard L. Ennen became President of Only Deals in October, 1996. Mr.
Ennen joined the Company in September, 1996, as Executive Vice President and
General Merchandising Manager. From 1992 to September, 1996, Mr. Ennen was
Director of Retail Merchandising and Retail Operations for Holiday Companies, a
large grocery, wholesale and gasoline company based in Bloomington, Minnesota.
From 1983 to 1992, Mr. Ennen was employed by Rodman's Discount Food, Drug &
Appliances, a Washington, D.C.-based six-store retail chain, where he served as
Vice President/Operations since 1988. Mr. Ennen is also a director of
Odd's-N-End's, Inc.
Robert R. Langer became Chief Operating Officer of Only Deals in September,
1994. Mr. Langer joined Only Deals in February, 1992, as Vice President-Retail
Operations. From June, 1989 to January, 1992, Mr. Langer was Director of the
Retail Division for Lieberman Enterprises, a major music and video distributor.
From
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June, 1986 to May, 1989, Mr. Langer was Director-National Store Operations for
The Musicland Group, Inc., a large entertainment and software retailer. Mr.
Langer is also a director of Odd's-N-Ends, Inc.
L. Jack Roth became Executive Vice President - Buying in April 1989. Mr.
Roth has primary responsibility for purchasing food and health and beauty aids
merchandise. From 1980 to 1989, he served as a Senior Buyer for Consolidated
Stores, Inc., a Columbus, Ohio-based close-out retailer.
James A. Patineau, CMA, CPA, became Chief Financial Officer in May, 1995.
Mr. Patineau joined the Company in April 1993 as Corporate Controller. From
October 1982 to March 1993, Mr. Patineau was employed by Our Own Hardware
Company, a Burnsville, Minnesota-based hardware wholesaler, where he served as
controller from March 1988.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Universal's common stock trades on The NASDAQ Stock Market under the symbol
UNIV. The following table sets forth the quarterly high and low sale prices of
the common stock for the periods indicated.
High Low
Year Ended December 31, 1995
First Quarter.............................$ 3.50 $ 2.13
Second Quarter............................$ 4.75 $ 2.63
Third Quarter.............................$ 4.25 $ 3.50
Fourth Quarter............................$ 5.50 $ 3.75
Year Ended December 31, 1996
First Quarter ............................$ 5.25 $ 3.38
Second Quarter............................$ 5.13 $ 4.38
Third Quarter.............................$ 4.63 $ 2.63
Fourth Quarter............................$ 2.88 $ 1.63
As of March 24, 1997, there were 149 holders of record of the Company's
common stock. The Company believes that there are more than 1300 beneficial
owners in addition to the shareholders of record. The last reported sales price
of the common stock on March 24, 1997, was $1.38. Over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down, or
commission and may not necessarily represent actual transactions.
Universal has not declared any cash dividends with respect to its common
stock within the past 10 years. The Company presently intends to continue to
retain any earnings in connection with its business. Currently, dividends are
prohibited by the terms of the Company's revolving line of credit. Payment of
dividends on its common stock in the future will be within the discretion of the
Board of Directors and will depend upon, among other factors, earnings and the
operating and financial condition of the Company, and any restrictions in future
revolving credit agreements.
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ITEM 6. SELECTED FINANCIAL DATA
The following data has been derived from the Company's Consolidated
Financial Statements and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and notes.
Year Ended December 31,
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1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share data)
Statement of Operations
Data:
Net sales............... $87,630 $76,970 $57,186 $53,447 $64,782
Gross margin............ $33,297 $28,444 $16,740 $13,677 $11,312
Net income (loss)....... $(4,301) $ 1,310 $(1,623) $(3,266) $(3,398)
Net income (loss) per
share:
Primary........... $ (.88) $ .26 $ (.33) $ (.67) $ (.71)
Fully diluted..... $ (.88) $ .25 $ (.33) $ (.67) $ (.71)
Weighted average common
and common equivalent
shares outstanding:
Primary........... 4,893 5,082 4,893 4,893 4,819
Fully diluted..... 4,893 5,202 4,893 4,893 4,819
As Of December 31,
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1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands)
Balance Sheet Data:
Working capital......... $ 8,704 $18,641 $14,519 $17,326 $20,422
Total assets............ 42,873 35,509 27,346 26,922 35,644
Long term debt, less
current maturities.. 1,731 4,044 - 738 -
Total liabilities....... 26,385 14,224 7,867 5,820 11,275
Stockholders' equity.... 16,488 20,789 19,479 21,102 24,369
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Universal International, Inc. ("Universal" or the "Company") is one of the
nation's largest buyers and sellers of quality "close-out" merchandise at the
wholesale level (see "Liquidity and Capital Resources" with respect to
downsizing of wholesale operations). The Company, through its wholly owned
subsidiary, Only Deals, Inc. ("Only Deals"), owns and operates 51 retail stores
offering close-out merchandise in 8 states in the Upper Midwest. The Company's
wholesale and retail operations sell consumer goods in a variety of categories
including toys, food, health and beauty aids, housewares, and many others.
On December 28, 1994, the Company acquired for $953,000, a 40.5 percent
interest in Odd's-N-End's, Inc., 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, Inc. 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 between the Company and Odd's-N-End's. The Company did not record its
proportionate share of Odd's-N-End's results for 1994 since its investment
occurred on December 28, 1994. The 1994 financial statements include $6.1
million of sales to Odd's-N-End's under a supply agreement.
FORWARD LOOKING INFORMATION
Information contained in this Form 10-K contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, which can be identified by the use of forward-looking terminology such
as "may", "will", "expect", "plan", "anticipate", "estimate" or "continue" or
the negative thereof or other variations thereon or comparable terminology.
There are certain important factors that could cause results to differ
materially from those anticipated by some of these forward-looking statements.
Investors are cautioned that all forward-looking statements involve risks and
uncertainty. The factors, among others, that could cause actual results to
differ materially include: the ability of the Company to obtain new financing,
the Company's ability to execute its business plan, continuity of a relationship
with or purchases from major vendors, competitive pressures on sales and
pricing, increases in other costs which cannot be recovered through improved
pricing of merchandise, and the adverse effect of weather conditions on retail
sales.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's consolidated statement of operations expressed as a
percentage of net sales.
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Net sales......................... 100.0% 100.0% 100.0%
Cost of goods sold................ 62.0 63.0 70.7
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Gross margin...................... 38.0 37.0 29.3
Selling, general & administrative
expenses...................... 41.5 35.3 31.7
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Operating income (loss)........... (3.5%) 1.7% (2.4%)
------ ------ ------
------ ------ ------
Net income (loss)................. (4.9%) 1.7% (2.8%)
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1996 COMPARED TO 1995
NET SALES
Overall net sales for the Company in 1996 increased to $87.6 million, a
13.8% increase from net sales of $77.0 million for 1995. Net sales for 1996 in
the wholesale business decreased $2.6 million to $26.7 million, a 9.0% decrease
from 1995, due primarily to continuing weakness in the retail sales of the
Company's wholesale customer base and credit problems of certain customers which
prevented shipments to such customers.
Net sales for 1996 by Only Deals increased to $37.4 million, a 55.1%
increase from 1995. This increase was primarily due to the addition of nine new
stores in the second half of 1995 and the addition of 21 new stores during 1996.
At December 31, 1996, the Company had 51 Only Deals retail stores in operation
(including one store reserved for closing) compared to 31 (including two stores
reserved for closing) at December 31, 1995. One Only Deals store was closed in
January 1996 and one was closed in February 1997. Net sales for 1996 by
Odd's-N-End's decreased to $22.4 million, a 4.6% decrease from 1995, due to the
closing of one store in early 1996 in addition to a slight decline in comparable
store sales. At December 31, 1996, Odd's-N-End's had 22 retail stores in
operation. Net sales for Universal Asset-Based Services, Inc. ("Asset-Based
Services"), a 95%-owned subsidiary providing inventory valuation and liquidation
services, were $1.1 million for 1996.
GROSS MARGINS
Gross margins for 1996 increased to $33.3 million, a 17.1% increase over
gross margins of $28.4 million for 1995. Gross
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margins for 1996 in the wholesale business were 22.5% of wholesale net sales,
versus 23.4% in 1995. The decrease in wholesale gross margins as a percent of
net sales is primarily due to reduced margins realized due to product mix and
lower, more aggressive, pricing.
Gross margins for 1996 for Only Deals were 43.9% of net sales compared to
44.5% of net sales for 1995. Gross margins for 1996 for Odd's-N-End's were
43.5% of net sales compared to 45.1% of net sales for 1995, excluding the impact
of intercompany profit under the supply agreement with Universal, which has been
eliminated in consolidation. Retail gross margins decreased due primarily to
higher than planned markdowns of seasonal merchandise in the first quarter of
1996 and increased promotional pricing during the fourth quarter of 1996.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $36.4 million or 41.5% of
net sales in 1996 compared to $27.2 million or 35.3% of net sales in 1995. This
increase primarily resulted from the significant increase in retail operations,
which incur higher operating costs than wholesale operations. Selling, general
and administrative expenses increased in the wholesale business to 27.1% of net
sales compared to 25.2% of net sales in 1995. The increase in these expenses as
a percent of sales in the wholesale business was primarily due to the decline in
wholesale sales, since most of the wholesale operating costs are relatively
fixed.
Selling, general and administrative expenses for Only Deals increased by
$8.9 million in 1996 due primarily to the addition of nine and 21 retail stores
during 1995 and 1996, respectively. These expenses increased as a percent of
net sales from 44.6% in 1995 to 52.5% in 1996 due to pre-opening expenses
incurred by the 21 new stores opened during 1996 in addition to increased
infrastructure costs incurred to support the growth in the retail business. The
Company charges to expense as incurred all costs associated with the opening of
new stores, except for purchases of equipment and the costs of leasehold
improvements which are capitalized.
Selling, general and administrative expenses for Odd's-N-End's decreased
$447,000 from 39.0% of net sales in 1995 to 38.9% of net sales in 1996. The
decrease in these expenses resulted from the elimination of certain corporate
overhead costs associated with the Buffalo, New York office and warehouse, which
was sold during the third quarter of 1996 for a nominal gain. These expenses
are lower for Odd's-N-End's as a percent of net sales compared to Only Deals due
to the elimination of the warehousing and transportation functions at
Odd's-N-End's, since those functions are provided by the Company. Selling,
general and administrative expenses for Asset-Based Services were $765,000 for
1996.
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INTEREST EXPENSE
Interest expense increased to $1,276,000 in 1996 compared to $667,000 in
1995 due to an increase in borrowings under the revolving credit facility to
support the Only Deals expansion and to fund Odd's-N-End's working capital
needs.
EQUITY IN NET LOSS OF JOINT VENTURE
During 1996, Asset-Based Services entered into an agreement whereby it
became a 50% parter in a joint venture (the "Joint Venture") formed for the
purpose of liquidating the inventories from 110 stores of an unaffiliated retail
chain. The Company recorded $450,000 of equity in net loss of the Joint
Venture, its proportionate share of the Joint Venture's net loss through
December 31, 1996. Management believes that the equity in net income (loss) of
the Joint Venture will not be significant in 1997.
INCOME TAXES
The Company is in a net operating loss carryforward position with no
remaining carryback available.
NET LOSS
The Company incurred a net loss of $4.3 million in 1996 compared to net
income of $1.3 million in 1995. The net loss in 1996 was primarily due to costs
incurred to build the infrastructure necessary to implement the significant
increase in retail stores, costs incurred to open 21 new Only Deals stores in
1996, lower than planned retail sales and gross margins, a highly promotional
retail environment, lower wholesale net sales, and equity in the net loss of the
Joint Venture.
OTHER
While an increase in competition has impacted the Company's business, the
effects of this competition are minor compared to weakness in the retail
environment and overall consumer demand. Additionally, although the close-out
industry is growing as consumers become more value conscious, the industry is
becoming more competitive, thus making sales growth harder to achieve. As more
companies enter the wholesale close-out industry, the Company expects that there
will be increased competition to both buy and sell goods.
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1995 COMPARED TO 1994
NET SALES
Overall net sales for the Company in 1995 increased to $77.0 million, a
34.6% increase from net sales of $57.2 million for 1994. Net sales for 1995 in
the wholesale business decreased $5.5 million to $29.3 million, a 15.9% decrease
from 1994, due primarily to sales to Odd's-N-End's which were eliminated in
consolidation in 1995. Sales to Odd's-N-End's reflected as wholesale sales in
1994 totaled $6.1 million. Accordingly, excluding the effect of sales to
Odd's-N-End's in 1994, the Company realized approximately a $600,000 increase in
wholesale sales in 1995.
Net sales for 1995 by Only Deals increased to $24.1 million, an 8.0%
increase from 1994. This increase was primarily due to the addition of nine new
stores in the second half of 1995 and because two stores were open the entire
year of 1995 versus a partial year in 1994, offset by a decrease resulting from
closing six stores in early 1995. Net sales for 1995, therefore, increased
primarily due to the full consolidation of net sales of Odd's-N-End's of $23.5
million. At December 31, 1995, the Company had 31 Only Deals retail stores in
operation (including two stores reserved for closing) compared to 28 (including
eight stores reserved for closing) at December 31, 1994. At December 31, 1995,
Odd's-N-End's had 23 retail stores in operation. One Only Deals store and one
Odd's-N-End's store were closed in January 1996.
GROSS MARGINS
Gross margins for 1995 increased to $28.4 million, a 69.9% increase over
gross margins of $16.7 million for 1994. Gross margins for 1995 in the
wholesale business were 23.4% of wholesale net sales, versus 18.9% in 1994. The
increase in wholesale gross margins as a percentage of net sales is primarily
due to maintaining targeted selling price levels, the improvement in the overall
quality of the Company's inventory, and a broader selection of higher margin
merchandise. Gross margins for 1995 for Only Deals were 44.5% of net sales
compared to 45.5% of net sales for 1994. Gross margins for 1995 for
Odd's-N-End's were 45.1% of net sales, excluding the impact of intercompany
profit under the supply agreement with Universal, which has been eliminated in
consolidation.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $27.2 million or 35.3% of
net sales in 1995 compared to $18.1 million or 31.7% of net sales in 1994.
Selling, general and administrative expenses increased by $496,000 in the
wholesale business to 25.2% of net sales compared to 19.8% of net sales in 1994.
The increase in these expenses in the wholesale business was primarily the
15
<PAGE>
result of increased costs relating to supplying merchandise to Odd's-N-End's for
the full year in 1995 versus only a partial year in 1994. Selling, general and
administrative expenses decreased by $506,000 for Only Deals in 1995 to 44.6% of
net sales compared to 50.4% of net sales in 1994. This decrease was primarily
due to reduced costs related to closing six stores in early 1995 and the
reduction in the provision for losses on store closings from $834,000 in 1994 to
zero in 1995 offset by increased costs related to opening nine stores in the
second half of 1995.
Selling, general and administrative expenses in 1995, therefore, increased
primarily due to the consolidation of selling, general and administrative
expenses in the Odd's-N-End's subsidiary of $9.2 million or 39.0% of net sales.
Selling, general and administrative expenses are lower in the Odd's-N-End's
subsidiary as a percentage of net sales compared to Only Deals due to the
elimination of the warehousing and transportation functions at Odd's-N-End's
because those functions are provided by the Company.
INTEREST EXPENSE
Interest expense increased to $667,000 in 1995 compared to $244,000 in 1994
due primarily to higher borrowing levels of the Company to support increasing
business as well as to fund advances to Odd's-N-End's. In addition, interest
expense in 1995 includes $243,000 from Odd's-N-End's bank notes payable.
INCOME TAXES
The Company utilized net operating loss carryforwards in 1995 to reduce the
provision for income taxes. The $30,000 provision recorded in 1995 represents
alternative minimum taxes due for federal and state tax purposes. The Company
is in a net operating loss carryforward position with no remaining carryback
available.
NET INCOME (LOSS)
The Company generated net income of $1.3 million in 1995 versus a net loss
of $1.6 million during 1994. The improved results of operations in 1995 are
primarily due to improved wholesale margins, additional sales from nine new Only
Deals store openings and improved comparable store sales.
LIQUIDITY AND CAPITAL RESOURCES
During 1995, the Company entered into a borrowing arrangement whereby a
financial institution agreed to lend the Company up to $16 million under a
revolving credit agreement originally 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 December 31, 1996, based on
the borrowing base, was $11,665,000, of which there were outstanding
16
<PAGE>
borrowings of $7,791,000 and outstanding letters of credit of $60,000. The line
of credit agreement and related documents restrict the Company from declaring
cash dividends, require maintenance of a minimum net worth amount, limit the
amount of advances to Odd's-N-End's and limit the amount of annual capital
expenditures. During 1996, the lender waived certain technical defaults under
the agreement, and the expiration date of the agreement was amended to March 31,
1997.
Subsequent to December 31, 1996, the Company was in technical default on
several provisions of the amended loan agreement. As a result of these
defaults, the lender reduced the credit line to $12.5 million and increased the
interest rate on the outstanding borrowings from prime plus 1.5% (the prime rate
at December 31, 1996 was 8.25%) to prime plus 3.5%. The loan agreement is
continuing subject to monthly renewals; however, the lender has indicated its
intent to further reduce the credit line to $11 million as of April 30, 1997 and
$10 million as of May 31, 1997. The outstanding borrowings on the line totaled
$10,400,000 as of March 31, 1997.
The Company is currently in the process of negotiating financing with a
number of new potential lenders to replace its current credit line and to
refinance the Odd's-N-End's bank notes payable, which currently include balloon
payments of $1,275,000 on January 2, 1998. Management believes that a new
credit facility will be obtained in the near future. The above described
conditions, as well as the Company's operating results for 1996, raise
substantial doubt about the Company's ability to continue as a going concern.
The Company is also in the process of substantially reducing the wholesale
inventories and restructuring and downsizing wholesale operations to minimize
the impact of the reduction of the credit line and to focus more Company
resources on retail operations. Management believes that a significant
reduction in inventories together with a new credit facility will be sufficient
to satisfy the Company's planned operating requirements through December 31,
1997. However, there can be no assurance that the Company will obtain
replacement financing or, if available, that the amount obtained will be equal
to the present line of credit or that the terms will be satisfactory.
At December 31, 1996, the Company had working capital of $8.7 million
compared to $18.6 million at December 31, 1995. This decrease is primarily due
to classification of $7.8 million of borrowings under the revolving credit
agreement as a current liability at December 31, 1996 that was reflected as a
long-term liability at December 31, 1995.
Net cash used by operating activities was $1.7 million for the year ended
December 31, 1996 versus net cash used by operating activities of $1.4 million
for the year ended December 31, 1995. Inventories increased $4.4 million in
1996, net of shrink and
17
<PAGE>
obsolescence, and accounts payable increased $5.8 million. Inventories
increased $3.5 million in 1995, net of shrink and obsolescence, and accounts
payable increased approximately $900,000. Inventories increased $1.2 million in
1995 in the Odd's-N-End's retail locations to a more historically normal level.
In addition, Only Deals inventories increased to support the increased retail
space in 1995 and 1996, and wholesale inventories increased to support the
increased needs of Only Deals and Odd's-N-End's. Accounts payable increased due
to substantially increased operations and increased inventory levels in 1996.
Net cash used by investing activities of $3.6 million in 1996 was primarily
related to opening 21 new Only Deals stores. Net cash used by investing
activities of $3.0 million in 1995 was primarily related to opening nine new
Only Deals stores and partially remodeling a majority of the 22 Odd's-N-End's
stores.
The $1.7 million used by operating activities, the $3.6 million for
additions to equipment and improvements, primarily for expansion of the Only
Deals chain, and the $0.5 million payments of long-term debt were funded by a
$5.5 million increase in borrowings under the revolving credit agreement during
1996.
The Company has an agreement which, as amended, provides for advances of up
to $5.0 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 $3,602,000 under this agreement as of December 31, 1996.
In March 1997, the Company entered into a purchase agreement to acquire the
leases and inventory of approximately 90 retail stores and a warehouse from
Perry Brothers, Inc., of Lufkin, Texas. The purchase agreement is contingent
upon further due diligence and the Company obtaining both equity and debt
financing to complete the transaction.
To complete the Perry Brothers acquisition, the Company will need an
investor who will purchase a significant equity position in the Company. If the
Company issues equity securities to such an investor, existing shareholders will
experience dilution.
The Company does not intend to open any new Only Deals stores in 1997. The
Company expects to focus its attention on obtaining new financing, managing the
substantial growth in new Only Deals stores from 1996, and pursuing the
potential acquisition of Perry Brothers. The Company does not expect to have
any significant capital expenditures in 1997.
EFFECTS OF INFLATION
In the Company's business of buying and selling close-out merchandise, each
purchase is individually negotiated based upon the price at which the Company
feels the product can be resold.
18
<PAGE>
Therefore, since inflation generally will affect overall price levels similarly
in the types of merchandise the Company purchases, the impact of inflation is
not expected to have a significant impact on the Company's overall buying or
selling opportunities.
NEW ACCOUNTING STANDARD
The Company plans to adopt the requirements of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share", in the fourth quarter of
1997. The Company does not believe that the adoption of this new accounting
standard will have a significant impact on its financial statements.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company are included
under this item:
Page
----
Report of Independent Accountants................... 21
Consolidated Balance Sheets, December 31, 1996
and 1995............................................ 22
Consolidated Statements of Operations for the Years
Ended December 31, 1996, 1995 and 1994.............. 23
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1996, 1995 and 1994.... 24
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994.............. 25
Notes to Consolidated Financial Statements.......... 26
Report of Independent Accountants on Consolidated
Financial Statement Schedule........................ 42
Consolidated Financial Statement Schedule........... 43
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders
Universal International, Inc.:
We have audited the accompanying consolidated balance sheets of
Universal International, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Universal International, Inc. as of December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that Universal International, Inc. will continue as a going concern.
As more fully described in Note 2, the Company is in default of several
provisions of its revolving credit agreement and has not obtained new financing
to replace this revolving credit agreement. In addition, the Company incurred a
consolidated net loss of $4.3 million in 1996. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2.
The 1996 consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
April 15, 1997
21
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS, December 31, 1996 and 1995
(In thousands, except per share data)
------
ASSETS 1996 1995
---- ----
Current assets:
Cash $ 521 $ 811
Accounts receivable, less allowance
for doubtful accounts of $200
for 1996 and 1995 3,707 3,432
Inventories 26,458 22,081
Other current assets 1,313 1,472
Deferred income taxes 666 499
------- -------
Total current assets 32,665 28,295
Equipment and improvements, net 10,056 7,042
Other assets, net 152 172
------- -------
Total assets $42,873 $35,509
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under revolving credit
agreement $ 7,791 $ -
Current portion of long-term debt 556 421
Accounts payable 12,606 6,822
Accrued expenses 3,008 2,411
------- -------
Total current liabilities 23,961 9,654
Deferred income taxes 693 526
Borrowings under revolving credit
agreement - 2,323
Long-term debt, less current portion 1,731 1,721
------- -------
Total liabilities 26,385 14,224
------- -------
Commitments and contingencies
Non-controlling interest in subsidiary - 496
Stockholders' equity:
Common stock, $.05 par value, 75,000
and 10,000 shares authorized for
1996 and 1995; 4,893 shares issued
and outstanding for 1996 and 1995 245 245
Additional paid-in capital 22,917 22,917
Accumulated deficit (6,674) (2,373)
------- -------
Total stockholders' equity 16,488 20,789
------- -------
Total liabilities and stock-
holders' equity $42,873 $35,509
------- -------
------- -------
The accompanying notes are an integral part
of the consolidated financial statements.
22
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1996, 1995 and 1994
(In thousands, except per share data)
------
1996 1995 1994
---- ---- ----
Net sales $87,630 $76,970 $57,186
Cost of goods sold 54,333 48,526 40,446
------- ------- -------
Gross margin 33,297 28,444 16,740
Selling, general and admini-
strative expenses 36,363 27,154 18,150
------- ------- -------
Operating income (loss) (3,066) 1,290 (1,410)
Other income (expense):
Interest expense, net (1,276) (667) (244)
Other income (expense) (5) 60 31
------- ------- -------
(1,281) (607) (213)
------- ------- -------
Income (loss) before
non-controlling interest
and income taxes (4,347) 683 (1,623)
Non-controlling interest in
subsidiary's net loss 496 657 -
------- ------- -------
Income (loss) before
income taxes (3,851) 1,340 (1,623)
Income tax expense - 30 -
Equity in net loss of
joint venture (450) - -
------- ------- -------
Net income (loss) $(4,301) $ 1,310 $(1,623)
------- ------- -------
------- ------- -------
Net income (loss) per common
and common equivalent share:
Primary $ (.88) $ .26 $ (.33)
------- ------- -------
------- ------- -------
Fully diluted $ (.88) $ .25 $ (.33)
------- ------- -------
------- ------- -------
Weighted average common and
common equivalent shares
outstanding:
Primary 4,893 5,082 4,893
------- ------- -------
------- ------- -------
Fully diluted 4,893 5,202 4,893
------- ------- -------
------- ------- -------
The accompanying notes are an integral part
of the consolidated financial statements.
23
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
------
<TABLE>
<CAPTION>
Common Stock
---------------------------
Additional Accumu- Total
Par Paid-In lated Stockholders'
Shares Value Capital Deficit Equity
------ ----- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1993 4,893 $245 $22,917 $(2,060) $21,102
Net loss (1,623) (1,623)
----- ---- ------- ------- -------
Balances, December 31, 1994 4,893 245 22,917 (3,683) 19,479
Net income 1,310 1,310
----- ---- ------- ------- -------
Balances, December 31, 1995 4,893 245 22,917 (2,373) 20,789
Net loss (4,301) (4,301)
----- ---- ------- ------- -------
Balances, December 31, 1996 4,893 $245 $22,917 $(6,674) $16,488
----- ---- ------- ------- -------
----- ---- ------- ------- -------
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
24
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
(In Thousands)
------
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income (loss) $(4,301) $ 1,310 $(1,623)
Adjustments to reconcile net income
(loss) to net cash provided by
(used by) operating activities:
Depreciation and amortization 1,185 713 692
Provision for losses on accounts
receivable 204 168 349
Provision for inventory obsolescence
and shrinkage 1,506 950 379
Provision for losses on
store closings - - 834
Non-controlling interest in
subsidiary's net loss (496) (657) -
Changes in operating assets and
liabilities:
Accounts receivable (479) 14 688
Inventories (5,903) (4,488) (1,786)
Income taxes receivable - - 1,065
Other current assets 159 (387) 133
Accounts payable 5,784 926 2,334
Store closing allowances - (207) (256)
Accrued expenses 671 270 116
------- ------- -------
Net cash (used by) provided by
operating activities (1,670) (1,388) 2,925
------- ------- -------
Cash flows from investing activities:
Investment in affiliate - - (953)
Additions to equipment and
improvements (3,603) (3,008) (297)
------- ------- -------
Net cash used by investing
activities (3,603) (3,008) (1,250)
------- ------- -------
Cash flows from financing activities:
Proceeds from borrowings under
revolving credit agreements 89,548 63,363 53,222
Payments on borrowings under
revolving credit agreements (84,080) (61,040) (53,960)
Payments of long-term debt (485) (107) -
------- ------- -------
Net cash provided by (used by)
financing activities 4,983 2,216 (738)
------- ------- -------
Net (decrease) increase in cash (290) (2,180) 937
Cash, beginning of year 811 2,991 284
------- ------- -------
Cash, end of year $ 521 $ 811 $ 1,221
------- ------- -------
------- ------- -------
The accompanying notes are an integral part
of the consolidated financial statements.
25
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
_____
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
BUSINESS DESCRIPTION:
Universal International, Inc. (the Company) acquires close-out merchandise
from company overstocks, business liquidations and other sources and sells
this merchandise through its wholesale and retail operations.
The Company's wholly owned subsidiary, Only Deals, Inc. ("Only Deals"),
operates 51 variety close-out retail stores in eight states in the upper
Midwest as of December 31, 1996. These stores are located in strip
shopping centers and enclosed shopping malls. The stores offer close-out
consumer products.
In December 1994, the Company made a 40.5% equity investment in one of its
customers, Odd's-N-End's, Inc. ("Odd's-N-End's"), which operates 22 variety
close-out retail stores in New York state. In early 1995, the Company
assumed control over the day-to-day operations of Odd's-N-End's.
In March 1996, the Company formed a 95%-owned subsidiary, Universal
Asset-Based Services, Inc. ("Asset-Based Services"), which provides
inventory valuation and liquidation services to a wide range of financial
institutions, retailers and manufacturers.
SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION:
The Company recognizes revenue for its wholesale operations upon shipment
of merchandise to customers and for its retail operations upon sale of
merchandise.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its subsidiaries, as well as, commencing in 1995, the full
consolidation of the accounts of Odd's-N-End's. All significant
intercompany accounts and transactions have been eliminated in
consolidation, including the elimination of unrealized intercompany profits
on sales to the equity method joint venture (see Note 4).
Continued
26
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In Thousands)
______
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, continued:
SIGNIFICANT ACCOUNTING POLICIES, continued:
STORE PRE-OPENING COSTS:
Purchases of equipment and the costs of leasehold improvements are
capitalized. All other costs associated with the opening of new stores are
charged to expense as incurred.
INVENTORIES:
Inventories, consisting of finished goods merchandise held for sale, are
stated at the lower of cost or market, with cost determined on a first-in,
first-out basis. The retail inventory method is utilized by the retail
operations.
INVESTMENT IN ODD'S-N-END'S:
The investment in Odd's-N-End's was accounted for using the equity method
in 1994. Under the equity method, the original investment was recorded at
cost. The Company did not record its proportionate share of Odd's-N-End's
results for 1994 as its equity investment took place on December 28, 1994.
Due to the change in control over the day-to-day operations of
Odd's-N-End's in early 1995, the Company began full consolidation of
Odd's-N-End's effective January 1, 1995.
FRESH-START REPORTING:
As of December 28, 1994, the date of confirmation of Odd's-N-End's Plan of
Reorganization, Odd's-N-End's implemented the accounting recommended for
entities emerging from Chapter 11 Reorganization ("Fresh-Start Reporting").
EQUIPMENT AND IMPROVEMENTS:
Equipment and improvements are recorded at cost, except that property and
equipment of Odd's-N-End's was recorded at its estimated fair value at
December 31, 1994. Maintenance and repairs are charged to expense as
incurred. Renewals and betterments are capitalized. The cost and related
accumulated depreciation or amortization of assets sold or disposed of are
removed from the accounts and the resulting gain or loss is included in the
results of operations.
Continued
27
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In Thousands)
______
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, continued:
SIGNIFICANT ACCOUNTING POLICIES, continued:
EQUIPMENT AND IMPROVEMENTS, continued:
Depreciation and amortization is calculated using the straight-line method
over the shorter of the estimated useful lives or related lease terms of
the assets.
ADVERTISING COSTS:
Advertising costs are expensed as incurred. Advertising expense, including
costs incurred by Odd's-N-End's, totaled $2,361, $1,583, and $1,675 for the
years ended December 31, 1996, 1995 and 1994, respectively.
INCOME TAXES:
The Company accounts for income taxes using the liability method. Deferred
income taxes are recorded to reflect the tax consequences in future years
of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
NET INCOME (LOSS) PER COMMON SHARE:
Net income (loss) per common share is computed by dividing net income
(loss) for the period by the weighted average number of common and common
equivalent shares outstanding during each period.
Common equivalent shares are excluded from the computation in 1996 and
1994 as their effect would be anti-dilutive.
USE OF ESTIMATES:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
Continued
28
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In Thousands)
______
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, continued:
USE OF ESTIMATES, continued:
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The most significant areas which require the use of
management's estimates relate to the determination of the allowances for
obsolete inventories, uncollectible accounts receivable and shrink
reserves, as well as the assessment of impairment related to long-lived
assets.
2. GOING CONCERN:
The Company's viability as a going concern is dependent upon obtaining new
financing to replace its existing revolving credit agreement, the
restructuring of the Company's asset base and ultimately, a return to
profitability.
See Note 6 for further information regarding the Company's current
revolving credit agreement, including the default on several provisions of
the amended loan agreement subsequent to December 31, 1996 and the
acceleration of the expiration date of the agreement to March 31, 1997.
The loan agreement is continuing, subject to monthly renewals, and the
Company is currently negotiating with a number of potential lenders in an
effort to obtain new financing to replace this credit line, as well as to
refinance the Odd's-N-End's bank notes payable, which include balloon
payments of $1,275 due on January 2, 1998.
The Company is also in the process of substantially reducing wholesale
inventories and restructuring and downsizing wholesale operations to
minimize the impact of further reductions in the credit line, as discussed
in Note 6, and to focus more Company resources on retail operations.
Management's plans to return operations to profitability include reduction
of retail store operating costs, elimination of store pre-opening cost due
to no planned store openings in 1997, improvement of retail gross margins,
and elimination of certain corporate overhead costs, including the
consolidation of warehouse operations into one facility by December 31,
1997.
Continued
29
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In Thousands)
______
2. GOING CONCERN, continued:
There can be no assurance that the Company will be able to obtain new
financing on terms acceptable to the Company or that management's
restructuring plans and the plans to return operations to profitability
will be successful. Under current circumstances, the Company's ability
to continue as a going concern depends on the success of obtaining new
financing and the reduction of inventories to satisfy the Company's
liquidity requirements and, ultimately, a return to profitability. The
Company believes that a new credit facility will be obtained in the near
future and is currently evaluating one proposal and awaiting proposals
from several other potential lenders. However, there can be no assurance
that the Company will obtain replacement financing or, if available, that
the amount obtained will be equal to the present line of credit or that
the terms will be satisfactory.
3. INVESTMENT IN ODD'S-N-END'S:
On December 28, 1994, the Company acquired, for $953, a 40.5 percent
interest in the common stock of Odd's-N-End's, Inc., 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. Sales to
Odd's-N-End's accounted for approximately 17% of wholesale net sales (10.6%
of total net sales) (see Note 12) during 1994 under a cost plus based
supply agreement entered into in 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 began fully
consolidating the results of Odd's-N-End's with those of the Company.
Summarized total financial information for Odd's-N-End's is as follows for
the 11-month period ended December 31, 1994:
Net sales $23,362
Gross margin 7,590
Net loss (4,302)
In addition, the Company has entered into an agreement, as amended, to
advance up to $5,000 to Odd's-N-End's, collateralized by a secondary
interest in substantially all assets of Odd's-N-End's, with interest
payable at prime plus 2.5%.
Continued
30
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In Thousands)
______
3. INVESTMENT IN ODD'S-N-END'S:
During 1996, the non-controlling interest in Odd's-N-End's was reduced to
$0 due to losses incurred by Odd's-N-End's. As a result, during 1996, the
Company began recording the entire amount of Odd's-N-End's net loss, and
such excess losses totaled $545.
4. EQUITY IN NET LOSS OF JOINT VENTURE:
In November 1996, Asset-Based Services entered into an agreement whereby it
became a 50% partner in The All For A Dollar Joint Venture ("The Joint
Venture") formed for the purpose of liquidating the inventories from 110
stores of an unaffiliated retail chain. The Company recorded $450 of
equity in net loss of the Joint Venture, its proportionate share of the
Joint Venture's net loss through December 31, 1996. Management believes
that the equity in net income (loss) of the Joint Venture will not be
significant in 1997.
Following is the summarized unaudited financial information relating to the
Joint Venture as of and for the period ended December 31, 1996:
Earnings Data:
Net sales $5,972
Gross margin 2,889
Net loss (900)
Balance Sheet Data:
Current assets 2,093
Current liabilities 1,756
31
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In Thousands)
______
5. OTHER FINANCIAL STATEMENT DATA:
The following provides additional disclosures for selected consolidated
balance sheet accounts:
December 31
--------------------
1996 1995
---- ----
Equipment and improvements:
Fixtures and equipment $ 8,179 $ 6,129
Leasehold improvements 5,311 3,229
------- -------
13,490 9,358
Less accumulated depreciation
and amortization 3,434 2,316
------- -------
$10,056 $ 7,042
------- -------
------- -------
December 31
--------------------
1996 1995
---- ----
Accrued expenses:
Accrued payroll $ 896 $ 807
Unremitted sales tax 598 607
Other 1,514 997
------- -------
$ 3,008 $ 2,411
------- -------
------- -------
The following provides supplemental disclosures of consolidated cash flow
information:
Year Ended December 31
-------------------------------
1996 1995 1994
---- ---- ----
Cash paid during the year
for:
Interest $1,279 $649 $244
Income taxes 20 13 13
Noncash disclosures:
Disposal of inventories,
equipment and improvements
related to store closings $ 74 $818 $343
Capital leases for equipment 630 102 -
Continued
32
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In Thousands)
______
6. DEBT:
REVOLVING CREDIT AGREEMENT:
During 1995, the Company entered into a borrowing arrangement whereby a
financial institution agreed to lend the Company up to $16,000 under a
revolving credit agreement originally expiring in January 1998,
collateralized by inventories, accounts receivable, and equipment and
improvements of the Company. The line of credit agreement and related
documents contain restrictions which provide for maintenance of a minimum
net worth amount, prohibit the Company from declaring cash dividends, limit
the amount of advances to Odd's-N-End's, Inc., and limit the amount of
annual capital expenditures. During 1996, the lender waived violations of
certain provisions of the agreement, and the expiration date of the
agreement was amended to March 31, 1997. Accordingly, borrowings under the
revolving credit agreement have been reflected as a current liability as of
December 31, 1996.
The available line is based on a percentage of the Company's qualifying
inventories and accounts receivable less outstanding letters of credit.
The amount available, at December 31, 1996, under the borrowing base
formula was $11,665, of which there were outstanding borrowings of $7,791
and outstanding letters of credit of $60. Borrowings under the revolving
credit agreement bear interest at prime plus 1.5% (the prime rate at
December 31, 1996, was 8.25% and at December 31, 1995, was 8.5%). The
Company is also obligated to pay a commitment fee to the bank of .25% on
the difference between the total available line of credit and the average
daily principal amount including letters of credit outstanding.
Subsequent to December 31, 1996, the Company defaulted on several
provisions of the amended loan agreement. As a result of these defaults,
the lender reduced the credit line to $12.5 million and increased the
interest rate on outstanding borrowings to prime plus 3.5%. The loan
agreement is continuing subject to monthly renewals; however, the lender
has indicated its intent to further reduce the credit line to $11,000
as of April 30, 1997, and $10,000 as of May 31, 1997. The outstanding
borrowings on the line totaled $10,400 as of March 31, 1997. The Company
is currently negotiating with a number of new potential lenders in an
effort to obtain financing to replace its current credit line.
Continued
33
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In Thousands)
______
6. DEBT, continued:
LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1996 and 1995:
December 31,
-----------------
1996 1995
---- ----
Note payable - bank, due January 2, 1998,
no principal payments required until
maturity date, interest payable monthly
at prime plus 2.5% during 1995 (11% at
December 31, 1995), prime plus 3.25%
during 1996 (11.5% at December 31, 1996),
and prime plus 4% during 1997 $ 566 $ 566
Note payable - bank ("Second Note") due
January 2, 1998, payable in monthly
installments of $3.4 plus interest at
prime plus 2.5% during 1995, prime plus
3.25% during 1996, and prime plus 4%
during 1997 1,096 1,484
Capital lease obligations payable in
various monthly installments through
August 2000, including interest at
5.0% to 11.1% 625 92
------ ------
2,287 2,142
Less current maturities 556 421
------ ------
$1,731 $1,721
------ ------
------ ------
The bank notes are obligations of Odd's-N-End's and are collateralized by
all of the assets of Odd's-N-End's and provide, among other things, that a
specific ratio of inventory at retail value to the loan balance must be
maintained. The Second Note provides for a balloon payment of $350, which
was paid January 2, 1997, and a final payment of $709, which is due January
2, 1998.
Future maturities of long-term debt are as follows:
Year Ending December 31:
1997 $ 556
1998 1,448
1999 131
2000 152
-----
$2,287
-----
-----
Continued
34
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In Thousands)
______
6. DEBT, continued:
Future minimum lease payments under capital lease obligations are as
follows:
Year Ending December 31:
1997 $ 226
1998 208
1999 155
2000 161
------
750
Less interest 125
------
Present value of net minimum
lease payments $ 625
------
------
7. INCOME TAXES:
At December 31, 1996, the Company has federal net operating loss
carryforwards of approximately $4,200 and apportioned state net operating
loss carryforwards of approximately $4,000, available to offset against
future taxable income. These carryforwards begin to expire in 2007. At
December 31, 1996, Odd's-N-End's has federal net operating loss carry
forwards of approximately $9,900 and state net operating loss carryforwards
of approximately $13,000. These carryforwards begin to expire in 2008.
The Odd's-N-End's loss carry-forwards are not available to be offset
against future tax obligations of Universal, since Odd's-N-End's and
Universal file separate tax returns. A significant portion of
Odd's-N-End's carryforwards relate to pre-reorganization losses and, as
such, are available to reduce future income taxes payable, but will be
credited to additional paid-in capital rather than reducing future income
tax expense if utilized in the future.
The Company utilized approximately $900 of net operating loss carry
forwards in 1995, resulting in a variance between the effective tax rate
and the statutory tax rate. The provision recorded in 1995 represents
alternative minimum taxes due for federal and state tax purposes.
Temporary differences reflected in the Company's balance sheets for
December 31, 1996 and 1995, consisted of:
1996 1995
---- ----
Inventories $ 508 $ 490
AMT credit carryover 152 152
NOL carryover 1,829 718
Other 375 228
Depreciation (693) (526)
Deferred tax valuation allowance (2,198) (1,089)
------ ------
Net deferred taxes $ (27) $ (27)
------ ------
------ ------
Continued
35
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In Thousands)
______
7. INCOME TAXES, continued:
Odd's-N-End's deferred tax assets, primarily net operating loss
carryforwards, are offset entirely by a deferred tax valuation allowance.
8. COMMITMENTS:
OPERATING LEASES:
The Company is committed under long-term operating leases for the rental of
its office and warehouse facilities and retail store locations. The main
facility lease expires on July 31, 2000 and contains a right of first
refusal to purchase the facility.
The terms for the retail store leases range from one to ten years with the
leases structured so that the Company generally can extend, at its option,
its retail store leases to a total of ten years. The Company is also
required to pay additional rent for some of the retail store locations
based on a percentage of sales and, in most cases, real estate taxes and
other expenses. Additional rent incurred was not significant in 1996, 1995
or 1994.
Total rent expense under all leases, including Odd's-N-End's leases, for
the years ended December 31, 1996, 1995 and 1994 was $6,341, $5,431, and
$3,974, respectively, including percentage rent, real estate taxes and
other rental pass through expenses.
FUTURE MINIMUM LEASE PAYMENTS:
As of December 31, 1996, future minimum lease payments (excluding real
estate taxes, other rental pass through expenses and percentage rents) due
under existing noncancellable operating leases, including Odd's-N-End's
leases, with remaining terms of greater than one year are as follows:
1997 $ 5,010
1998 4,758
1999 4,397
2000 3,332
2001 1,913
Thereafter 1,739
-------
$21,149
-------
-------
Continued
36
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In Thousands)
______
9. EMPLOYEE BENEFIT PLANS:
STOCK OPTION PLAN:
The Company has reserved 450 shares of common stock for issuance under the
1990 Stock Option Plan (the Plan), as amended in 1996. Options granted
under the Plan can be either incentive stock options or nonqualified stock
options. The Board of Directors has the authority to grant options and set
the terms. The options are granted at fair market value on the date of
grant.
The Plan also provides for the issuance of stock appreciation rights (SARs)
and restricted stock awards. No SARs or restricted stock awards have been
issued as of December 31, 1996.
A summary of changes in outstanding stock options under the Plan is as
follows:
Options Price Range
Outstanding Per Share
----------- ---------
Balance, December 31, 1993 176 $2.50 to $6.125
Options cancelled (45) $2.50
Options granted 66 $2.00 to $2.50
----
Balance, December 31, 1994 197 $2.50 to $6.125
Options cancelled (55) $2.50 to $6.125
Options granted 99 $2.63 to $5.50
----
Balance, December 31, 1995 241 $2.50 to $5.50
Options cancelled (65) $2.50 to $4.63
Options granted 137 $2.00 to $5.00
----
Balance, December 31, 1996 313 $2.00 to $5.50
----
----
At December 31, 1996, 90 options under the Plan were exercisable at a
weighted average price per share of $2.51. The weighted average price per
share for options outstanding at December 31, 1995, options cancelled
during 1996, options granted in 1996, and options outstanding at December
31, 1996 was $2.99, $3.38, $3.73, and $3.21, respectively. For 1994 and
1995, the weighted average option price approximated $4.30 and $4.00,
respectively.
Continued
37
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In Thousands)
______
9. EMPLOYEE BENEFIT PLANS, continued:
All stock options under the Plan have a maximum term of five years from the
date of grant, unless a lesser period is provided for in the option
agreement. Generally, stock options vest in equal annual portions over
five years.
OTHER STOCK OPTION GRANTS:
In addition to the options under the Plan, the Company has granted
nonqualified stock options for 786 shares to officers and directors at a
weighted average price per share of $3.40. In 1996, 100 nonqualified stock
options were granted at $4.75 per share. No nonqualified stock options
were cancelled in 1996. These options are exercisable at $2.00 to $5.55
and as of December 31, 1996, 464 of the options were exercisable at a
weighted average price per share of $3.54.
All nonqualified stock options have a maximum term of five years from the
date of grant, unless a lesser period is provided for in the option
agreement. Generally, nonqualified stock options vest in equal annual
portions over a maximum four-year period.
PROFIT SHARING AND 401(k) PLAN:
During 1992, the Company established a defined contribution profit sharing
plan covering employees who meet certain age and service requirements.
Contributions to the plan are discretionary pursuant to the Board of
Directors approval.
As of September 1, 1993, the Company amended the defined contribution
profit sharing plan to add provisions for a savings portion to be qualified
under Internal Revenue Code Section 401(k). Participants in the savings
portion of the plan may contribute up to 15 percent of annual compensation.
The Company contributes discretionary amounts to both the profit sharing
and savings portions of the plan. The total Company contributions to the
defined contribution plan were $33, $33 and $21 in 1996, 1995 and 1994,
respectively.
Continued
38
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In Thousands)
______
9. EMPLOYEE BENEFIT PLANS, continued:
ACCOUNTING FOR STOCK-BASED COMPENSATION:
The Company is continuing to account for options and other stock-based
compensation using the intrinsic value based method. Based upon the
limited stock option activity and the market price of the Company's common
stock during the past two years, the compensation expense and related loss
per share impact related to the proforma disclosures under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, is not significant. The weighted average grant date fair
value of options granted in 1995 and 1996 was $0.77 and $0.79,
respectively, as determined by using the Black-Scholes Model.
10. STOCKHOLDERS' EQUITY:
INCREASE IN AUTHORIZED SHARES:
During 1996, the shareholders approved an increase in authorized shares of
common stock from 10,000 to 75,000 shares.
STOCKHOLDERS' RIGHTS PLAN:
In June 1996, the Company adopted a stockholder rights plan, pursuant to
which the Company declared a dividend distribution of one Common Stock
Purchase Right for each outstanding share of the Company's Common Stock.
Each Right entitles the stockholder to purchase one share of Common Stock
at a price of $25 per share, subject to adjustment. The description and
terms of the Rights are set forth in a Rights Agreement dated April 19,
1996, between the Company and Norwest Bank Minnesota, N.A., as Rights
Agent.
11. CONTINGENCIES:
The Company is a defendant in various claims and disputes arising in the
ordinary course of business. While the outcome of these matters cannot be
predicted with certainty, management presently believes the disposition of
these matters will not have a material effect on the results of operations,
financial position or cash flows of the Company.
Continued
39
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In Thousands)
______
12. BUSINESS SEGMENTS:
Following is information relating to the Company's business segments. A
description of these segments appears in Note 1 -Business Description.
Cost allocations are necessary in the determination of operating results
by segment. For this reason and because the Company is an integrated
enterprise, management does not represent that these segments, if operated
as independent businesses, would result in the operating results shown.
As of and for the
Years Ended December 31,
--------------------------
1996 1995 1994
---- ---- ----
Net Sales:
Wholesale(1) $26,678 $29,315 $34,851
Only Deals 37,412 24,127 22,335
Odd's-N-End's 22,451 23,528 -
Asset-Based Services 1,089 - -
------- ------- -------
Total Company $87,630 $76,970 $57,186
------- ------- -------
------- ------- -------
Operating Income (Loss):
Wholesale $(1,219) $ 2,005 $ (301)
Only Deals (1,004) 51 (1,109)
Odd's-N-End's (1,167) (766) -
Asset-Based Services 324 - -
------- ------- -------
Total Company $(3,066) $ 1,290 $(1,410)
------- ------- -------
------- ------- -------
Total Assets:
Wholesale $21,883 $21,456 $21,637
Only Deals 14,742 7,768 5,709
Odd's-N-End's 5,891 6,285 -
Asset-Based Services 357 - -
------- ------- -------
Total Company $42,873 $35,509 $27,346
------- ------- -------
------- ------- -------
Depreciation and Amortization:
Wholesale $ 316 $ 212 $ 212
Only Deals 632 398 480
Odd's-N-End's 235 103 -
Asset-Based Services 2 - -
------- ------- -------
Total Company $ 1,185 $ 713 $ 692
------- ------- -------
------- ------- -------
Capital Expenditures:
Wholesale $ 459 $ 435 $ 126
Only Deals 2,954 1,256 171
Odd's-N-End's 165 1,317 -
Asset-Based Services 25 - -
------- ------- -------
Total Company $ 3,603 $ 3,008 $ 297
------- ------- -------
------- ------- -------
Continued
40
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In Thousands)
______
12. BUSINESS SEGMENTS, continued:
(1) Wholesale sales presented exclude sales of $14,372 and $15,897 to
Odd's-N-End's in 1996 and 1995, respectively, and transfers of
$24,056, $14,452 and $11,761 to Only Deals in 1996, 1995 and 1994,
respectively. Wholesale sales include sales of $1,897 to an
affiliated joint venture in 1996 and sales of $6,070 to Odd's-N-End's
in 1994. Wholesale sales to Odd's-N-End's are at margins of
approximately 15.25%, sales to the Joint Venture were at 15% margins,
and transfers to Only Deals are made at cost.
Only Deals and Odd's-N-End's borrow funds from the Company under the terms
of collateralized loan agreements. The Company charges Only Deals interest
at prime plus 2% and charges Odd's-N-End's interest at prime plus 2.5%.
The prime rate was 8.25% at December 31, 1996 and 8.5% at December 31,
1995. The intercompany accounts and transactions relating to these loans
and interest have been eliminated in consolidation.
13. SUBSEQUENT EVENT:
In March 1997, the Company entered into an agreement to purchase the leases
and inventory of approximately 90 retail stores and a warehouse from Perry
Brothers, Inc., of Lufkin, Texas. The purchase is contingent upon further
due diligence and the Company obtaining both equity and debt financing to
complete the transaction.
14. RECLASSIFICATIONS:
Certain reclassifications have been made to the prior year financial
statements to conform with classifications for 1996. These
reclassifications had no impact on net income (loss), total assets, or
stockholders' equity, as previously reported.
41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Universal International, Inc.:
Our report on the consolidated financial statements of Universal
International, Inc. is included on page 21 of this Form 10-K. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedule listed in the index in Item 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
The accompanying consolidated financial statements have been prepared
assuming that Universal International, Inc. will continue as a going concern.
As more fully described in Note 2, the Company is in default of several
provisions of its revolving credit agreement and has not obtained new financing
to replace this revolving credit agreement. In addition, the Company incurred a
consolidated net loss of $4.3 million in 1996. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2.
The 1996 consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
April 15, 1997
42
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1996, 1995, and 1994
(In Thousands)
________
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Balance at Additions Deductions Balance
Beginning Charged to From at End
Description Of Period Expense Allowance Of Period
- ----------- --------- ---------- --------- ---------
Year ended December 31, 1996:
Allowance for doubtful
accounts (deducted from
accounts receivable) $ 200 $ 204 $ 204 $ 200
Inventory obsolescence and
shrink reserve (deducted
from inventory) $ 728 $ 1,506 $ 1,217 $ 1,017
Store closing allowance $ 195 $ - $ 121 $ 74
Year ended December 31, 1995:
Allowance for doubtful
accounts (deducted from
accounts receivable) $ 300 $ 168 $ 268 $ 200
Inventory obsolescence and
shrink reserve (deducted
from inventory) $ 525 $ 950 $ 747 $ 728
Store closing allowance $ 1,220 $ - $ 1,025 $ 195
Year ended December 31, 1994:
Allowance for doubtful
accounts (deducted from
accounts receivable) $ 400 $ 349 $ 449 $ 300
Inventory obsolescence and
shrink reserve (deducted
from inventory) $ 525 $ 379 $ 379 $ 525
Store closing allowance $ 986 $ 834 $ 600 $ 1,220
43
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
44
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the Company's directors required by Item 10 is
incorporated herein by reference to the section entitled, "Item 1 - Election of
Directors," in the Company's proxy statement for its 1997 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days of the Company's fiscal year ended
December 31, 1996. Information regarding the Company's executive officers
required by Item 10 is included in Part I of this Annual Report on Form 10-K as
permitted by General Instruction G(3) to Form 10-K. Information required by
this Item concerning compliance with Section 16(a) of the Securities Act of 1934
is included in the proxy statement under the section entitled "Security
Ownership of Certain Beneficial Owners and Management," and such information is
incorporated herein by reference. Norman J. Ravich and Mark H. Ravich, both of
whom are officers and directors of the Company, are father and son,
respectively.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the section entitled "Compensation of Executive Officers and Directors" in the
Company's proxy statement for its 1997 Annual Meeting of Shareholders which will
be filed with the Securities and Exchange Commission pursuant to Regulation 14A
within 120 days of the Company's fiscal year ended December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's proxy statement for its 1997 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days of the Company's fiscal year ended
December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to
the section entitled "Certain Transactions" in the Company's proxy statement for
its 1997 Annual Meeting of Shareholders which will be filed with the Securities
and Exchange Commission pursuant to Regulation 14A within 120 days of the
Company's fiscal year ended December 31, 1996.
45
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
a) Documents filed as part of this report:
1. The Consolidated Financial Statements, notes thereto, and accountants'
reports thereon are included in Part II, Item 8 of this report.
2. Consolidated Financial Statements Schedule included in Part II Item 8
of this report:
Schedule II - Valuation and Qualifying Accounts
Other financial statement schedules are omitted because they are not
required or are not applicable.
3. Exhibits
See Exhibit Index immediately following signature page.
b) Reports on Form 8-K
The Company filed a Form 8-K dated December 13, 1996 with the Commission
stating that the Company was in technical default of several covenants with its
lender under the line of credit. The lender waived these defaults and the line
of credit was amended and the term of the line of credit was reduced by ten
months to March 31, 1997.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: April 17, 1997 By:
------------------------------
Mark H. Ravich
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
NAME TITLE
- ---------------------------- -----------------------------------
- ----------------------
Mark H. Ravich Chief Executive Officer and
Director
(principal executive officer)
April 17, 1997
- ----------------------
James A. Patineau Chief Financial Officer
(principal financial and accounting
officer)
April 17, 1997
- ----------------------
Norman J. Ravich Chairman of the Board and Director
April 17, 1997
- ----------------------
Wesley J. Laseski President and Director
April 17, 1997
- ----------------------
Ernest M. Simon Director
April 17, 1997
- ----------------------
Stanford A. Weiner Director
April 17, 1997
47
<PAGE>
UNIVERSAL INTERNATIONAL, INC.
EXHIBIT INDEX
FOR
1996 ANNUAL REPORT ON FORM 10-K
All exhibits, except those marked (1) below, have already been filed with
the Commission and are incorporated herein by reference.
Exhibit
Number Description
- ------- -----------
3.1 Articles of Incorporation, as amended
3.2 By-laws
4.3 Revolving Credit Agreement with Firstar
Bank of Minnesota, N.A. and First
Wisconsin National Bank of Milwaukee
dated December 18, 1991
4.3.1 Master Amendment Agreement (Including
Amendment No. 2 to Revolving Credit
Agreement)
4.4 Account Financing Agreement among Universal
International, Inc., Only Deals, Inc. and
Congress Financial Corporation
4.5 Inventory and Equipment Security Agreement
4.6 Trade Financing Agreement
9.2 Shareholders' Agreement and Irrevocable
Proxy dated November 12, 1992 by and among
the Company and Mark H. Ravich, L. Jack Roth
and Gilbert L. Wachsman
10.1 Lease Agreement between the Company and Hoyt
Development Company for premises located at
5000 Winnetka Avenue North, New Hope,
Minnesota, dated April 21, 1989 as amended
August 29, 1990
10.2 Sublease Agreement between the Company and
United Hardware Distributing Co. for
premises located at 5005 Nathan Lane, New
Hope, Minnesota dated April 17, 1991 and
Consent to Sublease
10.2.1 First Amendment to Sublease Agreement
between the Company and United Hardware
Distribution Co. dated April 17, 1991
10.2.2 Second Amendment to Sublease Agreement
between the Company and United Hardware
Distribution Co.
10.3 1990 Stock Option Plan, as amended
10.4 Lease Agreement between the Company and
Carlson Real Estate Company for premises
located at 13120 County Road 6, Plymouth,
Minnesota, dated September 29, 1995.
10.5 Bonus Plan
48
<PAGE>
10.6 Employment Agreement between the Company and
L. Jack Roth dated February 7, 1989
10.7 Employment Agreement between the Company and
Norman J. Ravich dated September 4, 1990
10.7.1 Employment Agreement between the Company and
Norman J. Ravich dated October 26, 1992
10.7.2 First Amendment to Employment Agreement
10.9.1 Employment Agreement between the Company and
Mark H. Ravich dated October 26, 1992
10.9.2 First Amendment to Employment Agreement
10.10 Stock Purchase Agreement dated January 20,
1992
10.10.1 Pension termination ruling regarding the
Company's defined benefit pension plan
10.11 Loan and Security Agreement dated
November 21, 1995 among BankAmerica Business
Credit, Inc., Universal International, Inc.,
and Only Deals, Inc.
10.11.1 Waiver and First Amendment to Loan and
Security Agreement dated July 30, 1996
10.11.2 Second Amendment to Loan and Security
Agreement dated August 20, 1996
10.11.3 Waiver and Second Amendment to Loan and
Security Agreement dated December 10, 1996 (1)
10.12 Loan and Security Agreement by and between
Universal International, Inc. and
Odd's-N-End's, Inc.
10.12.1 Alonge dated July 30, 1996 to Revolving
Note with Odd's-N-End's, Inc.
10.13 Employment Agreement between the Company and
Wesley J. Laseski dated February 25, 1993
10.13.1 First Amendment to Employment Agreement
11.0 Detail Computation of Earnings (loss) per
share (1)
22.0 Subsidiaries of the Registrant
The Company has three subsidiaries, Only
Deals, Inc., a Minnesota corporation, which is
wholly owned, Universal Asset-Based Services,
Inc., a Minnesota corporation, which is 95%
owned, and Odd's-N-End's, Inc.,
a Delaware corporation, which is 40.5%
owned.
(1) Filed herewith.
49
<PAGE>
EXHIBIT 10.11.3
UNIVERSAL INTERNATIONAL, INC.
WAIVER AND SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Waiver and Second Amendment to Loan and Security Agreement (this
"Amendment") is entered into as of December 10, 1996, by and between BankAmerica
Business Credit, Inc. (the "Lender") and Universal International, Inc. and Only
Deals, Inc. (collectively, the "Borrowers", and individually, a "Borrower").
RECITALS
This Amendment is entered into in reference to the following facts:
(a) The Borrowers and the Lender have entered into a certain Loan and
Security Agreement (as amended, modified, and supplemented prior to the date
hereof, the "Loan Agreement"), dated as of November 21, 1995. All capitalized
terms, not expressly defined herein, shall have the meanings assigned thereto in
the Loan Agreement.
(b) Several Events of Default have occurred under the Loan Agreement.
(c) The Borrowers desire that the Lender waive the Events of Default
and amend the Loan Agreement in certain respects.
(d) The Lender is willing to waive the Events of Default and amend
the Loan Agreement subject to the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto hereby agree as follows.
ARTICLE 1 - WAIVERS
1.1 WAIVERS OF EVENTS OF DEFAULT. (a) The Lender hereby waives the
following Events of Default:
(i) The aggregate amount of Universal's investment in Universal
Asset-Based Services, Inc., a Subsidiary of Universal, exceeded $200,000
during the months of October and November, 1996, in breach of Section 10.18
of the Loan Agreement;
(ii) The Borrowers' net worth, calculated n accordance with GAAP on a
consolidated basis, was less than $17,000,000
1
<PAGE>
during the months of October and November, 1996, in breach of Section 10.21
of the Loan Agreement; and
(iii) The aggregate outstanding loans, advances and other financial
accommodations extended by the Borrowers to Odd's-N-End's during the months
of October and November, 1996 exceeded, from time to time, the sum of
$5,000,000, in breach of Section 10.22 of the Loan Agreement (it being
expressly represented by the Borrowers to the Lender, however, that the
aggregate amount so extended did not exceed the sum of $6,000,000 on
October 31, 1996 or on November 30, 1996).
(b) The foregoing waivers are only applicable to and shall only be
effective in the specific instances made. The waivers are limited to the facts
and circumstances referred to herein and shall not operate as (i) a waiver of or
consent to non-compliance with any other section or provision of the Loan
Agreement, (ii) a waiver of any right, power or remedy of the Lender under the
Loan Agreement, or (iii) a waiver of any other Event of Default or Default which
may exist under the Loan Agreement.
ARTICLE 2 - AMENDMENTS
2.1 AMENDMENT OF "AVAILABILITY". The definition of "Availability"
contained in Section 1.1 of the Loan Agreement is hereby amended and restated to
read in its entirety as follows:
"AVAILABILITY" means
(a) for Universal, the sum of
(i) up to eighty percent (80%) of the Net Amount of
Eligible Accounts of Universal; and
(ii) up to sixty-five percent (65%) (reduced to sixty
percent (60%) effective as of December 18, 1996, and further
reduced to fifty-five percent (%5%) effective as of December
24, 1996) of the value of Eligible Inventory consisting of
Warehouse Inventory and Retail Inventory; and
(b) for Only Deals, the sum of
(i) up to fifty-five percent (55%) (reduced to fifty
percent (50%) effective as of December 18, 1996, and further
reduced to forty-five percent (45%) effective as of December
24, 1996) of the value of Eligible Inventory of Only Deals
located for retail
2
<PAGE>
sale at an Only Deals retail outlet; MINUS
(ii) an amount equal to two (2) times the Aged Percentage
than in effect, MULTIPLIED BY the book value of all
Inventory of Only Deals located at an Only Deals retail
outlet;
PROVIDED HOWEVER, that the advance rates set forth in clause (a)(ii) above
for specific items of Eligible Inventory (whether consisting of Retail Inventory
or Warehouse Inventory) shall be reduced to zero percent (0%) at such time as
such Eligible Inventory has remained in a warehouse for more than twelve (12)
months (any such Eligible Inventory which has remained in a warehouse for more
than twelve (12) months being referred to as "AGED INVENTORY"); PROVIDED
FURTHER, HOWEVER, that at all times Availability for each Borrower shall be
reduced by the sum of:
(a) the unpaid balance of Revolving Loans owing by such Borrower
at that time;
(b) the aggregate undrawn face amount of all outstanding Letters
of Credit which the Lender has caused to be issued or obtained for
such Borrower's account;
(c) reserves for accrued interest on the Revolving Loans owing
by such Borrower and the Environmental Compliance Reserve attributable
to such Borrower;
(d) the December Inventory Reserve attributable to such
Borrower;
(e) the Universal Cash Reserve attributable to Universal; and
(f) all other reserves which the Lender in its reasonable
discretion deems necessary or desirable to maintain with respect to
such Borrower's account, including, without limitation, amounts
reserved pursuant to the provisions contained in the definition of the
term "Eligible Inventory" and any amounts which the Lender may be
obligated to pay in the future for the account of such Borrower;
PROVIDED, HOWEVER, that concurrently with the establishment of any
reserve not predicated against any ineligibility criteria set forth
herein or not otherwise specified herein, the Lender will provide the
Borrowers with written notice of the establishment of such reserve,
which notice shall set forth a reason for the establishment of such
reserve.
2.2 AMENDMENT OF "MAXIMUM INVENTORY REVOLVING LOAN SUBLIMIT". The
definition of "Maximum Inventory Revolving Loan Sublimit" contained in Section
1.1 of the Loan Agreement is hereby amended and restated to read in its entirety
as follows:
3
<PAGE>
"MAXIMUM INVENTORY REVOLVING LOAN SUBLIMIT" means Thirteen Million
Five Hundred Thousand Dollars ($13,500,000).
2.3 AMENDMENT OF "MAXIMUM REVOLVING LOAN AGREEMENT". The definition of
"Maximum Revolving Loan Amount" contained in Section 1.1 of the Loan Agreement
is hereby amended and restated to read in its entirety as follows:
"MAXIMUM REVOLVING LOAN AMOUNT" means Sixteen Million Dollars
($16,000,000).
2.4 AMENDMENT OF SECTION 1.1 Section 1.1 of the Loan Agreement is hereby
amended by the addition of two new definitions which shall read in their
entirety as follows:
"DECEMBER INVENTORY RESERVE" means for each Borrower a reserve which
the Lender establishes for such Borrower to reflect the inventory
reductions that the Lender expects to occur for such Borrower in the month
of December, 1996, which reserve at any time shall be in an aggregate
amount for both Borrowers equal to $150,000 per day for each Business Day
that has passed in the month of December, 1996 at such time (which reserve
amount may be adjusted from time to time by the Lender in the exercise of
its sole discretion, and which aggregate reserve amount shall be allocated
between the Borrowers as the Lender shall determine). This reserve amount
shall be reduced by the Lender to reflect the actual December inventory
reduction that has occurred as of the date of calculation, upon the
Lender's receipt and review to its satisfaction of the Borrowers' inventory
report covering each such day and the back-up materials relating thereto,
if the actual inventory reduction is less than the reserve amount. This
reserve shall continue until such time as the Lender shall have received
and reviewed to its satisfaction the Borrowers' inventory reports covering
the entire month of December, 1996 and the back-up materials relating
thereto.
"UNIVERSAL CASH RESERVE" means a reserve which the Lender establishes
for Universal to reflect the amount of "receivables cash" that has been
received by the Lender and has been applied by the Lender to the payment of
the outstanding Loans to Universal, but that has not yet been applied by
Universal to reduce the aggregate amount of Universal's Accounts. The
Lender understands that Universal has agreed to report to the Lender each
day as to the amount of "receivables cash" and the amount of
"non-receivables cash" that have been received by the Lender on such day.
On and after December 2, 1996, all cash received by the Lender relating to
Universal shall be immediately applied by the Lender to reduce the
aggregate amount of Universal's Accounts less the Lender has been provided
with a satisfactory updated borrowing base certificate reflecting the
correct allocation and application of cash.
4
<PAGE>
2.5 AMENDMENT OF SUBSECTION 2.1(a). The first sentence of Subsection
2.1(a) of the Loan Agreement is hereby amended and restated to read in its
entirety as follows:
The Lender shall, upon either Borrower's request from time to time, make
revolving loans (the "REVOLVING LOANS") to such Borrower up to the limits
of the Availability for such Borrower, PROVIDED HOWEVER, that the aggregate
outstanding Revolving Loans for both Borrowers shall at no time exceed the
Maximum Revolving Loan Amount LESS the aggregate undrawn face amount of all
outstanding Letters of Credit which the Lender has caused to be issued or
obtained for either Borrower's account, PROVIDED FURTHER, HOWEVER, that the
aggregate outstanding Revolving Loans made to the Borrowers and predicated
against Eligible Inventory shall at no time exceed the Maximum Inventory
Revolving Loan Sublimit, and PROVIDED FURTHER, HOWEVER, that no Revolving
Loans shall be made or outstanding to the Borrowers predicated against Aged
Inventory.
2.6 AMENDMENT OF SUBSECTION 3.1(a). Subsection 3.1(a) of the Loan
Agreement is hereby amended and restated to read in its entirety as follows:
(a) All Obligations shall bear interest on the unpaid principal
amount thereof from the date made until paid in full in cash at a rate
determined by reference to the Reference Rate or the LIBOR Rate and
SECTIONS 3.1(a)(i) or 3.1(a)(ii), as applicable, but not to exceed the
maximum rate permitted by applicable law. Except as otherwise provided
herein, the Obligations shall bear interest as follows:
(i) For all Obligations, other than LIBOR Rate Loans, then at a
fluctuating per annum rate equal to one and one-half of one percent
(1.50%) (the "REFERENCE RATE MARGIN") plus the Reference Rate; and
(ii) If the Loans are LIBOR Rate Loans, then at a per annum rate
equal to three and one-half of one percent (3.50%) (the "LIBOR
MARGIN") plus the LIBOR Rate determined for the applicable Interest
Period.
The Reference Rate Margin shall be increased by one-quarter of one
percent (0.25%) effective on the first day of each calendar quarter,
commencing with the calendar quarter beginning on April 1, 1997.
Each change in the Reference Rate shall be reflected in the interest
rate described in clause (i) above as of the effective date of such change.
All interest charges shall be computed on the basis of a year of three
hundred sixty (360) days and actual days elapsed. All interest charges
with
5
<PAGE>
respect to the Loans shall be paid to the Lender on the first day of each
month with respect to the prior month.
2.7 AMENDMENT OF SECTION 10.18. Section 10.18 of the Loan Agreement is
hereby amended by the addition of a new proviso thereto, which shall be inserted
immediately before the period appearing at the end of Section 10.18 and which
shall read in its entirety as follows:
PROVIDED FURTHER, HOWEVER, that in the event that the aggregate investment
which Universal shall have in Universal Asset-Based Services, Inc., one of
its Subsidiaries, shall exceed $200,000 on the last day of any calendar
month occurring after November, 1996, the Borrowers shall pay the Lender a
fee in the amount of $10,000 for each such occurrence, and any such fee
shall be paid on the first Business Day occurring after the calendar month
in which such event occurred, it being expressly understood and agreed by
the Borrowers, however, that any such payment by the Borrowers of any such
fee shall not constitute or be deemed to constitute a waiver by the Lender
of any Event of Default that shall have occurred as a result of such excess
investment, and that the Lender shall retain all of its rights, powers and
remedies under this Agreement with respect to each such Event of Default.
2.8 AMENDMENT OF SECTION 10.21. Section 10.21 of the Loan Agreement is
hereby amended and restated to read in its entirety as follows:
10.21 NET WORTH. The Borrowers will maintain net worth,
calculated in accordance with GAAP on a consolidated basis, of not less
than Seventeen Million Dollars ($17,000,000) at the end of any calendar
month, beginning with the December, 1996 calendar month.
2.9 AMENDMENT OF SECTION 10.22. Section 10.22 of the Loan Agreement is
hereby amended and restated to read in its entirety as follows:
10.22 ADVANCES TO ODD'S-N-END'S. Aggregate out-standing loans,
advances and other financial accommodations extended by the Borrowers to
Odd's-N-End's will not exceed Five Million Dollars ($5,000,000) on the last
day of any calendar month, beginning with the December, 1996 calendar
month, PROVIDED, HOWEVER, that in the event that the aggregate outstanding
loans, advances and other financial accommodations extended by the
Borrowers to Odd's-N-End's shall exceed $5,000,000 on the last day of any
calendar month occurring after November, 1996, the Borrowers shall pay the
Lender a fee in the amount of $25,000 for each such occurrence, and any
such fee shall be paid on the first Business Day occurring
6
<PAGE>
after the calendar month in which such event occurred, it being expressly
understood and agreed by the Borrowers, however, that any such payment by
the Borrowers of any such fee shall not constitute or be deemed to
constitute a waiver by the Lender of any Event of Default that shall have
occurred as a result of such excess, and that the Lender shall retain all
of its rights, powers and remedies under this Agreement with respect to
each such Event of Default.
2.10 AMENDMENT OF SECTION 12.1. Section 12.1 of the Loan Agreement is
hereby amended by the addition of new clause "(p"), which shall be inserted in
the Loan Agreement immediately after clause ("o") of Section 12.1 and which
shall read in its entirety as follows:
(p) failure by the Borrowers to deliver to the Lender on or before
February 28, 1997 a commitment letter between the Borrowers and another
lender, which commitment letter shall have been executed on behalf of the
Borrowers and such other lender, shall be satisfactory in form and
substance to the Lender in the exercise of its sole discretion and shall
provide, among other things, for the refinancing of all Obligations under
this Agreement and the other Loan Documents; or, in the event that such a
satisfactory commitment letter is delivered on or before February 28, 1997,
failure by the Borrowers to close the transaction described in such letter
and to refinance the Obligations on or before March 31, 1997.
2.11 AMENDMENT OF SECTION 14. Section 14 of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:
14. TERM AND TERMINATION. The initial term of this Agreement shall
end on March 31, 1997. This Agreement shall automatically be renewed
thereafter for successive one-month terms, unless this Agreement is
terminated as provided below. The Borrowers shall pay to the Lender a
renewal fee in the amount of $10,000 for each month that this Agreement is
renewed after March 31, 1997, and each such monthly renewal fee shall be
paid on the first day of such renewal month. No such renewal shall be
deemed to constitute a waiver by the Lender of any Events or Events of
Default that may have occurred and may be continuing under this Agreement
at the time of any such renewal. The Lender and the Borrowers shall have
the right to terminate this Agreement, without premium or penalty, at the
end of the initial term or at the end of any renewal term by giving the
other written notice not less than ten (10) days prior to the end of such
term. The Lender may also terminate this Agreement without notice upon an
Event of Default. Upon the effective date of termination of this Agreement
for any reason whatsoever, all Obligations shall become immediately due and
payable. Notwithstanding the
7
<PAGE>
termination of this Agreement, until all Obligations are paid and performed
in full, the Lender shall retain all its rights and remedies hereunder
(including, without limitation, in all then existing and after-arising
Collateral).
2.12 AMENDMENT REGARDING LIBOR LOANS. The Borrowers shall no longer have
the option to have any Loans made as, continued as or converted into LIBOR Rate
Loans, notwithstanding anything to the contrary contained in the Loan Agreement,
as amended hereby. Any LIBOR Rate Loans outstanding on an effective date of
this Amendment shall continue as LIBOR Rate Loans until, and then shall be
converted into Reference Rate Loans on, the last day of the Interest Periods
applicable thereto, without any further notice from the Borrowers to the Lender.
ARTICLE 3 - CONDITIONS PRECEDENT
The amendments to the Loan Agreement provided for in this Amendment shall
become effective upon satisfaction of all of the conditions precedent specified
in this Article 3.
3.1 DELIVERY OF DOCUMENTS. The Lender shall have received all of the
following documents, each duly executed where appropriate and dated the date of
execution thereof (or such other date as shall be acceptable to the Lender), in
form and substance satisfactory to the Lender: this Amendment.
3.2 AMENDMENT FEE. As part of the consideration to the Lender for
entering into this Amendment, the Borrowers shall have paid to the Lender an
amendment fee of $25,000. The Lender in its sole and absolute discretion, may
permit such fee to be paid from the proceeds of a Reference Rate Loan under the
Loan Agreement.
ARTICLE 4 - GENERAL PROVISIONS
4.1 WARRANTIES AND ABSENCE OF DEFAULTS. In order to induce the Lender to
enter into this Amendment, the Borrowers hereby warrant to the Lender, as of the
date of the execution of this Amendment by the Borrowers, that: (a) except to
the extent permitted by the Loan Agreement, as herein amended, the warranties of
the Borrowers contained in the Loan Agreement are true and correct as of such
date as if made on such date, and (b) no Event of Default or Default exists
which is continuing as of such date.
4.2 RESOLUTIONS. The Borrowers agree to deliver to the Lender, on or
before 5:00 p.m., Chicago time, on Wednesday, December 11, 1996, a copy,
certified by the secretary or an assistant secretary of the Borrowers, of
resolutions of the boards of directors of the Borrowers authorizing or ratifying
the execution and delivery of this Amendment and the borrowings under
8
<PAGE>
the Loan Agreement, as amended hereby, which resolutions shall be in form and
substance satisfactory to the Lender. Any failure by the Borrowers to comply
with the provisions of this Section 4.2 shall constitute an Event of Default
under the Loan Agreement, as amended hereby.
4.3 EXPENSES. The Borrowers agree to pay on demand all costs and expenses
of the Lender (including the reasonable attorneys' fees and expenses of counsel
for the Lender, and including the allocated costs of in-house counsel for the
Lender) in connection with the preparation, negotiation, execution, and delivery
of this Amendment and all other instruments or documents provided for herein or
delivered or to be delivered hereunder or in connection herewith.
4.4 GOVERNING LAW. This Amendment shall be a contract made under and
governed by the internal laws of the state of Illinois.
4.5 COUNTERPARTS. This amendment may be executed in any number of
counterparts, and by the parties hereto on the same or separate counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Amendment.
4.6 SUCCESSORS. This Amendment shall be binding upon the Borrowers, the
Lender, and their respective successors and assigns, and shall inure to the
benefit of the Lender and the successors and assigns of the Lender.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized and delivered as
of the date first written above.
"BORROWERS"
UNIVERSAL INTERNATIONAL, INC.
By:
-----------------------
Name:
---------------------
Title:
---------------------
ONLY DEALS, INC.
By:
-----------------------
Name:
---------------------
Title:
---------------------
"LENDER"
BANKAMERICA BUSINESS CREDIT, INC.
By:
-----------------------
Name:
---------------------
Title:
---------------------
10
<PAGE>
EXHIBIT 11
UNIVERSAL INTERNATIONAL, INC.
DETAIL COMPUTATION OF EARNINGS (LOSS) PER SHARE
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(In thousands, except per share data)
Primary Earnings (Loss)Per Share:
Net income (loss) $(4,301) $ 1,310 $(1,623)
------ ------ ------
------ ------ ------
Weighted average shares
outstanding 4,893 4,893 4,893
Dilutive effect of stock
options - 189 -
------ ------ ------
Weighted average common
and common equivalent
shares outstanding 4,893 5,082 4,893
------ ------ ------
------ ------ ------
Net income (loss) per
common and common
equivalent share $ (.88) $ .26 $ (.33)
------ ------ ------
------ ------ ------
Fully Diluted Earnings (Loss) Per Share:
Net income (loss) $(4,301) $ 1,310 $(1,623)
------ ------ ------
------ ------ ------
Weighted average shares
outstanding 4,893 4,893 4,893
Dilutive effect of stock
options - 309 -
------ ------ ------
Weighted average common
and common equivalent
shares outstanding 4,893 5,202 4,893
------ ------ ------
------ ------ ------
Net income (loss) per
common and common
equivalent share $ (.88) $ .25 $ (.33)
------ ------ ------
------ ------ ------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 521
<SECURITIES> 0
<RECEIVABLES> 3,707
<ALLOWANCES> 0
<INVENTORY> 26,458
<CURRENT-ASSETS> 32,665
<PP&E> 10,056
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,873
<CURRENT-LIABILITIES> 23,961
<BONDS> 1,731
0
0
<COMMON> 245
<OTHER-SE> 16,243
<TOTAL-LIABILITY-AND-EQUITY> 42,873
<SALES> 87,630
<TOTAL-REVENUES> 87,630
<CGS> 54,333
<TOTAL-COSTS> 54,333
<OTHER-EXPENSES> 36,368
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,276
<INCOME-PRETAX> (3,851)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,851)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,301)
<EPS-PRIMARY> (.88)
<EPS-DILUTED> (.88)
</TABLE>
