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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, 2000
/ / 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
-------
Northstar Computer Forms, Inc.
------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 1-0882640
- --------- ---------
(State of other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Numbers)
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 February 28, 2000
----- --------------------------------
Common Stock, $ .05 par value 2,747,858 Shares
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Part 1. Financial Information
Item 1. Financial Statements
NORTHSTAR COMPUTER FORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
January 31, October 31,
2000 (Unaudited) 1999
---------------- ---------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,224,364 $ 3,878,447
Accounts receivable, less
allowance for doubtful accounts
of $184,000 at January 31, 2000 and $153,000 at October 31, 1999 5,115,256 5,958,522
Inventories 2,165,229 2,294,119
Other current assets 1,315,834 442,743
Deferred income taxes 268,956 261,656
---------------- ---------------
Total current assets 13,089,639 12,835,487
---------------- ---------------
Property, plant and equipment 32,354,735 31,970,784
Less accumulated depreciation and
amortization (19,246,242) 18,602,108
---------------- ---------------
Net property, plant and equipment 13,108,493 13,368,676
---------------- ---------------
Notes receivable, less current portion 23,852 60,634
Goodwill, net 1,304,410 1,354,786
Other assets, net 1,300,113 1,256,641
---------------- ---------------
Total assets $ 28,826,507 $ 28,876,224
================ ===============
</TABLE>
See accompanying notes to unaudited Condensed
Consolidated Financial Statements
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NORTHSTAR COMPUTER FORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET, CONTINUED
<TABLE>
<CAPTION>
January 31, October 31,
2000 (Unaudited) 1999
---------------- ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 335,000 $ 335,000
Accounts payable 1,849,345 1,296,485
Accrued liabilities 1,480,015 2,608,969
---------------- ---------------
Total current liabilities 3,664,360 4,240,454
Deferred compensation 795,066 773,333
Deferred income taxes 1,477,883 1,461,633
Long-term debt, less current portion 1,340,000 1,340,000
Commitments
Stockholders' equity:
Common stock, $ .05 par value
authorized, 5,000,000 shares; issued
and outstanding, 2,746,958 at January 31, 2000
and 2,744,708 at October 31, 1999 137,348 137,235
Additional paid-in capital 2,877,110 2,862,678
Retained earnings 18,534,740 18,060,891
---------------- ---------------
Total stockholders' equity 21,549,198 21,060,804
---------------- ---------------
Total liabilities and stockholders' equity $ 28,826,507 $ 28,876,224
==================================
</TABLE>
See accompanying notes to unaudited Condensed
Consolidated Financial Statements
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NORTHSTAR COMPUTER FORMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
January 31
2000 1999
---- ----
<S> <C> <C>
Net sales $ 11,611,459 $ 10,643,618
Cost of goods sold 8,781,292 7,916,249
-------------- --------------
Gross profit 2,830,167 2,727,369
Selling, general and
administrative expenses 2,069,730 1,945,720
-------------- --------------
Operating income 760,437 781,649
Other income (expense):
Interest expense (27,245) (92,020)
Other, net, principally
interest income 44,157 70,869
-------------- --------------
16,912 (21,151)
-------------- --------------
Earnings before income taxes 777,349 760,498
Provision for income taxes 303,500 289,000
-------------- --------------
Net earnings $ 473,849 $ 471,498
-------------- --------------
Net earnings per common share:
Basic $ 0.17 $ 0.17
-------------- --------------
Diluted $ 0.16 $ 0.17
-------------- --------------
Dividends declared per
common share $ ---- $ ----
============== ==============
</TABLE>
See accompanying notes to unaudited Condensed
Consolidated Financial Statements
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NORTHSTAR COMPUTER FORMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (Unaudited)
Increase (Decrease) in Cash and Cash
Equivalents for the three months ended
January 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 473,849 $ 471,498
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 665,946 646,577
Amortization 94,924 95,597
Provision for doubtful accounts 20,100 13,800
Gain on sale of equipment (3,281) (7,900)
Deferred income taxes 8,950 88,000
Changes in certain operating assets and liabilities (343,847) (447,762)
-------------- ---------------
Net cash provided by operating activities 916,641 859,810
-------------- ---------------
Cash flows from investing activities:
Capital expenditures and equipment deposits (405,763) (599,617)
Proceeds from sale of equipment 3,281 13,600
Notes receivable repayments 36,782 6,147
-------------- ---------------
Net cash used in investing activities (365,700) (579,870)
-------------- ---------------
Cash flows from financing activities:
Principal payments on long-term debt --- (262,500)
Dividends paid (219,569) (190,017)
Stock options exercised 14,545 63,504
-------------- ---------------
Net cash used in financing activities (205,024) (389,013)
-------------- ---------------
Net increase (decrease) in cash and cash equivalents 345,917 (109,073)
Cash and cash equivalents at beginning of period 3,878,447 4,162,845
-------------- ---------------
Cash and cash equivalents at end of period $ 4,224,364 $ 4,053,772
============== ===============
</TABLE>
See accompanying notes to unaudited Condensed
Consolidated Financial Statements
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NORTHSTAR COMPUTER FORMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
January 31, 2000
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 unaudited condensed consolidated financial
statements should be read in conjunction with the financial statements
and related notes included in the Company's 1999 Annual Report on Form
10-K as filed with the Securities and Exchange Commission.
The unaudited condensed consolidated financial statements presented
herein at January 31, 2000, and for the three month periods ended
January 31, 2000 and 1999 reflect, in the opinion of management, all
adjustments (which include only normal, recurring adjustments)
necessary for a fair presentation of the financial position, results of
operations and cash flows as of and for the periods presented. The
results of operations and cash flows for any interim period are not
necessarily indicative of results for the full year.
2. Earnings per share
Net earnings per share (EPS) 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). The Company's common equivalent shares consist of stock options,
when their effect is dilutive.
At January 31, 2000 and 1999, 150,000 and 39,000 outstanding options
were excluded from the computation of diluted EPS for the respective
quarter because the options' exercise prices were greater than the
average market price of the Company's common shares.
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For all periods presented, the weighted average common and common
equivalent shares outstanding are as follows:
<TABLE>
<CAPTION>
For the three months ended January 31st
(Unaudited)
2000 1999
---- ----
<S> <C> <C>
Weighted average common 2,745,691 2,719,103
shares outstanding
Common equivalent shares outstanding 155,761 99,325
------- ------
Weighted average common and common equivalent
shares outstanding 2,901,452 2,818,428
========= =========
</TABLE>
3. Inventory
At January 31, 2000 and October 31, 1999, inventories consisted of the
following:
<TABLE>
<CAPTION>
January 31st October 31st
2000 1999
---- ----
<S> <C> <C>
Raw Materials $1,452,995 $1,503,444
Work in Process 462,774 573,993
Finished Goods 249,460 216,682
-------------------- -----------------
$2,165,229 $2,294,119
==================== =================
</TABLE>
4. Subsequent Event
On February 21, 2000, the Company announced that it has entered into a
definitive merger agreement with Ennis Business Forms to acquire all of
the stock of Northstar Computer Forms, Inc. This acquisition is subject
to customary terms and conditions, stockholder approval, and the
termination of the necessary waiting period under the Hart-Scott Rodino
Act.
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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)
INTRODUCTION
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. This discussion should
be read in conjunction with the financial statements and footnotes which appear
elsewhere in this quarterly report.
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:
- - Loss of one or more major customers due to bank consolidations or other
reasons,
- - Rise in paper prices which outpaces the Company's ability to pass the
increase through to its customers,
- - Inability to extend existing contracts or successfully negotiate new
contracts,
- - Technological obsolescence of the Company's products or manufacturing
equipment,
- - Contracting market for traditional business forms products,
- - Competition from large national manufacturers of internal bank forms and
custom business forms.
RESULTS OF OPERATIONS
NET SALES. The following table sets forth, for the three months ended January
31, 2000 and 1999, certain items in the Company's consolidated statement of
earnings as a percentage of net sales and the percentage changes of the dollar
amounts of such items.
<TABLE>
<CAPTION>
Three Months Ended January 31
Percentage of Net Sales Increase (Decrease)
----------------------- -------------------
2000 1999 2000 vs. 1999
---- ---- -------------
<S> <C> <C> <C>
Net Sales.............................. 100.0% 100.0% 9.1%
Cost of Goods Sold.................. 75.7 74.4 10.9
---- ---- ----
Gross Profit....................... 24.3 25.6 3.8
Selling, General and Administrative Expenses.... 17.8 18.3 6.4
Operating Income.................... 6.5 7.3 (2.7)
Net Earnings.......................... 4.1 4.4 .5
</TABLE>
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Net sales in the first quarter of 2000 increased $967,841 from $10,643,618 for
the first quarter of 1999 to $11,611,459. The Company's business forms products
consist of two product specialties - internal bank forms and negotiable
documents - as well as other custom business forms.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL SALES
2000 1999
---- ----
<S> <C> <C>
Internal Bank Forms 60% 66%
Negotiable Documents 28% 20%
Other Custom Business Forms 12% 14%
</TABLE>
Sales of internal bank forms remained relatively flat at $7 million for the
first quarter of both 2000 and 1999. Negotiable documents, which include gift
certificates, money orders, certificates of title, and bank official checks, are
the Company's other principal custom business forms specialty. The sales of
these products and related services accounted for $3.2 million in sales for the
first quarter of 2000, an increase of $1 million or a 45 percent increase over
the first quarter of 1999 sales of $2.2 million. This increase in sales is
principally due to the expansion of the contract with the Company's largest
customer. The new four year contract which began January 1, 1999, increased
annual sales of negotiable documents by an estimated $3.5 million.
Custom business forms remained relatively flat at $1.4 million in sales for the
first quarter of 2000 compared to $1.5 million for the first quarter of 1999.
This product line is sold to various distributors/printers for resale.
GROSS PROFIT. Gross profit was $2,830,167 (24.3 percent of net sales) in 2000
compared to $2,727,369 (25.6 percent of net sales) in 1999. This decrease in the
gross profit percentage is principally attributable to increased direct labor
costs due to an extremely tight labor market and related employee fringe benefit
costs. The Company has not been able to completely pass these cost increases
through to its customers. Other manufacturing costs remained relatively constant
as a percentage of sales for the first quarter of 2000 compared to the first
quarter of 1999.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE. Selling, general, and
administrative expense increased $124,010 for the first quarter of fiscal 2000
compared to 1999. However, as a percentage of sales these costs decreased 0.5
percent from 18.3 percent of sales for the first quarter of 1999 to 17.8 percent
of sales for the first quarter of 2000. The increase for 2000 was also
principally due to increased payroll and associated costs.
OTHER INCOME AND EXPENSE. Interest expense decreased $64,775 due to debt
repayment.
EARNINGS BEFORE INCOME TAXES. Earnings before income taxes for 2000 were 6.7
percent of net sales for the first quarter of 2000 compared to 7.1 percent of
sales for the first quarter of 1999.
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PROVISION FOR INCOME TAXES. The provision for income taxes for the first quarter
of 2000 was 39.0 percent of sales consistent with the tax rate for the previous
fiscal year.
FINANCIAL CONDITION AND LIQUIDITY
LONG-TERM DEBT. The Company's long-term debt consists of Industrial Development
Revenue Bonds. The bonds require annual principal payments and monthly interest
payments at a variable rate based upon comparable tax-exempt issues. The bonds
specify limits on capital expenditures and dividends as well as specify working
capital, net worth, and certain financial ratios that the Company must maintain.
LIQUIDITY. Cash provided by operations was $916,641 during the first quarter of
2000, compared to $859,810 during the first quarter of 1999. Working capital was
$9.4 million on January 31, 2000, compared to $8.6 million on October 31, 1999.
During the first quarter of 2000 the Company continued to expand and modernize
its manufacturing capacity by the acquisition of $405,763 in equipment compared
to capital expenditures of $599,617 for equipment for the comparable period of
1999. The Company anticipates that total equipment expenditures for 2000 will
approximate $2,000,000.
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 2000 or 1999. The Company
believes its existing financial resources are adequate to fund its 2000
operations, including capital expenditures and dividend payments, and foresees
no events or uncertainties that are likely to have a material impact on its
liquidity.
OUTLOOK. On February 21, 2000, the Company announced that it has entered into a
definitive merger agreement with Ennis Business Forms to acquire all of the
stock of Northstar Computer Forms, Inc. This acquisition is subject to customary
terms and conditions, stockholder approval, and the termination of the necessary
waiting period under the Hart-Scott Rodino Act.
Merger and acquisition activity is very strong throughout the United States. The
banking industry, which was previously very strong in merger and acquisition
activity, slowed in 1999 as the industry dedicated its resources to ensuring
Year 2000 readiness. The merger and acquisition activity in this industry may
again increase. Banks generally consolidate their purchasing of internal bank
forms with one supplier. Therefore, the Company could obtain or lose a
significant customer or numerous smaller customers as part of this consolidation
activity. The Company continues to work to stabilize and increase its customer
base by signing contracts with new and existing customers. In addition, the
Company formed two new strategic alliances with other companies in the financial
forms industry. Sales with one of these partners increased significantly in
1999. Sales with the second alliance were insignificant in 1999. However, the
Company is still working with the second alliance to develop these sales which
depend on the partner's ability to sell internal bank forms as ancillary
products used in the equipment it sells to the banking industry.
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In negotiable documents, the Company's other custom business forms specialty,
the Company and its largest customer agreed to extend and expand the contract
for the manufacture and distribution of its products.
The three factors with the largest impact on the Company's gross profit are
paper price changes, sales volume changes, and sales mix changes. The Company
expects the paper industry to increase prices in 2000. At this time, the Company
expects to be able to pass these paper price increases through to its customers.
In 2000, sales volumes are expected to increase in both internal bank forms and
negotiable documents with no significant change in sales mix.
The Company does not anticipate significant changes in selling, general, and
administrative costs for 2000. Based on the projected increase in sales volume,
these costs are expected to decrease as a percentage of sales in 2000.
NEW ACCOUNTING PRONOUNCEMENTS. In March 1998, the Accounting Standards Executive
Committee issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The Company adopted
SOP 98-1 for fiscal year 2000. The SOP 98-1 did not significantly change the
Company's accounting for software costs.
YEAR 2000 READINESS. The Company did not experience any problems in its
operating systems in connection with the Y2K date change. At this time, the
Company has not incurred and does not anticipate any interruption of services
from its vendors, customers, or other business partners.
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\
NORTHSTAR COMPUTER FORMS, INC.
PART II. - OTHER INFORMATION
Item 3. Financial Instruments
The principal financial instruments the Company maintains are in
accounts receivable, notes receivable and long-term debt. The Company
believes that the interest rate, credit and market risk related to
these accounts is not significant. The Company manages the risk
associated with these accounts through periodic reviews of the carrying
value for non-collectibility of assets and establishment of appropriate
allowances in connection with the Company's internal controls and
policies. The Company does not enter into hedging or derivative
instruments.
Item 6. Exhibits and Reports on Form 8-K
On March 3, 2000, the Company filed an 8K with the U.S. Securities and
Exchange Commission regarding the Agreement and Plan of Merger entered
into with Ennis Business Forms on February 21, 2000.
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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 10, 2000 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-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 4,224,364
<SECURITIES> 0
<RECEIVABLES> 5,299,256
<ALLOWANCES> 184,000
<INVENTORY> 2,165,229
<CURRENT-ASSETS> 13,089,639
<PP&E> 32,354,735
<DEPRECIATION> 19,246,242
<TOTAL-ASSETS> 28,826,507
<CURRENT-LIABILITIES> 3,664,360
<BONDS> 1,340,000
0
0
<COMMON> 137,348
<OTHER-SE> 21,411,850
<TOTAL-LIABILITY-AND-EQUITY> 28,826,507
<SALES> 11,611,459
<TOTAL-REVENUES> 11,611,459
<CGS> 8,781,292
<TOTAL-COSTS> 10,830,922
<OTHER-EXPENSES> (44,157)
<LOSS-PROVISION> 20,100
<INTEREST-EXPENSE> 27,245
<INCOME-PRETAX> 777,349
<INCOME-TAX> 303,500
<INCOME-CONTINUING> 473,849
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 473,849
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.16
</TABLE>
