<PAGE>
Page 1
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1998
-------------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
--------------- ---------------
Commission file number 0-19056
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Northstar Computer Forms, Inc.
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0882640
----------------- ----------------------------------------
(State of other jurisdiction (I.R.S. Employer Identification Numbers)
of incorporation or organization)
7130 Northland Circle North, Brooklyn Park, Minnesota 55428
- ----------------------------------------------------- ---------
(Address or Principal Executive Offices) Zip Code
Registrant's telephone number, including area code (612) 531-7340
------------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15 (d) of the Securities and 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 .
---- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 6, 1998
----- ----------------------------
Common Stock, $ .05 par value 1,766,121 Shares
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Page 2
Part 1. Financial Information
Item 1. Financial Statements
NORTHSTAR COMPUTER FORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31 October 31,
1998 (Unaudited) 1997
ASSETS ---------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,745,890 $ 5,317,881
Accounts receivable, less
allowance for doubtful accounts
of $300,000 in 1998 and $294,000 in 1997 6,071,133 6,614,209
Inventories 2,069,878 1,912,646
Other current assets 554,272 267,737
Deferred income taxes 318,656 318,656
------------ ------------
Total current assets 12,759,829 14,431,129
------------ ------------
Property, plant and equipment 30,199,352 29,478,905
Less accumulated depreciation and
amortization (14,872,199) (14,267,762)
------------ ------------
Net property, plant and equipment 15,327,153 15,211,143
------------ ------------
Notes receivable, less current portion 288,489 829,108
Goodwill, net 1,707,422 1,757,799
Other assets 1,339,458 1,095,695
------------ ------------
Total assets $ 31,422,351 $ 33,324,874
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to unaudited Condensed
Consolidated Financial Statements
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Page 3
NORTHSTAR COMPUTER FORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
January 31, October 31,
1998 1997
-------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,310,000 $ 3,235,000
Accounts payable 1,953,652 1,373,805
Accrued liabilities 776,207 2,607,885
------------ -------------
Total current liabilities 5,039,859 7,216,690
Deferred compensation 793,826 827,147
Deferred income taxes 1,239,633 1,184,633
Long-term debt, less current portion 7,068,050 7,330,550
Commitments
Stockholders' equity:
Common stock, $ .05 par value
authorized, 5,000,000 shares; issued
and outstanding, 1,764,171 at January 31, 1998
and 1,761,471 at October 31, 1997 88,209 88,073
Additional paid-in capital 2,310,185 2,289,767
Retained earnings 14,882,589 14,388,014
------------ -------------
Total stockholders' equity 17,280,983 16,765,854
------------ -------------
Total liabilities and stockholders' equity $ 31,422,351 $ 33,324,874
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to unaudited Condensed
Consolidated Financial Statements
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NORTHSTAR COMPUTER FORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
January 31
1998 1997
----- ------
<S> <C> <C>
Net Sales $ 10,608,027 $ 11,608,757
Cost of goods sold 7,747,106 8,519,722
----------- -----------
Gross profit 2,860,921 3,089,035
Selling, general and
administrative expenses 1,936,854 1,912,879
----------- -----------
Operating income 924,067 1,176,156
Other income (expense):
Interest expense (209,577) (230,356)
Other, net, principally
interest income 77,085 6,893
----------- -----------
(132,492) (223,463)
----------- -----------
Earnings before income taxes 791,575 952,693
Provision for income taxes 297,000 382,000
----------- -----------
Net earnings $ 494,575 $ 570,693
----------- -----------
Net earnings per common share:
Basic $ 0.28 $ 0.33
----------- -----------
----------- -----------
Diluted $ 0.26 $ 0.31
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to unaudited Condensed
Consolidated Financial Statements
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Page 5
NORTHSTAR COMPUTER FORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
for the three months ended January 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 494,575 $ 570,693
Adjustments to reconcile net earnings to
net cash (used in) provided by operating
activities
Depreciation 644,139 623,731
Amortization 71,151 56,215
Provision for losses on receivables 13,800 13,800
(Gain) loss on sale of equipment (10,662) 1,710
Changes in certain operating assets and liabilities (1,003,772) (1,494,707)
---------- ----------
Net cash provided by (used in) operating activities 209,231 (228,558)
----------- ----------
Cash flows from investing activities:
Capital expenditures and equipment deposits (762,487) (256,438)
Capitalized computer software costs (229,261)
Proceeds from sale of equipment 13,000 400
Notes receivable repayments 540,619 50,819
---------- ----------
Net cash used in investing activities (438,129) (205,219)
---------- ----------
Cash flows from financing activities:
Dividends paid (176,147) (111,578)
Principal payments on long-term debt (1,187,500) (404,450)
Stock options exercised 20,554
---------- ----------
Net cash used in financing activities (1,343,093) (516,028)
---------- ----------
Net decrease in cash and cash equivalents (1,571,991) (949,805)
Cash and cash equivalents at beginning of period 5,317,881 2,378,105
---------- ----------
Cash and cash equivalents at end of period $3,745,890 $1,428,300
---------- ----------
---------- ----------
Supplemental disclosure of cash flow:
Cash paid during the period for:
Income taxes $1,103,250 $ 21,900
Interest 209,577 230,357
</TABLE>
See accompanying notes to unaudited Condensed
Consolidated Financial Statements
<PAGE>
Page 6
NORTHSTAR COMPUTER FORMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1998
(Unaudited)
1. Basis of Presentation
The interim condensed consolidated financial statements included in this
Form 10-Q have been prepared by Northstar Computer Forms, Inc. (the
Company), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed, or omitted, pursuant to these rules and regulations. The year
end balance sheet was derived from audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles. These consolidated financial statements should be read in
conjunction with the financial statements and related notes included in the
Company's 1997 Annual Report on Form 10-KSB as filed with the Securities
and Exchange Commission.
The consolidated financial statements presented herein as of January 31,
1998 and for the three months ended January 31, 1998 and 1997 reflect, in
the opinion of management, all adjustments (which include only normal,
recurring adjustments) necessary for a fair presentation of financial
position and results of operations for the period presented. The results
of operations for any interim period are not necessarily indicative of
results for the full year.
2. Earnings per share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, a new standard for computing and presenting earnings per share.
As required, the Company adopted this new standard in the first quarter of
fiscal 1998. Net earnings per share for all periods presented have been
computed by dividing net earnings by the weighted average number of common
shares outstanding ("basic EPS") and by the weighted average number of
common and common equivalent shares outstanding ("diluted EPS"). Common
equivalent shares relate to stock options and stock warrants when their
effect is not antidilutive.
For all periods presented, the weighted average common and common
equivalent shares outstanding are as follows:
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Page 7
<TABLE>
<CAPTION>
For the three months ended January 31
1998 1997
---- ----
<S> <C> <C>
Weighted average common
shares outstanding 1,761,879 1,716,571
Common equivalent shares
outstanding:
Option equivalents 159,349 112,271
Weighted average common
and common equivalent 1,921,228 1,828,842
</TABLE>
3. New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement
130, "Reporting Comprehensive Income," a new standard requiring the
operating and display of "Comprehensive Income" (defined as the change in
equity of a business enterprise during a period from sources other than
those resulting from investment by owners and distributions to owners) and
its components in a full set of general purpose financial statements. The
new standard will be effective for the Company's annual financial
statements in fiscal year 1999. In fiscal years 1997 and 1996, the Company
did not have any changes in equity from nonowner sources.
In June 1997, the Financial Accounting Standards Board issued Statement
131, "Disclosure About Segments of an Enterprise and Related Information,"
a new standard for reporting information about operating or business
segments in financial statements. The new standard will be effective for
the Company's annual financial statements in fiscal year 1999. The Company
has not evaluated what impact, if any, this new standard will have on the
Company's future reporting of operating and business segments.
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NORTHSTAR COMPUTER FORMS, INC.
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations of
Interim Financial Data
(Unaudited)
Results of Operations
The following discussion and analysis provides information that the Company's
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions readers that statements
contained herein, other than historical data, may be forward-looking and subject
to risks and uncertainties. The following important factors could cause the
Company's actual results to differ materially from those projected in
forward-looking statements made by, or on behalf of, the Company:
- Inability to successfully complete the integration of the Company's
new software system within all internal bank forms production
facilities.
- Loss of a major customer due to bank consolidations or other reasons.
- Rise in paper prices which outpaces the Company's ability to pass the
increase onto its customers.
- Technological obsolescence.
- Competition from large national manufacturers of internal bank forms.
The following table sets forth, for the periods indicated, certain items in the
Company's condensed consolidated statements of earnings as a percentage of net
sales and the percentage changes of the dollar amounts of such items as compared
with the prior period.
<TABLE>
<CAPTION>
Three Months Ended January 31
Percentage of Net Sales Increase (Decrease)
------------------------ ---------------------
1998 1997 1998 vs. 1997
---- ------ -------------
<S> <C> <C> <C> <C>
Net Sales............................... 100.0 % 100.0 % (8.6) %
Cost of Goods Sold ................ 73.0 73.4 (9.1)
----- ------ --------------
Gross Profit.................. 27.0 26.6 (7.4)
----- ------ --------------
Selling, General and
Administrative Expenses............. 18.3 16.5 1.3
----- ------ --------------
Operating Income........................ 8.7 10.1 (21.4)
Net Earnings............................ 4.7 4.9 (13.3)
----- ------ --------------
</TABLE>
The following table sets forth the net sales for the periods indicated for the
internal bank forms, custom business forms and consolidated net sales of the
Company.
<TABLE>
<CAPTION>
INTERNAL BANK CUSTOM BUSINESS CONSOLIDATED
FORMS % FORMS % SALES
------------- -- --------------- -- ------------
<S> <C> <C> <C> <C> <C>
Current Quarter
1998 7,455,284 70 $3,152,743 30 $10,608,027
1997 $8,405,572 72 $3,203,185 28 $11,608,757
Decrease (950,288) (50,442) (1,000,730)
Percentage Change (11.3%) (1.6%) (8.6%)
</TABLE>
<PAGE>
Page 9
NET SALES. The decrease in sales for the first quarter of 1998 was primarily in
internal bank forms. This decrease in sales is principally due to several large
bank conversions in the first quarter of 1997 which did not recur in 1998 and a
reduction in overall order volume in one internal bank forms plant. A bank
conversion results generally from an acquisition of one bank by another or a
change in the equipment utilized by a bank for internal document sorting.
Therefore, due to the unpredictable nature of bank conversions, the Company's
revenue for this type of sale fluctuates. In addition the sales for January,
the last month of the quarter, were somewhat soft in both internal bank forms
and custom business forms. Since the Company's typical manufacturing backlog is
five to seven days, a reduction in incoming orders in one or two weeks can
result in reduced sales for a month.
GROSS PROFIT. Although sales decreased $1,000,730 and correspondingly gross
profit decreased $228,114, the gross profit percentage improved slightly. Paper
costs remained relatively stable at the reduced 1997 prices. These stable
paper prices resulted in paper costs as a percentage of sales of approximately
2.5 percent less in 1998 than in the first quarter of 1997. Overall, the
reduced variable costs allowed for the absorption of fixed costs with no
reduction in gross profit percentage for 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased only $23,975. However, due to the reduction in
sales, the selling, general and administrative expenses accounted for 18.3
percent of sales in the first quarter of 1998 compared to 16.5 percent in the
first quarter of 1997. The increased sales expense in 1998 is due to a
restructuring of sales commissions to distributor/partners to provide additional
incentive to increase new business.
OPERATING INCOME/OTHER INCOME EXPENSE. Operating income for the first quarter
of 1998 was 8.7 percent of sales compared to 10.1 percent for the first quarter
of 1997. Other expense decreased approximately $90,000 for the first quarter of
1998. This reduction is principally due to decreased interest expense as a
result of debt repayment and increased interest income from investment of
additional cash balances on hand during the first quarter of 1998.
EARNINGS. Earnings before income taxes were $791,575 or 7.5 percent of sales in
1998 compared with $952,693 or 8.2 percent of sales in the first quarter of
1997. Net earnings were $494,575 ($ .26 per share diluted, $ .28 per share
basic) in 1998 compared to $570,693 ($ .31 per share diluted, $ .33 per share
basic) in 1997.
FINANCIAL CONDITION AND LIQUIDITY
LONG-TERM DEBT. The Company's long-term debt consists of a term loan and
Industrial Development Revenue Bonds. The term loan principal is payable in
quarterly installments and from annual excess cash flow as defined in the Loan
Agreement with any remaining principal balance on the term loan due on July 31,
2003. The Company paid an excess cash flow payment of $1,000,000 on January 31,
1998 and an additional $1,000,000 is due on April 30, 1998. Interest is payable
monthly. The bonds require annual principal payments and monthly interest
payments at a variable rate based upon comparable tax-exempt issues. Both the
term loan and the bonds specify limits on capital expenditures and dividends.
Both also specify working capital, net worth and certain financial ratios that
the Company must maintain.
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LIQUIDITY. Cash provided by operations was $209,231 for the first quarter of
1998 compared to cash used in operations of $228,558 in the first quarter of
1997. Working capital was $7.7 million on January 31, 1998, compared to $7.2
million on October 31, 1997.
During the quarter ended January 31, 1998 the Company continued to expand its
manufacturing capacity by the acquisition of $991,748 in equipment and computer
software compared to capital expenditures of $256,438 for the first quarter of
1997. The Company anticipates that total equipment and computer software
expenditures for 1998 will approximate the 1997 capital expenditures of
$2,050,000. During 1998, the Company received a prepayment of a note receivable
of $540,619 previously classified as a non current asset.
If necessary to finance operations, the Company has a $1.5 million line of
credit at an interest rate equal to the bank's reference rate. The Company did
not have to utilize this line of credit during 1998 or 1997. The Company
believes its existing financial resources are adequate to fund its 1998
operations, including capital expenditures and dividend payments, and foresees
no events or uncertainties that are likely to have a material impact on its
liquidity. The Company expects to be able to generate sufficient cash flow from
operations to avoid relying on external sources of financing beyond the
facilities already in place.
OUTLOOK. Merger and acquisition activity in the banking industry is extremely
strong at this time. Banks generally consolidate their purchasing of internal
bank forms with one supplier. Therefore, the Company could obtain or lose a
significant customer as this consolidation activity continues. Recently,
competition in the internal bank forms industry has become more intense and is
particularly strong in contract negotiations with the larger banks. This
increased competition has resulted in non-renewal of two contracts and renewals
of certain contracts at reduced profit margin levels. The Company has also
obtained three large volume new internal bank form customers. In the custom
business forms business, the Company has verbally agreed to an extension of its
contract to manufacture forms for its largest customer.
To offset the possible impact of competition, the integration of the Company's
computer systems is increasingly important. The internal bank forms computer
system which the Company developed and installed in the Northstar Financial
Forms Division in 1997 will be enhanced and installed in all of the Company's
internal bank forms production facilities. Phase two of this installation was
completed the first week of March 1998 in two plants. Phase three is scheduled
for later this year. This integrated computer system is expected to increase
operating efficiencies within these plants by streamlining order processing,
enhancing equipment utilization and improving billing and reporting
capabilities. In addition, the Company is developing and implementing marketing
strategies to strengthen the Company's position. These marketing efforts will
focus on the internal bank forms industry as well as the other financial forms
products manufactured at the Company's custom business forms production
facilities.
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READINESS FOR YEAR 2000. The Company has taken actions to understand the nature
and extent of work required to make the Company's systems Year 2000 compliant.
The Company believes, based on available information, that it will be able to
manage its total Year 2000 transition without any material adverse effect on its
business operations, products or financial prospects.
NEW ACCOUNTING PRONOUNCEMENTS. In June 1997, the Financial Accounting Standards
Board issued Statement 130, "Reporting Comprehensive Income," a new standard
requiring the operating and display of "Comprehensive Income" (defined as the
change in equity of a business enterprise during a period from sources other
than those resulting from investment by owners and distributions to owners) and
its components in a full set of general purpose financial statements. The new
standard will be effective for the Company's annual financial statements in
fiscal year 1999. In fiscal years 1997 and 1996, the Company did not have any
changes in equity from nonowner sources.
In June 1997, the Financial Accounting Standards Board issued Statement 131,
"Disclosure About Segments of an Enterprise and Related Information," a new
standard for reporting information about operating or business segments in
financial statements. The new standard will be effective for the Company's
annual financial statements in fiscal year 1999. The Company has not evaluated
what impact, if any, this new standard will have on the Company's future
reporting of operating and business segments.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Northstar Computer Forms, Inc.
(Registrant)
Date: March 11, 1998 By: Mary Ann Morin
-------------------------- ------------------------------
Mary Ann Morin
Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 3,745,890
<SECURITIES> 0
<RECEIVABLES> 6,371,133
<ALLOWANCES> 300,000
<INVENTORY> 2,069,878
<CURRENT-ASSETS> 12,759,829
<PP&E> 30,199,352
<DEPRECIATION> 14,872,199
<TOTAL-ASSETS> 31,422,351
<CURRENT-LIABILITIES> 5,039,859
<BONDS> 7,068,050
0
0
<COMMON> 88,209
<OTHER-SE> 2,310,185
<TOTAL-LIABILITY-AND-EQUITY> 31,422,351
<SALES> 10,608,027
<TOTAL-REVENUES> 10,608,027
<CGS> 7,747,106
<TOTAL-COSTS> 9,670,160
<OTHER-EXPENSES> (77,085)
<LOSS-PROVISION> 13,800
<INTEREST-EXPENSE> 209,577
<INCOME-PRETAX> 791,575
<INCOME-TAX> 297,000
<INCOME-CONTINUING> 494,575
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 494,575
<EPS-PRIMARY> .28
<EPS-DILUTED> .26
</TABLE>
