<PAGE> 1
United States
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 Period Ended February 28, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the Transition Period From to
----------------
Commission file number 0-21800
NORWOOD PROMOTIONAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2553074
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
106 EAST SIXTH STREET, SUITE 300, AUSTIN, TEXAS 78701
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(Address of Principal executive offices) (Zip Code)
(512) 476-7100
(Registrant's telephone number, including area code)
(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 Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods 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
--- ---
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 5,080,751 shares of Common
Stock, no par value, as of April 6, 1998.
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NORWOOD PROMOTIONAL PRODUCTS, INC.
INDEX TO FORM 10-Q
QUARTER ENDED FEBRUARY 28, 1998
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. Financial Information
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Statements of Income 3
Condensed Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Shareholders' Equity 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
PART II. Other Information
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
Index to Exhibits 14
</TABLE>
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NORWOOD PROMOTIONAL PRODUCTS, INC.
ITEM 1. CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
FEBRUARY 28, MARCH 1, FEBRUARY 28, MARCH 1,
1998 1997(a) 1998 1997 (a)
<S> <C> <C> <C> <C>
Sales $ 39,988 $ 35,268 $ 86,953 $ 75,086
Cost of sales 29,756 25,261 63,501 52,850
Gross profit 10,232 10,007 23,452 22,236
Operating expenses 8,464 8,377 17,695 16,754
Operating income 1,768 1,630 5,757 5,482
Interest expense 1,040 644 1,902 1,313
Income before income taxes 728 986 3,855 4,169
Provision for income taxes 299 364 1,581 1,645
Income from continuing operations 429 622 2,274 2,524
Discontinued operations -- (457) -- (919)
Net income $ 429 $ 165 $ 2,274 $ 1,605
Net income per common share:
Basic: (b) (b)
Income from continuing operations $ 0.08 $ 0.11 $ 0.45 $ 0.45
Discontinued operations -- (0.08) -- (0.16)
Net income $ 0.08 $ 0.03 $ 0.45 $ 0.29
Diluted:
Income from continuing operations $ 0.08 $ 0.11 $ 0.43 $ 0.44
Discontinued operations -- (0.08) -- (0.16)
Net income $ 0.08 $ 0.03 $ 0.43 0.28
Weighted average number of common shares outstanding:
Basic 5,075 5,620 5,075 5,620
Diluted 5,200 5,800 5,200 5,775
</TABLE>
(a) Restated for discontinued operations reported in the fourth quarter, 1997
(b) Restated to conform with the provisions of Statement of Financial
Accounting Standards No. 128, Earnings Per Share
See accompanying notes.
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NORWOOD PROMOTIONAL PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 30,
1998 1997
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 94 $ 2,609
Accounts receivable 19,481 24,282
Income taxes receivable 601 551
Other receivables 2,928 713
Inventories 34,788 32,105
Prepaid expenses and other current assets 2,448 2,464
Total current assets 60,340 62,724
Property, plant and equipment, net 18,334 21,141
Goodwill 37,366 39,009
Deferred income taxes 2,630 2,549
Other assets 8,857 9,771
Total assets 127,527 $ 135,194
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 8,909 $ 11,299
Accrued liabilities 5,384 11,197
Income taxes payable -- --
Current maturities of long-term debt and capital lease obligations 2,277 2,352
Total current liabilities 16,570 24,848
Long-term debt and capital lease obligations, less current maturities portion 57,245 59,070
Shareholders' equity:
Common stock, no par value; 20,000,000 shares authorized; 5,654,558 and
5,638,789 shares issued and 5,078,028 and 5,062,259 shares
outstanding at February 28, 1998 and August 30, 1997, respectively 23,020 22,858
Additional paid-in capital 29,340 29,340
Less cost of treasury stock, 576,530 shares at February 28, 1998 and August 30,
1997, respectively (7,391) (7,391)
Retained earnings 8,743 6,469
Total shareholders' equity 53,712 51,276
Total liabilities and shareholders' equity $ 127,527 $ 135,194
</TABLE>
See accompanying notes.
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NORWOOD PROMOTIONAL PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28, MARCH 1,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,274 $ 1,605
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes (81)
Deprecation 1,897 2,099
Amortization 2,034 1,904
(Gain) loss on sale of property & equipment 3 --
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable, net 4,802 3,710
Income taxes receivable (50)
Inventory (2,684) (860)
Prepaid expenses and other 539 (1,274)
Other receivables (102) 48
Accounts payable (1,490) (2,881)
Accrued liabilities (5,726) (1,478)
Income taxes payable -- (78)
Net cash provided by operating activities 1,416 2,795
INVESTING ACTIVITIES
Business acquisitions, net of cash -- (8,228)
Purchase of property, plant & equipment (2,106) (2,487)
Proceeds from retirement of property, plant & equipment -- 28
Net cash used in investing activities (2,106) (10,687)
FINANCING ACTIVITIES
Proceeds from long-term debt 25,400 36,940
Payments on long-term debt (27,387) (29,958)
Proceeds from sale of common stock and shareholder notes 162 86
Net cash (used in) provided by financing activities (1,825) 7,068
Net change in cash (2,515) (824)
Cash at beginning of period 2,609 1,861
Cash at end of period 94 $ 1,037
</TABLE>
See accompanying notes.
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NORWOOD PROMOTIONAL PRODUCTS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------ PAID-IN RETAINED TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------ ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 30, 1997 5,639 $22,858 $29,340 $6,469 $(7,391) $51,276
Purchases of common stock 16 162 -- -- -- 162
Net income -- -- -- 2,274 -- 2,274
Balance at February 28, 1998 5,655 $23,020 $29,340 $8,743 $(7,391) $53,712
</TABLE>
See accompanying notes
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NORWOOD PROMOTIONAL PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED FEBRUARY 28, 1998 AND MARCH 1, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Air-Tex
Corporation ("Air-Tex"), ArtMold Products Corporation ("ArtMold"), Barlow
Promotional Products, Inc. ("Barlow"), Key Industries, Inc. ("Key"), Radio Cap
Company, Inc. ("RCC"), and Norcorp, Inc. ("Norcorp") and have been presented in
accordance with the reporting requirements for interim financial statements.
Such requirements do not include all of the disclosures normally required by
generally accepted accounting principles or those normally made in an Annual
Report of the registrant on Form 10-K. The information furnished herein reflects
all adjustments which, in the opinion of management, are of a normal recurring
nature and necessary for a fair statement of the results of interim periods.
Such results for interim periods are not necessarily indicative of the results
to be expected for a full year, principally due to seasonal fluctuations in
product line revenue.
2. INVENTORIES
Inventories at February 28, 1998 and March 1, 1997 consist of (in
thousands):
<TABLE>
<CAPTION>
FEBRUARY 28, MARCH 1,
1998 1997
<S> <C> <C>
Raw materials $ 8,745 $ 10,731
Work in process 1,104 1,241
Finished goods 24,939 20,969
Total $ 34,788 $ 32,941
</TABLE>
3. EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 128 (issued by the Financial Accounting Standards Board in February 1997)
during the second quarter ended February 28, 1998. As required by SFAS No. 128,
the method used by the Company to compute earning per share was changed and
prior periods have been restated. Under the new requirements for calculating
basic (formerly primary) earnings per share, the dilutive effect of stock
options and warrants is excluded. In addition for calculating diluted (formerly
fully diluted) earnings per share, the treasury stock method is applied using
the average price for the period rather than the higher of the average price or
the closing price on the last day of the period.
4. SUBSEQUENT EVENT
The Company announced on March 16, 1998 that it has signed a merger
agreement with FPK, LLC, a limited liability company formed by the Company's
Chairman and Chief Executive Officer, under which each share of the common stock
of the Company (other than shares held by certain members of Norwood's
management and employees) will be converted into the right to receive $20.70 per
share in cash.
Under the merger agreement, FPK, LLC will form a wholly owned
subsidiary which will be merged with and into the Company, with the Company
being the surviving corporation. The merger is subject, among other things, to
the approval of the holders of at least two-thirds of the outstanding common
stock of the Company, the consummation of debt and equity financing to finance
the transaction and the expiration or termination of the waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Financing is being
arranged by FPK, LLC.
Based on the recommendation of a Special Committee of the Board of
Directors, the merger agreement was unanimously approved by the Board of
Directors of the Company (with two interested directors abstaining) and by the
Sole Manager and Member of FPK, LLC. It is anticipated that the transaction will
close in the second calendar quarter of 1998. Upon completion of the
transaction, the Company will continue to operate as an independent company.
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NORWOOD PROMOTIONAL PRODUCTS, INC.
ITEMS 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following is Management's discussion and analysis of the results of
operations and financial condition of Norwood Promotional Products, Inc. and its
subsidiaries ("the Company") during the periods included in the accompanying
consolidated financial statements. The discussion below relates to material
changes in the results of operations for the three and six months ended February
28, 1998 as compared to the same periods ended March 1, 1997, and to material
changes in the financial condition of the Company occurring since the prior
fiscal year end of August 30, 1997. The Company's results of operations for the
periods discussed below were significantly affected by the acquisitions of
Wesburn Golf (acquired in February 1997) and DM Apparel, Inc. (acquired in
February 1997) (collectively referred to as the "fiscal 1997 acquisitions"). For
further information, refer to the Company's Annual Report on Form 10-K for the
year ended August 30, 1997.
THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 1,
1997
Sales for the second quarter of fiscal 1998 increased $4.7 million, or
13.3%, to $40.0 million from $35.3 million (restated for discontinued operations
reported August 1997) in the second quarter of fiscal 1997. Excluding businesses
acquired during the second half of fiscal 1997, sales for the second quarter
increased approximately 5% from the comparable period last year. Significant
sales increases for the second quarter were realized at RCC (16.2% increase) and
Barlow (9.3% increase) over the same quarter last year while Air-Tex posted a
decrease in sales of 13.6% compared to the same quarter last year.
Gross profit for the second quarter of fiscal 1998 increased $225,000,
or 2.2%, to $10.2 million from $10.0 million in the second quarter of fiscal
1997. This increase was attributable to the fiscal 1997 acquisitions offset by
a decline in overall gross profit percentage from 28.4% to 25.6%. This decrease
was attributable to the growth in logo golf ball sales which have lower gross
profit margins (offset by lower operating expenses) and lower margins recorded
by the Company's custom sewing jacket company and the Air-Tex bag company. In
addition, due to higher sales volumes, the Company has experienced labor
variances in plastic drinkware processing at RCC and at Barlow in order to meet
tight delivery deadlines.
Operating expenses for the second quarter of fiscal 1998 increased
$87,000, or 1.0%, to $8.5 million from $8.4 million in the second quarter of
fiscal 1997. This increase was primarily attributable to the fiscal 1997
acquisitions. Operating expenses as a percentage of sales decreased from 23.8%
to 21.2%. This decrease reflects the lower operating expenses of the logo golf
ball business, the realignment of the operating companies into two groups
undertaken at the end of fiscal 1997 and to other cost saving initiatives
undertaken by the Company's subsidiaries.
Operating income for the second quarter of fiscal 1998 increased
$138,000, or 8.5%, to $1.8 million from $1.6 million in the second quarter of
fiscal 1997. Operating income as a percentage of sales decreased from 4.6% to
4.4%. This decrease was mainly attributable to lower contributions from the
custom sewing jacket operation, bag product lines at Air-Tex and California
Line. Management believes the bag product lines lower operating income will
recover.
Interest expense was $1,040,000 for the second quarter of fiscal 1998
compared to $644,000 in the second
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quarter of fiscal 1997. The increase was attributable to the increase in
borrowings used to finance the 1997 acquisitions and to repurchase 575,100
shares of the Company's common stock in April 1997.
The Company's effective tax rate was 41.0% during the second quarter of
fiscal 1998 compared with 36.9% in the second quarter of fiscal 1997.
Discontinued operations for fiscal 1997 relates to the Company's
decision to discontinue the operations of the Alpha Products retail division.
The after-tax operating loss attributable to the Alpha Products division in the
second quarter of fiscal 1997 was $457,000.
Net income for the second quarter of fiscal 1998 increased $264,000 to
$429,000 from $165,000 in the second quarter of fiscal 1997.
The Company announced at the end of fiscal 1997 that its operating
entities had been reorganized into two groups: RCC Group and Barlow Group. The
RCC Group is comprised of operations producing drinkware, Koozie(R), headwear
and promotional bag products, while the Barlow Group's products include writing
instruments, pocket tools, business gifts and awards, and desktop and office
products. For the second quarter of 1998, the RCC Group recorded sales of $17.5
million, a 12.1% increase from sales of $15.6 million in the same period for
1997. The Barlow Group's sales for the 1998 second quarter increased $2.9
million to $22.5 million from $19.6 million reported in the 1997 second quarter.
Adjusted for fiscal 1997 acquisitions, Barlow group sales increased 5.8% from
the comparable quarter. The gross profit margin of the RCC Group was 24.0% for
the second quarter of fiscal 1998 compared to 27.4% for the same period of 1997;
and for the Barlow Group, the gross profit margin was 27.7% compared to 29.2%
for the same respective periods. The variance for the RCC Group was due to the
start-up expenses of the Alpha Products operations which moved from Atlanta to
San Antonio and the variance for the Barlow Group was due to the increase in
logo golf ball sales; which traditionally have lower gross margins on sales.
Operating expenses in the second quarter of 1998 as a percentage of sales were
approximately 17.8% and 19.9% for the RCC Group and Barlow Group, respectively,
compared to 21.1% and 21.5%, respectively, for the same period of 1997.
SIX MONTHS ENDED FEBRUARY 28, 1998 COMPARED WITH SIX MONTHS ENDED MARCH 1, 1997
Sales for the first six months of fiscal 1998 increased $11.9 million,
or 15.8%, to $87.0 million from $75.1 million (restated for discontinued
operations reported August 1997) in the first six months of fiscal 1997.
Excluding businesses acquired during the second half of fiscal 1997, sales for
the first six months of fiscal 1998 increased approximately 6% from the
comparable period last year. Significant sales increases for the first six
months of fiscal 1998 were realized at RCC (13.5% increase) and Barlow (9.0%
increase) over the same quarter last year while Air-Tex posted a decrease in
sales of 17.6% compared to the same period last year.
Gross profit for the first six months of fiscal 1998 increased $1.2
million, or 5.5%, to $23.4 million from $22.2 million in the first six months of
fiscal 1997. This increase was attributable to the fiscal 1997 acquisitions
offset by a decline in overall gross profit percentage from 29.6% to 27.0%. This
decrease was attributable to the growth in logo golf ball sales which have lower
gross profit margins (offset by lower operating expenses) and lower margins
recorded by the Company's custom sewing jacket company and the Air-Tex bag
company. In addition, due to higher sales volumes, the Company has experienced
labor variances in plastic drinkware processing at RCC and at Barlow in order to
meet tight delivery deadlines.
Operating expenses for the first six months of fiscal 1998 increased
$941,000 or 5.6%, to $17.7 million from $16.8 million in the first six months of
fiscal 1997. This increase was primarily attributable to the fiscal 1997
acquisitions. Operating expenses as a percentage of sales decreased from 22.3%
to 20.3%. This decrease reflects the lower operating expenses of the logo golf
ball business, the realignment of the operating companies into two
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groups undertaken at the end of fiscal 1997 and to other cost saving initiatives
undertaken by the Company's subsidiaries.
Operating income for the first six months of fiscal 1998 increased
$275,000, or 5.0%, to $5.8 million from $5.5 million in the first six months of
fiscal 1997. Operating income as a percentage of sales decreased from 7.3% to
6.6%. This decrease was mainly attributable to lower gross profit due to the
relocation of the promotional products division of Alpha Products from Atlanta
to San Antonio and lower contributions from the custom sewing jacket operation,
bag product lines at Air-Tex and California Line. Management believes the bag
product lines lower operating income will recover.
Interest expense was $1.9 million for the first six months of fiscal
1998 compared to $1.3 million in the first six months of fiscal 1997. The
increase was attributable to the increase in borrowings used to finance the 1997
acquisitions (February 1997) and to repurchase 575,100 shares of the Company's
common stock in April 1997.
The Company's effective tax rate was 41.0% during the first six months
of fiscal 1998 compared with 39.5% in the first six months of fiscal 1997.
Discontinued operations for fiscal 1997 relates to the Company's
decision to discontinue the operations of the Alpha Products retail division.
The after-tax operating loss attributable to the Alpha Products retail division
for the six months ended March 1, 1997 was $919,000.
Net income for the first six months of fiscal 1998 increased $670,000,
or 41.7%, to $2.3 million from $1.6 million in the first six months of fiscal
1997.
For the first six months of fiscal 1998, the RCC Group recorded sales
of $38.6 million, a 9.5% increase from sales of $35.2 million in the same period
for 1997. The Barlow Group's sales for the first six months of 1998 increased
21.4% to $48.4 million from $39.9 million reported in the same period for 1997.
Adjusted for fiscal 1997 acquisitions, Barlow group sales increased 9.2% from
the comparable period. The gross profit margin of the RCC Group was 25.9% for
the first six months of 1998 compared to 28.7% for the same period of 1997; and
for the Barlow Group, the gross profit margin was 28.2% compared to 30.2% for
the same respective periods. The variance for the RCC Group was due to the
start-up expenses of the Alpha Products operations which moved from Atlanta to
San Antonio and the variance for the Barlow Group was due to the increase in
logo golf ball sales; which traditionally have lower gross margins on sales.
Operating expenses in the first six months of 1998 as a percentage of sales were
approximately 16.5% and 18.2% for the RCC Group and Barlow Group, respectively,
compared to 19.0% and 20.6%, respectively, for the same period of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its business activities primarily with
borrowings under its bank credit facilities (the "1997 Credit Facility"), notes
payable to former owners of acquired businesses, the sale of Common Stock and
cash provided from operations.
The 1997 Credit Facility provides for aggregate borrowings of up to
$125.0 million, comprised of a $40.0 million term loan facility, all of which
was used to repay the Company's then existing bank debt ($39.8 million
outstanding at February 28, 1998), a $60.0 million reducing revolving credit
facility to be used for future acquisitions ($ 0 outstanding at February 28,
1998) and a $25 million revolving credit facility to be used for working capital
purposes ($6.2 million outstanding at February 28, 1998).
Pursuant to the terms of the 1997 Credit Facility, the Company is
required to maintain certain financial ratios and is subject to limitation on
dividends, additional indebtedness, liens, investments, issuances of stock,
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mergers and acquisitions, and sales of assets. The Company is required to make
quarterly payments on the term loan facility through maturity at the end of
fiscal 2005. The reducing revolving credit facility and the revolving credit
facility terminate at the end of fiscal 2003. Amounts outstanding under the 1997
Credit Facility bear interest at a rate equal to either the agent bank's prime
rate or the London Interbank Offered Rate, plus an interest rate spread which
varies based on the Company's leverage ratio (determined under the credit
agreement). Indebtedness under the 1997 Credit Facility is secured by a first
priority security interest in substantially all the assets of the Company.
Additionally, any assets acquired with financing under the 1997 Credit Facility
will serve as security. Borrowings under the 1997 Credit Facility are jointly
and severally guaranteed by all existing, acquired or created subsidiaries of
the Company.
WORKING CAPITAL AND CAPITAL EXPENDITURES
Net cash provided by operating activities was $1.4 million and $2.8
million for the six months ended February 28, 1998 and March 1, 1997,
respectively. Capital expenditures were approximately $2.1 million and $2.5
million for the six months ended February 28, 1998 and March 1, 1997,
respectively.
During the current fiscal year, the Company's principal capital needs
will be to finance ongoing capital expenditures. Although the Company currently
believes that cash flow from operations and available borrowing capacity under
the 1997 Credit Facility will be sufficient to meet the Company's working
capital and capital expenditure requirements and future debt service obligations
for at least the next 12 months, there can be no assurance that this will be the
case. The Company believes its fiscal 1998 capital expenditure requirements will
be approximately $4.0 million primarily to acquire additional processing
equipment, management information systems, furniture and fixtures and leasehold
improvements.
YEAR 2000 ISSUES
Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. This could cause a system
failure or miscalculations causing disruptions of operations, including among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has initiated an assessment and will modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The Company does not
expect that the Year 2000 Issue will materially affect future financial results.
FORWARD LOOKING STATEMENTS
This report contains forward looking statements within the meaning of
Sections 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Act of 1934, as amended, that are not historical facts. Such
statements may include, but not be limited to, projected capital expenditure
requirements, plans for future operations, financing needs or plans, and plans
relating to products or services of the Company, as well as assumptions relating
to the foregoing. These statements involve management's assumptions and are
subject to risks and uncertainties, including those set forth below, along with
factors set forth in the Company's Annual Report on Form 10-K in "Business--Risk
Factors". The following factors could affect the Company's results, causing such
results to differ materially from those in any forward looking statement
contained in this report: (i) the failure of the Company to maintain or control
its internal growth or the failure of the Company to manage its expanding
operations effectively; (ii) a change in risks inherent in the Company's foreign
sourcing of supplies; (iii) the loss of the services of one or more key
management personnel; (iv) a change in the risks inherent in the Company's
leverage position; (v) the loss of the Company's single supplier of Koozie(R)
insulation material; and (vi) an increase in competition.
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NORWOOD PROMOTIONAL PRODUCTS, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 1, 1997
PART II
Item 1. Legal Proceedings
On March 16, 1998, Harbor Finance Partners an alleged shareholder of
the Company, filed a lawsuit against the Company seeking to enjoin the proposed
merger of the Company with a subsidiary of FPK, LLC, a limited liability company
formed by Frank P. Krasovec, the Company's Chairman and Chief Executive Officer.
The plaintiff alleges that the proposed transaction is unfair to the Company's
shareholders. The lawsuit also names the Company's directors individually and,
as alternative relief, seeks unspecified damages for an alleged breach of their
fiduciary duties. The suit was filed in the 250th District Court of Travis
County, Texas and is styled Harbor Finance Partners v. Frank P. Krasovec, et al.
The suit seeks to be certified as a class action on behalf of all shareholders
of the Company except the individual defendants and their affiliates.
The Company believes that the allegations made in the lawsuit are
without merit and intends to contest them vigorously. On April 10, 1998, the
Company filed an answer denying the allegations and asserting that the plaintiff
is not entitled to the requested relief as a matter of law.
Item 6. Exhibits and Reports on Form 8-K
6 (a) Exhibits:
See Index to Exhibits.
6 (b) Reports on Form 8-K:
The following is the date and description of the events reported on Forms
8-K filed during the second quarter of 1998:
<TABLE>
<CAPTION>
Date of Earliest Event
Reported on Form 8-K Description
------------------------------------------------------------
<S> <C>
None
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Norwood Promotional Products, Inc.
-----------------------------------
(Registrant)
Date: April 14, 1998 /s/ James P. Gunning, Jr.
-----------------------------------
James P. Gunning, Jr.
Secretary, Treasurer and Chief
Financial Officer
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
11.0 -- Computation of earnings per share
27.0 -- Financial data schedule
</TABLE>
14
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EXHIBIT 11.0 COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
FEBRUARY 28, MARCH 1, FEBRUARY 28, MARCH 1,
1998 1997 (a) 1998 1997 (a)
<S> <C> <C> <C> <C>
BASIC: (b) (b)
Weighted average common shares outstanding 5,075 5,620 5,075 5,620
Income from continuing operations $ 429 $ 622 $ 2,274 $ 2,524
Discontinued operations -- (457) -- (919)
Net Income $ 429 $ 165 $ 2,274 $ 1,605
Per share amounts:
Income from continuing operations $ 0.08 $ 0.11 $ 0.45 $ 0.45
Discontinued operations -- (0.08) -- (0.16)
Net Income $ 0.08 $ 0.03 $ 0.45 $ 0.29
DILUTED: (b) (b)
Weighted average common shares outstanding 5,075 5,620 5,075 5,620
Weighted average dilutive potential common
shares outstanding 125 180 125 155
Total 5,200 5,800 5,200 5,775
Income from continuing operations $ 429 $ 622 $ 2,274 $ 2,524
Discontinued operations -- (457) -- (919)
Net Income $ 429 $ 165 $ 2,274 $ 1,605
Per share amounts:
Income from continuing operations $ 0.08 $ 0.11 $ 0.43 $ 0.44
Discontinued operations -- (0.08) -- (0.16)
Net Income $ 0.08 $ 0.03 $ 0.43 $ 0.28
</TABLE>
(a) Restated for discontinued operations reported in the fourth quarter, 1997
(b) Restated to conform with the provisions of Statement of Financial
Accounting Standards No. 128, Earnings Per Share
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF NORWOOD PROMOTIONAL PRODUCTS, INC. FOR THE SIX MONTHS
ENDED FEBRUARY 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-29-1998
<PERIOD-START> AUG-31-1997
<PERIOD-END> FEB-28-1998
<CASH> 94
<SECURITIES> 0
<RECEIVABLES> 20,275
<ALLOWANCES> 794
<INVENTORY> 34,788
<CURRENT-ASSETS> 60,340
<PP&E> 34,445
<DEPRECIATION> 16,111
<TOTAL-ASSETS> 127,527
<CURRENT-LIABILITIES> 16,570
<BONDS> 0
0
0
<COMMON> 23,020
<OTHER-SE> 30,692
<TOTAL-LIABILITY-AND-EQUITY> 127,527
<SALES> 86,953
<TOTAL-REVENUES> 86,953
<CGS> 63,501
<TOTAL-COSTS> 17,695
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,902
<INCOME-PRETAX> 3,855
<INCOME-TAX> 1,581
<INCOME-CONTINUING> 2,274
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,274
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.43
</TABLE>
