FINANCIAL HIGHLIGHTS
YEAR ENDED OCTOBER 31 1999 1998 % CHANGE Various
Graphs
- -----------------------------------------------------------------------------------
RESULTS OF OPERATIONS (IN THOUSANDS)
Net Sales $46,339 $41,810 11
Operating Income 4,407 3,479 27
Net Earnings 2,668 1,783 50
- -----------------------------------------------------------------------------------
FINANCIAL CONDITION (IN THOUSANDS)
Total Assets $28,876 $29,452 (2)
Stockholders' Equity 21,061 18,611 13
Working Capital 8,595 7,658 12
Weighted Average Shares 2,731 2,655 3
- -----------------------------------------------------------------------------------
PER SHARE DATA
Net Earnings (diluted) $0.93 $0.62 50
Dividends Declared 0.15 0.14 7
Stockholders' Equity 7.71 7.00 10
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KEY RATIOS AND OTHER DATA
Current Ratio 3.0 2.7
Long-Term Debt-to-
Capitalization 6.0% 17.5%
Gross Profit on Sales 27.6% 27.2%
Return on Average Equity 13.4% 10.1%
Return on Net Sales, Pretax 9.4% 7.2%
Number of Employees 500 435
1
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YEAR ENDED OCTOBER 31:
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net Sales $46,338,793 $41,809,938 $46,277,461 $28,903,158 $24,215,962 $22,633,951
- ------------------------------------------------------------------------------------------------------------------------------
Gross Profit 12,807,059 11,356,506 15,417,187 6,748,180 4,975,894 5,177,970
- ------------------------------------------------------------------------------------------------------------------------------
Operating Income 4,407,158 3,478,686 7,298,492 2,375,086 1,902,976 2,135,223
- ------------------------------------------------------------------------------------------------------------------------------
Net Earnings 2,667,748 1,782,941 4,135,922 1,263,056 1,363,410 1,285,835
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flow/Ops 5,289,232 5,183,231 5,833,641 2,872,187 1,376,858 2,322,240
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION
- ------------------------------------------------------------------------------------------------------------------------------
Total Assets $28,876,224 $29,451,672 $33,324,874 $29,401,432 $17,523,364 $16,499,238
- ------------------------------------------------------------------------------------------------------------------------------
Working Capital 8,595,033 7,658,171 7,214,439 5,381,223 4,545,734 3,357,561
- ------------------------------------------------------------------------------------------------------------------------------
Current Ratio 3.0 2.7 2.0 2.2 3.3 2.6
- ------------------------------------------------------------------------------------------------------------------------------
Long Term Debt 1,340,000 3,945,550 7,330,550 10,565,175 2,535,000 2,795,000
- ------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity 21,060,804 18,611,095 16,765,854 12,638,535 11,587,122 10,399,485
- ------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS
- ------------------------------------------------------------------------------------------------------------------------------
Gross Profit 27.6% 27.2% 33.3% 23.3% 20.6% 22.9%
- ------------------------------------------------------------------------------------------------------------------------------
Operating Income 9.5% 8.3% 15.8% 8.2% 7.9% 9.4%
- ------------------------------------------------------------------------------------------------------------------------------
Net Earnings 5.8% 4.3% 8.9% 4.4% 5.6% 5.7%
- ------------------------------------------------------------------------------------------------------------------------------
Return on Equity 13.4% 10.1% 28.1% 10.4% 12.4% 13.0%
- ------------------------------------------------------------------------------------------------------------------------------
L-T Debt to Capitalization 6.0% 17.5% 30.4% 45.5% 18.0% 21.2%
- ------------------------------------------------------------------------------------------------------------------------------
BOOK VALUE
- ------------------------------------------------------------------------------------------------------------------------------
Book Value $7.71 $7.00 $6.45 $4.91 $4.41 $3.93
- ------------------------------------------------------------------------------------------------------------------------------
Net Earnings (diluted) 0.93 0.62 1.48 0.48 0.52 0.49
- ------------------------------------------------------------------------------------------------------------------------------
Dividends 0.15 0.14 0.12 0.09 0.08 0.08
- ------------------------------------------------------------------------------------------------------------------------------
Weighted Average
- ------------------------------------------------------------------------------------------------------------------------------
Outstanding Shares 2,730,877 2,655,096 2,598,093 2,572,658 2,626,094 2,642,549
- ------------------------------------------------------------------------------------------------------------------------------
STOCK INFORMATION/REGISTER 1999 Quarter High Low Close
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2
The Company's common stock is traded under the symbol 1st $9.50 $6.00 $8.50
- ----------------------------------------------------------------------------------------------------------------------------
NSCF on the Nasdaq National Market. As of January 18, 2000, 2nd $9.63 $7.00 $7.25
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the approximate number of stockholders was 900 and holders 3rd $14.38 $7.25 $12.00
- ----------------------------------------------------------------------------------------------------------------------------
of record, 230. The following table sets forth the range of high 4th $12.50 $9.50 $10.58
- ----------------------------------------------------------------------------------------------------------------------------
and low quotations per share for 1999 and 1998. In 1999 and Present-1-13-2000 $9.88 $9.88 $9.88
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1998 the Company declared dividends of $0.15 per share and
- ----------------------------------------------------------------------------------------------------------------------------
$0.14 per share, respectively. 1998 Quarter High Low Close
- ----------------------------------------------------------------------------------------------------------------------------
1st $10.88 $7.61 $9.72
- ----------------------------------------------------------------------------------------------------------------------------
Future dividends are restricted to a maximum of 20 percent 2nd $10.16 $7.78 $9.67
- ----------------------------------------------------------------------------------------------------------------------------
of consolidated net income under the Company's debt 3rd $10.00 $7.75 $8.00
- ----------------------------------------------------------------------------------------------------------------------------
agreements. (See Note 6 to Consolidated Financial Statements.) 4th $9.50 $6.25 $6.88
- ----------------------------------------------------------------------------------------------------------------------------
3
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 Annual 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.
These factors are discussed in more detail in Exhibit 99 to the Company's Form
10-K.
4
The following table sets forth, for the years indicated, 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 as compared with
the prior year.
1999 1998
COMPARED COMPARED
1999 1998 1997 TO 1998 TO 1997
- ------------------------- ----------- ----------------- ----------------- ----------------- -----------------
Net Sales 100.0% 100.0% 100.0% 10.8% (9.7%)
- ------------------------- ----------- ----------------- ----------------- ----------------- -----------------
Cost of
Goods Sold 72.4 72.8 66.7 10.1 (1.3)
- ------------------------- ----------- ----------------- ----------------- ----------------- -----------------
Gross Profit 27.6 27.2 33.3 12.8 (26.3)
- ------------------------- ----------- ----------------- ----------------- ----------------- -----------------
Selling General and
Administrative Expenses 18.1 18.8 17.5 6.6 (3.0)
- ------------------------- ----------- ----------------- ----------------- ----------------- -----------------
Operating Income 9.5 8.3 15.8 26.7 (52.3)
- ------------------------- ----------- ----------------- ----------------- ----------------- -----------------
Net Earnings 5.8 4.3 8.9 49.6 (56.9)
- ------------------------- ----------- ----------------- ----------------- ----------------- -----------------
5
RESULTS OF OPERATIONS
NET SALES
Net sales in 1999 increased $4,528,855 from $41,809,938 in 1998 to
$46,388,793 in 1999. In 1998 net sales decreased $4,467,523 from 1997 sales
of $46,277,461. The Company's business forms products consist of two product
specialties -internal bank forms and negotiable documents - as well as
standard custom business forms.
PERCENTAGE OF TOTAL SALES
1999 1998 1997
---- ---- ----
Internal Bank Forms 63 65 69
Negotiable Documents 22 17 16
Standard Business Forms 15 18 15
Sales of internal bank forms increased $2.2 million from $27 million in 1998
to $29.2 million in 1999, an increase of 8.1 percent. In 1998, internal bank
forms sales decreased $4.8 million, a 15.1 percent decrease from the 1997
sales of $31.8 million. During 1998, competition in the internal bank forms
industry became more intense, particularly in contract negotiations with
larger banks. This increased competition resulted in non-renewal of three
internal bank forms contracts in 1998. The non-renewal of the three internal
bank forms contracts accounted for approximately $2.6 million of the sales
reduction in internal bank forms in 1998 and negatively affected 1999 sales
by an additional $1.1 million. In 1999, the Company successfully renewed
6
all expiring internal bank forms contracts and increased product sales to
existing distributor resellers by approximately $3 million.
Negotiable documents, which includes 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 $10.2 million in sales in 1999, an increase of
$3.4 million or 50.0 percent over 1998 sales of $6.8 million. 1998 sales of
negotiable documents decreased $0.8 million from 1997 sales of $7.6 million.
In 1999, sales to existing customers accounted for $4.9 million in increased
sales. However, in 1998, a two-year contract for approximately $3 million in
annual sales of negotiable documents was not renewed, reducing negotiable
document sales $1.4 million in 1998 and 1999 by $1.5 million.
Standard custom business forms sales remained relatively flat at $7 million
to $7.5 million each year. This product line is sold to various
distributors/printers for resale. During the three years ended October 31,
1999, there has been no significant change in the customer base for this
product.
7
GROSS PROFIT
Gross Profit was $12,807,059 (27.6 percent of net sales) in 1999 compared to
$11,356,506 (27.2 percent of net sales) in 1998 and $15,417,187 (33.3 percent
of net sales) in 1997.
Paper price changes, sales mix changes, and sales volume changes are the
three factors with the largest impact on the Company's gross profit. Bond
paper prices increased in February and June 1999, with a total increase of
approximately 9.0 percent for the year. Carbonless paper prices increased 4.0
percent in September 1999. Generally, the Company has been able to pass these
price increases through to its customers. In addition, the Company has taken
a strong initiative to reduce paper waste and spsoilage. Therefore, although
paper costs increased during the year, the Company was able to maintain
material costs at 30 percent of sales for both 1999 and 1998. In 1998, due to
paper price increases that could not be recovered, the material costs
increased 1.0 percent from the 1997 level of 29 percent of sales.
In 1999, direct labor increased 24.8 percent or a 1.8 percent increase as a
percentage of sales. A change in sales mix to more labor intensive products,
as well as higher labor rates due to the extremely tight labor market,
increased labor costs for the fiscal year. In 1998, direct labor costs
actually decreased 4.5 percent, but the ratio of direct labor to sales
increased 0.8 percent as a percentage of sales as direct labor reductions
lagged the 1998 reduction in sales.
Sales volume changes have a significant impact on the absorption of fixed
costs such as depreciation and building occupancy costs and semi-fixed costs
such as indirect labor. In
8
1999, these costs remained relatively constant. However, due to the increased
sales volume, these costs accounted for 16.7 percent of sales in 1999
compared to 22.2 percent of sales in 1998. In 1998, due to the decreased
sales volume compared to 1997, these fixed and semi-fixed costs accounted for
4.0 percent decrease in gross profit.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE
Selling, general, and administrative expenses increased $522,080 in 1999
compared to 1998. In 1998, these costs decreased $240,875 compared to 1997.
Contributions to employee benefit plans, principally bonuses and profit
sharing, are determined by a formula based upon Company profits for the year.
In 1999, contributions to these plans increased approximately $0.5 million
compared to 1998 when contributions to these plans decreased $0.4 million
compared to 1997. Other selling, general, and administrative costs were
relatively consistent from 1998 to 1999. In 1998, sales commissions to
distributor/partners were restructured to provide additional incentives to
increase new business. These restructured commissions increased costs for
1998 by approximately $0.6 million compared to 1997. In 1999, commissions
were relatively consistent with 1998.
OTHER INCOME AND EXPENSE
Other income and expense consists principally of interest expense which
decreased $401,305 in 1999 and $250,347 in 1998 due to debt repayment.
9
PROVISION FOR INCOME TAXES
The provision for income taxes decreased to 38.8 percent of pre-tax income in
1999 compared to 40.5 percent in 1998 and 37.4 percent in 1997.
NET EARNINGS
Net earnings were $2,667,748 ($0.93 per diluted share) in 1999 compared to
$1,782,941 ($0.62 per diluted share) in 1998 and $4,135,922 ($1.48 per
diluted share) in 1997. Return on average assets was 9.1 percent in 1999
compared to 5.7 percent in 1998 and 13.2 percent in 1997. Return on average
stockholders' equity was 13.4 percent in 1999 compared to 10.1 percent in
1998 and 28.1 percent in 1997.
FINANCIAL CONDITION
CAPITAL EXPENDITURES
In July 1996, the Company acquired $7.3 million in manufacturing equipment
with the purchase of the financial forms division of Deluxe Corporation.
Since that time, the Company continues to replace and modernize equipment and
computer systems, as well as expand its manufacturing capacity. Capital
expenditures for 1999 were $1.9 million compared to $1.8 million for 1998,
and $2.0 million for 1997. The Company's working capital was $8.6 million as
of October 31, 1999, compared to $7.7 million as of October 31, 1998.
Since 1996, the Company has had a $1.5 million line of credit at an interest
rate equal to the bank's reference rate. The Company has never had to utilize
this line of credit. The Company
10
believes its existing financial resources are adequate to fund its fiscal
year 2000 operations, including projected capital expenditures of $2.0
million and dividend payments, and foresees no events or uncertainties that
are likely to have a material impact on its liquidity.
LONG-TERM DEBT
The Company's long-term debt consists of Industrial Development Revenue
Bonds. The bonds require annual principal payments and interest at a variable
rate based upon comparable tax-exempt issues. The bonds specify limits on
capital expenditures and dividends as well as specify net worth and certain
financial ratios that the Company must maintain.
During the year the Company fully repaid its term loan. The original
repayment terms of the term loan specified quarterly installments through
July 31, 2003.
LIQUIDITY
Cash provided by operations remained relatively constant at $5.3 million
compared to $5.2 million in 1998 and $5.8 million in 1997. During 1999 and
1998, the changes in net earnings were offset by the changes in current
assets and current liabilities so the cash provided by operations remained
relatively constant.
OUTLOOK
Merger and acquisition activity in the banking industry, which was previously
very strong, slowed in 1999 as the industry dedicated its resources to
ensuring year 2000 readiness.
11
Therefore, after January 1, 2000, 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. During the fourth quarter of 1999, the Company
was able to extend and expand its contract with one major bank customer. The
new two-year contract which begins January 1, 2000, is expected to increase
internal bank forms sales to this customer by $1.5 million annually. In 1998,
to increase and improve market penetration in the internal bank forms market,
in 1998 the Company developed additional distribution channels by forming 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.
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 new four year
contract which began January 1, 1999, increased annual sales of these
products by $3.5 million.
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
12
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. Based upon
these expectations, the Company expects the 2000 gross profit to exceed the
1999 gross profit in total and as a percentage of sales.
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. In addition, the outlook for the Company has been positively affected
by the internal bank forms computer system which the Company developed and
installed in the first location in the last quarter of 1997. This system
which has been continuously enhanced, is installed in all four of the
Company's internal bank forms production facilities. The integrated computer
system is already increasing operating efficiencies within the plants by
streamlining order processing, enhancing equipment utilization, and improving
billing and reporting capabilities.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," a new standard for reporting information
about business segments in financial statements. Effective with its fiscal
year 1999 financial statements, the Company adopted SFAS No. 131, which
requires disclosure of segment data in a manner consistent with
13
that used by an enterprise for internal management reporting and decision
making. Accordingly, the Company reports its operations as a single segment
under SFAS No. 131.
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 is reviewing the
requirements of the SOP and does not expect it to significantly change its
current accounting for software costs. SOP 98-1 is required to be adopted by
the Company for its fiscal year 2000.
YEAR 2000 READINESS
The Company's Y2K Plan focused on assessing and ensuring compliance of its
hardware, operating systems, software applications, and custom applications.
Additionally, the Company reviewed the year 2000 compliance status of its
customers, vendors, and other service providers. Based upon the assessment of
its hardware, operating systems, and software applications, the Company's
hardware, operating systems, and software applications were upgraded for Y2K
compliance. The Company communicated with vendors, customers, and other
business partners to determine their Y2K compliance. The costs of the Y2K
assessment and the required upgrades were not material and were included in
the costs of current operations.
14
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.
15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Northstar Computer Forms, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, changes in stockholders' equity, and
cash flows present fairly, in all material respects, the financial position
of Northstar Computer Forms, Inc. and Subsidiary as of October 31, 1999 and
1998, and the results of their operations and their cash flows for each of
the three years in the period ended October 31, 1999, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of Northstar Computer Forms, Inc.'s management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audits 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
December 15, 1999
16
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1999 AND 1998
ASSETS 1999 1998
Current assets:
Cash and cash equivalents $ 3,878,447 $ 4,162,845
Accounts receivable, net 5,958,522 4,936,112
Inventories 2,294,119 2,245,338
Deferred income taxes 261,656 255,656
Other current assets 442,743 687,769
------------ ------------
Total current assets 12,835,487 12,287,720
------------ ------------
Property, plant and equipment, net 13,368,676 14,153,269
Notes receivable, less current portion 60,634 161,573
Goodwill, net 1,354,786 1,556,293
Other assets, net 1,256,641 1,292,817
------------ ------------
Total assets $28,876,224 $29,451,672
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 335,000 1,385,000
Accounts payable 1,296,485 1,316,878
Accrued liabilities 2,608,969 1,927,671
------------ ------------
Total current liabilities 4,240,454 4,629,549
------------ ------------
Long-term debt, less current portion 1,340,000 3,945,550
Deferred compensation 773,333 738,845
Deferred income taxes 1,461,633 1,526,633
Commitments (Notes 6 and 7)
Stockholders' equity:
Common shares; $.05 par value, authorized 5,000,000 shares;
17
issued and outstanding, 1999: 2,744,708; 1998: 2,714,436 137,235 135,722
Additional paid-in capital 2,862,678 2,671,492
Retained earnings 18,060,891 15,803,881
------------ ------------
Total stockholders' equity 21,060,804 18,611,095
------------ ------------
Total liabilities and stockholders' equity $28,876,224 $29,451,672
============ ============
18
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
1999 1998 1997
Net sales $46,338,793 $41,809,938 $46,277,461
Cost of goods sold 33,531,734 30,453,432 30,860,274
------------ ------------ ------------
Gross profit 12,807,059 11,356,506 15,417,187
Selling, general and administrative expenses 8,399,901 7,877,820 8,118,695
------------ ------------ ------------
Operating income 4,407,158 3,478,686 7,298,492
------------ ------------ ------------
Other income (expense):
Interest expense (240,864) (642,169) (892,516)
Other, net, principally interest income 191,454 158,424 196,946
------------ ------------ ------------
(49,410) (483,745) (695,570)
------------ ------------ ------------
Earnings before provision for income taxes 4,357,748 2,994,941 6,602,922
Provision for income taxes 1,690,000 1,212,000 2,467,000
------------ ------------ ------------
Net earnings $ 2,667,748 $ 1,782,941 $ 4,135,922
============ ============ ============
Net earnings per common share:
Basic $ 0.98 $ 0.67 $ 1.59
============ ============ ============
Diluted $ 0.93 $ 0.62 $ 1.48
============ ============ ============
19
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
COMMON STOCK
-------------------- ADDITIONAL
STATED PAID-IN RETAINED
SHARES CAPITAL CAPITAL EARNINGS
Balances at October 31, 1996 1,716,571 $ 85,828 $1,995,177 $10,557,530
Stock options exercised 44,900 2,245 294,590
Cash dividends, $.175 per share (305,438)
Comprehensive income:
Net earnings 4,135,922
----------- --------- ----------- ------------
Balances at October 31, 1997 1,761,471 88,073 2,289,767 14,388,014
Stock split 880,690 44,035 (46,269)
Stock options exercised 72,275 3,614 257,994
Cash dividends, $.137 per share (367,074)
Tax benefit from stock options exercised 170,000
Comprehensive income:
Net earnings 1,782,941
----------- --------- ----------- ------------
Balances at October 31, 1998 2,714,436 135,722 2,671,492 15,803,881
Stock options exercised 30,275 1,513 147,217
Repurchase of common stock (3) (31)
Cash dividends, $.150 per share (410,738)
Tax benefit from stock options exercised 44,000
20
Comprehensive income:
Net earnings 2,667,748
----------- --------- ----------- ------------
Balances at October 31, 1999 2,744,708 $137,235 $2,862,678 $18,060,891
=========== ========= =========== ============
21
NORTHSTAR COMPUTER FORMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
1999 1998 1997
Cash flows from operating activities:
Net earnings $ 2,667,748 $ 1,782,941 $ 4,135,922
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 2,608,725 2,517,552 2,458,399
Amortization 382,359 344,274 271,519
Provision for doubtful accounts 55,451 (70,586) 167,437
Deferred income taxes (71,000) 405,000 (25,000)
(Gain) loss on sale of land and equipment (61,009) 50,286 (5,576)
Changes in certain operating assets and
liabilities (293,042) 153,764 (1,169,060)
------------ ------------ ------------
Net cash provided by operating activities 5,289,232 5,183,231 5,833,641
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures and equipment deposits (1,851,678) (1,577,203) (1,465,679)
Capitalized computer software costs (236,405) (584,321)
Proceeds from sale of land and equipment 88,555 67,239 12,400
Notes receivable repayments 77,530 736,932 117,219
------------ ------------ ------------
Net cash used in investing activities (1,685,593) (1,009,437) (1,920,381)
------------ ------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt (3,655,550) (5,235,000) (1,029,450)
Dividends paid (381,186) (353,204) (240,869)
Stock options exercised 148,730 261,608 296,835
Other, net (31) (2,234)
------------ ------------ ------------
Net cash used in financing activities (3,888,037) (5,328,830) (973,484)
------------ ------------ ------------
22
Net (decrease) increase in cash and
cash equivalents (284,398) (1,155,036) 2,939,776
Cash and cash equivalents at beginning of year 4,162,845 5,317,881 2,378,105
------------ ------------ ------------
Cash and cash equivalents at end of year $ 3,878,447 $ 4,162,845 $ 5,317,881
============ ============ ============
23
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF THE BUSINESS:
Northstar Computer Forms, Inc. and Subsidiary (the Company) designs,
manufactures and markets printed forms with an emphasis on MICR
(Magnetic Ink Character Recognition) printing. The Company's custom
business forms concentrations are negotiable documents and internal bank
forms which are marketed nationally. Sales are principally made through
distributors, with the remainder directly to end-user customers.
CONSOLIDATION:
The consolidated financial statements include the accounts of Northstar
Computer Forms (Northstar) and General Financial Supply, Inc. (General
Financial), its wholly-owned subsidiary. All significant intercompany
balances and transactions have been eliminated in consolidation.
CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
INVENTORIES:
Inventories are stated at the lower of cost or market using the last-in,
first-out (LIFO) method. As of October 31, 1999 and 1998, consolidated
inventories, stated at LIFO, exceeds the cost of consolidated
inventories using the first-in, first-out (FIFO) method by approximately
$67,000 and $13,000 at October 31, 1999 and 1998, respectively.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are recorded at cost and are depreciated
using the straight-line method. The estimated useful lives are 15 - 40
years for buildings, 5 - 10 years for machinery and equipment, and 3 - 8
years for furniture and fixtures and automobiles. Leasehold improvements
are amortized on a straight-line basis generally over the term of the
respective leases. Gains or losses on dispositions are included in
current earnings. Major renewals or betterments are capitalized while
repairs and maintenance are charged to current operations when incurred.
24
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
COMPUTER SOFTWARE COSTS:
The Company capitalizes costs incurred for developing and obtaining
computer software, primarily relating to modifying and installing new
information technology systems for internal use. These costs are
amortized on a straight-line basis over five years, the estimated useful
lives of the underlying assets.
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 is
reviewing the requirements of the SOP and does not expect it to
significantly change its current accounting for software costs. SOP 98-1
is required to be adopted by the Company for its fiscal year 2000.
GOODWILL:
Goodwill represents the excess of the purchase price over the estimated
fair value of the identifiable assets acquired and is being amortized on
a straight-line basis over 10 years.
LONG-LIVED ASSETS:
The recoverability of long-lived assets, including goodwill, is assessed
annually or whenever adverse events or changes in circumstances or
business climate indicate that the expected cash flows previously
anticipated warrant reassessment. When such reassessments indicate the
potential of impairment, all business factors are considered and, if the
carrying values of long-lived assets are not likely to be recovered from
future net operating cash flows, they will be written down for financial
reporting purposes.
REVENUE RECOGNITION:
The Company recognizes revenue on product sales when title transfers to
customer.
INCOME TAXES:
Deferred income taxes are recorded to reflect the tax consequences on
future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts based on enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. The income tax
provision is the tax payable or refundable for the period and the change
during the period in deferred tax assets and liabilities.
25
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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 not antidilutive.
The computations of basic and diluted weighted average common shares
outstanding are as follows:
1999 1998 1997
Weighted average common shares outstanding 2,730,877 2,655,096 2,598,093
Common equivalent shares outstanding:
Option equivalents 137,865 199,387 187,860
--------------- --------------- ---------------
Weighted average common and common
equivalent shares outstanding 2,868,742 2,854,483 2,785,953
=============== =============== ===============
At October 31, 1999, 1998 and 1997, 150,000, 9,000 and 30,000
outstanding options were excluded from the computation of diluted
earnings per share for the year then ended because the options' exercise
price was greater than the average market price of the Company's common
shares during the respective year.
COMPREHENSIVE INCOME:
The Company's comprehensive income consists solely of net earnings. In
fiscal years 1999, 1998 and 1997, the Company did not have any changes
in stockholders' equity from nonowner sources.
BUSINESS SEGMENTS:
Effective with its year end 1999 financial statements, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosure About Segments of an Enterprise and Related Information,"
which requires disclosure of segment data in a manner consistent with
that used by an enterprise for internal management reporting and
decision making. Accordingly, the Company reports its operations as a
single segment under SFAS No. 131.
26
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
USE OF ESTIMATES:
The preparation of 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 the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. SELECTED BALANCE SHEET INFORMATION:
The following provides additional information concerning selected
balance sheet accounts at October 31, 1999 and 1998:
1999 1998
Accounts receivable, net:
Accounts receivable $ 6,111,522 $ 5,074,112
Allowance for doubtful accounts (153,000) (138,000)
------------- -------------
$ 5,958,522 $ 4,936,112
============= =============
Inventories:
Raw material 1,503,444 1,394,156
Work in process 573,993 598,846
Finished goods 216,682 252,336
------------- -------------
$ 2,294,119 $ 2,245,338
============= =============
Property, plant and equipment, net:
Land 109,626 109,626
Buildings 4,004,111 3,993,073
Machinery and equipment 25,400,896 24,124,637
Furniture and fixtures 1,937,239 1,804,043
Automobiles 440,756 335,322
Leasehold improvements 78,156 66,313
------------- -------------
31,970,784 30,433,014
Accumulated depreciation (18,535,203) (16,213,432)
Accumulated amortization (66,905) (66,313)
------------- -------------
$ 13,368,676 $ 14,153,269
============= =============
27
2. SELECTED BALANCE SHEET INFORMATION, CONTINUED:
1999 1998
Goodwill, net:
Goodwill $ 2,015,065 $ 2,015,065
Accumulated amortization (660,279) (458,772)
------------- -------------
$ 1,354,786 $ 1,556,293
============= =============
Other assets, net:
Computer software costs, net of accumulated amortization
of $335,830 and $171,683 at October 31, 1999 and
1998, respectively 484,896 649,043
Cash value of life insurance, net of outstanding loans
of $165,778 and $166,857 at October 31, 1999 and
1998, respectively 402,488 359,918
Other 369,257 283,856
------------- -------------
$ 1,256,641 $ 1,292,817
------------- -------------
Accrued liabilities:
Payroll and bonuses 850,707 504,888
Vacation 377,270 345,471
Profit sharing 527,180 301,125
Real estate taxes 236,706 195,454
Dividends 219,569 190,017
Other 397,537 390,716
------------- -------------
$ 2,608,969 $ 1,927,671
============= =============
3. SUPPLEMENTAL CASH FLOW INFORMATION:
Changes in certain operating assets and liabilities are as follows:
1999 1998 1997
Accounts receivable $(1,077,861) $1,748,683 $(2,052,911)
Inventories (48,781) (332,692) 379,411
Other assets 123,759 (592,914) (111,704)
Accounts payable (20,393) (56,927) (729,732)
Accrued liabilities 695,746 (612,825) 1,293,928
Deferred compensation 34,488 439 51,948
------------ ----------- ------------
$ (293,042) $ 153,764 $(1,169,060)
============ =========== ============
Cash paid during the year for:
Interest $ 244,471 $ 699,308 $ 834,348
28
Income taxes 1,487,500 1,456,894 2,222,243
4. NOTES RECEIVABLE:
Notes receivable consisted of the following at October 31, 1999 and
1998:
1999 1998
Brooklyn Park Economic Development Authority Tax Increment Financing
Note, interest at 9.5%, payable in semi-annual installments of
$48,889, with remaining principal and
interest due August 2001. $143,775 $204,250
Other, mainly customers, with various terms 16,040 33,095
--------- ---------
159,815 237,345
Less current portion, included in "Other current assets" (99,181) (75,772)
--------- ---------
$ 60,634 $161,573
========= =========
Management believes that the carrying values of its notes receivable as
of October 31, 1999, approximate their fair value.
5. BANK LINE OF CREDIT:
The Company has a Revolving Credit agreement (Agreement) with a bank
under which the Company may borrow up to $1,500,000 with interest
accruing at the prime interest rate. Collateral for borrowings under
this Agreement, as well as the related covenants, are the same as the
term loan the Company entered into during July 1996. There were no
borrowings under this Agreement during fiscal years 1999 or 1998.
6. LONG-TERM DEBT:
Long-term debt consists of the following at October 31, 1999 and 1998:
1999 1998
Revenue Bonds $1,675,000 $ 2,010,000
Term Loan 3,320,550
------------ -------------
1,675,000 5,330,550
29
Less current portion (335,000) (1,385,000)
------------ -------------
$1,340,000 $ 3,945,550
============ =============
30
6. LONG-TERM DEBT, CONTINUED:
REVENUE BONDS:
In August 1994, the Company received proceeds of $2,945,000 from the
issuance of Variable Rate Demand Industrial Development Revenue Bonds
(Revenue Bonds) in connection with the construction of the Company's
corporate headquarters and manufacturing facility. The Revenue Bonds
require annual principal payments of $335,000 through fiscal year 2004
and bear interest at a rate which varies based upon comparable
tax-exempt issues, but not to exceed 12%. The interest rate at October
31, 1999, was 3.75%. The Company has an option to convert the variable
interest rate on these bonds to a fixed interest rate determinable at
the date of conversion upon notification to the bond trustee. The
Revenue Bonds are collateralized by an outstanding irrevocable
direct-pay letter of credit with a financial institution equal to the
outstanding principal amount of the Revenue Bonds.
The letter of credit is renewable upon mutual agreement of the Company
and the financial institution. If the letter of credit is not renewed
and the Company is unable to obtain a similar letter of credit with
another financial institution, the Revenue Bonds may be callable at the
option of the bond trustee.
The Company's outstanding letter of credit expires in August 2002 and is
collateralized by its corporate headquarters and manufacturing facility,
inventories and accounts receivable. The letter of credit agreement,
among other things, requires the Company to not exceed annual capital
expenditures limits, maintain certain minimum net worth requirements,
meet certain leverage and cash flow ratios, as well as limits cash
dividends. The letter of credit agreement also allows for the lender to
call the debt upon any "material change in the nature of the business."
TERM LOAN:
In July 1996, the Company entered into a term loan (Term Loan) with a
bank for $9,000,000 in connection with the purchase of substantially all
of the assets of the Financial Forms Division of Deluxe Corporation
(Acquisition). The Term Loan was collateralized by substantially all the
Company's assets and required quarterly principal payments of $262,500
through October 2001, with the remaining principal amount to be paid in
January 2002. The Company had an option, upon written notice to the
bank, to accrue interest on its outstanding Term Loan balance based on
the prime interest rate or the Eurodollar rate. During fiscal year 1998,
the Company made additional principal payments of $2,000,000 in excess
of its scheduled principal payments. During fiscal year 1999, the
Company fully repaid its Term Loan by making additional principal
payments of $2,533,050 in excess of its scheduled principal payments due
under the Term Loan.
31
6. LONG-TERM DEBT, CONTINUED:
TERM LOAN, CONTINUED:
Aggregate maturities of long-term debt are as follows:
FISCAL YEAR
2000 $ 335,000
2001 335,000
2002 335,000
2003 335,000
2004 335,000
------------
$1,675,000
============
Management believes that the carrying value of its long-term debt as of
October 31, 1999, approximates its fair value.
7. OPERATING LEASES, INCLUDING RELATED PARTY LEASE:
The Company leases certain buildings and equipment under five separate
operating lease agreements expiring through 2007 and requiring monthly
payments in addition to real estate taxes, insurance and maintenance
costs. The Company has the option to extend the lease term upon
expiration of one of the leases.
In August 1997, the Company began leasing one of the Company's
manufacturing facilities from the Company's Chairman and Chief Executive
Officer under an operating lease agreement expiring in fiscal year 2007,
with two additional five-year extensions available at the option of the
Company. This operating lease agreement requires monthly payments,
subject to increase every three years based on that period's average
price index, as defined in the lease agreement, in addition to real
estate taxes, utilities, assessments, insurance and maintenance costs.
32
7. OPERATING LEASES, INCLUDING RELATED PARTY LEASE, CONTINUED:
Future minimum payments, excluding real estate taxes, utilities,
assessments, insurance and maintenance costs, under operating lease
agreements with noncancellable terms are as follows:
NON-
RELATED RELATED
FISCAL YEAR PARTY PARTY TOTAL
2000 $ 433,420 $ 191,000 $ 624,420
2001 254,686 191,000 445,686
2002 197,969 191,000 388,969
2003 110,141 191,000 301,141
2004 110,141 191,000 301,141
Thereafter 100,963 541,167 642,130
------------ ------------ ------------
$1,207,320 $1,496,167 $2,703,487
============ ============ ============
Total rent expense was $668,811, $695,062 and $774,372 in fiscal years
1999, 1998 and 1997, respectively, exclusive of real estate taxes,
insurance and maintenance costs. Rent expense related to the related
party lease, exclusive of real estate taxes, insurance and maintenance
costs, was $191,000 in fiscal years 1999 and 1998.
8. INCOME TAXES:
The provision for income taxes consists of the following:
FISCAL YEARS
------------------------------------
1999 1998 1997
Currently payable:
Federal $1,495,000 $ 684,000 $2,153,000
State 266,000 123,000 339,000
----------- ----------- -----------
1,761,000 807,000 2,492,000
----------- ----------- -----------
Deferred provision (benefit):
Federal (17,000) 343,000 (21,000)
State (54,000) 62,000 (4,000)
----------- ----------- -----------
(71,000) 405,000 (25,000)
----------- ----------- -----------
33
$1,690,000 $1,212,000 $2,467,000
=========== =========== ===========
34
8. INCOME TAXES, CONTINUED:
The actual provision for income taxes differed from the "expected"
amounts computed by applying the U.S. federal corporate tax rate of 34%
to earnings before provision for income taxes for the fiscal years ended
October 31, 1999, 1998 and 1997, respectively, as follows:
FISCAL YEARS
-----------------------------------
1999 1998 1997
Computed "expected" provision for income taxes $1,482,000 $1,018,000 $2,245,000
State income taxes, net of federal tax effect 256,000 148,000 221,000
Other, net (48,000) 46,000 1,000
----------- ----------- -----------
Actual provision for income taxes $1,690,000 $1,212,000 $2,467,000
=========== =========== ===========
The approximate effects of temporary differences that gave rise to
deferred tax balances at October 31, 1999 and 1998, are as follows:
1999 1998
Deferred tax assets:
Accounts receivable allowance for doubtful accounts $ 61,200 $ 55,200
Inventories 41,500 40,851
Accrued liabilities 122,908 124,188
Deferred compensation 345,596 331,034
Goodwill 84,991 58,124
------------ ------------
Total deferred tax assets 656,195 609,397
------------ ------------
Deferred tax liabilities:
Property, plant and equipment (1,644,618) (1,669,331)
Investment in limited partnership (211,554) (211,043)
------------ ------------
Total deferred tax liabilities (1,856,172) (1,880,374)
------------ ------------
Net deferred tax liabilities $(1,199,977) $(1,270,977)
============ ============
35
The Company has not recorded a valuation allowance as of October 31,
1999 and 1998, related to its deferred tax assets as management does not
believe an allowance is necessary.
36
9. PROFIT-SHARING AND BONUS PLANS:
The Company has a profit-sharing and 401(k) plan (the Plan) covering
substantially all full-time employees of the Company. Company
contributions are determined based upon a profitability formula approved
by the Company's Board of Directors, but are not to exceed 15% of the
salary and wages paid to the participants for the year. Vesting of
benefits occurs at a rate of 20% for each year of service, commencing
after the second full year of service. Vested benefits allocated to the
employees' accounts are payable upon retirement, death or earlier
termination in a lump sum or installments. The Company recognized
expense related to the Plan of $527,180, $301,125 and $540,000 in fiscal
years 1999, 1998 and 1997, respectively.
The Company also has a bonus plan for certain key salaried employees.
Bonuses are determined, in part, based on a profitability formula
approved by the Company's Board of Directors and, in part, at the
discretion of the Board of Directors. Company expense under the bonus
plan was $521,164, $203,805 and $408,440 in fiscal years 1999, 1998 and
1997, respectively.
10. DEFERRED COMPENSATION:
The Company has deferred compensation plans covering four current
officers and one former officer of the Company. The plans for one
current and the former officer call for periodic payments ranging from
10 to 15 years at retirement or death of such employees. The plans for
the remaining three officers call for contributions to a "rabbi trust"
to maintain benefits to be paid upon retirement or termination. Deferred
compensation expense was $30,064, $78,882 and $51,397 in fiscal years
1999, 1998 and 1997, respectively.
11. STOCK OPTIONS:
The Company has an incentive stock option plan for option grants to
employees (ISO Plan) and a nonqualified stock option plan for option
grants to the Company's Outside Board of Directors (BOD Plan). As of
October 31, 1999, the Company has reserved 500,000 and 150,000 shares of
its common stock for grant under the ISO Plan and BOD Plan,
respectively. During fiscal year 1998, the Company amended its ISO Plan
to increase the maximum number of shares reserved for issuance under
that plan to 500,000. During fiscal year 1999, the Company amended its
BOD Plan to add 100,000 shares for issuance under that plan. Options
granted under the ISO Plan and BOD Plan have exercise prices not less
than the fair market value of the Company's common stock at the date of
grant and become exercisable generally over a five-year period or based
on the discretion of the Company's Board of Directors. Options granted
under the ISO and BOD Plans expire 10 years from the date of grant.
37
11. STOCK OPTIONS, CONTINUED:
In addition, the Company has a nonqualified stock option plan for option
grants to the Company's Board of Directors (Non-Active Plan). At October
31, 1999, 20,000 of these options are outstanding and have a weighted
average exercise price of $3.88. All of these options are exercisable at
October 31, 1999. These options expire through 2003.
The following is a summary of the stock option activity with respect to
the ISO, BOD and Non-Active Plans:
WEIGHTED
AVERAGE OPTIONS
EXERCISE PRICE AVAILABLE
PER SHARE OPTIONS FOR GRANT
Balance at October 31, 1996 4.39 394,300 75,602
Exercised 4.41 (67,350)
Cancelled 5.58 (8,550) 8,550
Granted 7.17 96,000 (96,000)
Expired 3.87 (14,000)
------------ ---------------
Balance at October 31, 1997 5.13 355,400 (11,848)
Authorization of additional stock options 300,000
Exercised 3.62 (72,275)
Cancelled 4.28 (3,300) 3,300
Granted 12.67 9,000 (9,000)
Expired 4.42 (250)
Balance at October 31, 1998 5.75 288,575 282,452
Authorization of additional stock options 100,000
Exercised 4.91 (30,275)
Cancelled 6.98 (9,700) 9,700
Granted 9.48 251,400 (251,400)
------------ ---------------
Balance at October 31, 1999 7.65 500,000 140,752
============ ===============
The Company may grant nonqualified stock options outside of the ISO and
BOD Plans to other parties at the discretion of the Company's Board of
Directors. The terms of these options, including the exercise price,
vesting provision and expiration of the options, are
38
determined by the Company's Board of Directors prior to the granting of
the options. During fiscal year 1995, the Company granted 30,000 of these
options to a vendor. At October 31, 1999, all of these options are
outstanding and have a weighted average exercise price of $5.09. These
options expire in November 2003.
39
11. STOCK OPTIONS, CONTINUED:
The following table summarizes information about all stock options
outstanding and exercisable at October 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------------------------------- ------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
$3.75 - $6.17 245,900 3.79 $ 4.94 206,600 $ 4.82
$8.00 134,100 9.33 8.00 40,100 8.00
$10.58 - $12.67 150,000 8.35 11.28 7,500 10.58
--------------------- ------------------ ---------------- ------------------ ---------------
530,000 6.48 $ 7.51 254,200 $ 5.50
===================== ================== ================ ================== ===============
The Company accounts for stock-based compensation using the intrinsic
value method. Accordingly, compensation cost for stock options granted
to employees is measured as the excess, if any, of the fair value of the
Company's common stock at the date of the grant over the amount an
employee must pay to acquire the stock. The Company accounts for
stock-based compensation to nonemployees using the fair value method.
Such compensation costs are amortized on a straight-line basis over the
underlying option vesting terms.
If the Company had elected to recognize compensation expense for options
granted in fiscal years 1999, 1998 and 1997 based on the fair value of
the options granted at the date of grant, the Company's net earnings and
diluted net earnings per share for fiscal years 1999, 1998 and 1997
would have been as follows:
1999 1998 1997
Net earnings:
As reported $2,667,748 $1,782,941 $4,135,922
Pro forma 2,443,958 1,708,430 4,021,562
40
Diluted net earnings per share:
As reported $ 0.93 $ 0.62 $ 1.48
Pro forma $ 0.85 $ 0.60 $ 1.44
41
11. STOCK OPTIONS, CONTINUED:
The weighted average fair value of options at the date of grant was $4.50,
$5.45 and $3.26 per option during fiscal years 1999, 1998 and 1997,
respectively.
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model and the following key
assumptions:
1999 1998
Risk-free interest rates 5.5% 5.5%
Expected life 7 years 5 years
Expected volatility 44.54% 46.20%
Expected dividend yield 1.48% 1.26%
12. STOCK SPLIT:
On May 31, 1998, the common stock of the Company was split 3 for 2. All
per share and number of share data have been retroactively restated to
reflect the stock split, except for those presented in the Consolidated
Statements of Changes in Stockholders' Equity.
13. PREFERRED STOCK:
The Company has 200,000 shares of authorized, nonvoting preferred stock
that to date have not been issued. The terms of the preferred stock will
be finalized and approved by the Board of Directors prior to issuance.
14. CONCENTRATIONS OF CREDIT RISK:
Approximately 23%, 34% and 37% of the Company's net sales were directly
to financial institutions in fiscal years 1999, 1998 and 1997,
respectively.
At October 31, 1999 and 1998, cash and cash equivalents totaling
approximately $3,700,000 and $3,400,000, respectively, were concentrated
in one financial institution. At October 31, 1999, 13% of the Company's
accounts receivable were from one customer. Revenues from the same
customer represent approximately $7.4 million of the Company's
consolidated revenues. The Company generally requires no collateral from
its customers to support their accounts receivable.
42
15. FOURTH QUARTER ADJUSTMENTS:
In the fourth quarter of fiscal year 1997, the Company recorded certain
adjustments to reflect changes in accounting estimates to amounts
reported in previous interim periods of the fiscal year. The adjustments
were related to the estimation of gross profit on net sales from the
Company's financial forms division and the interim income tax rate used
in previous interim periods of fiscal year 1997. These adjustments
increased fourth quarter net earnings by approximately $207,000 and
diluted net earnings per common share by $0.07.
43
INVESTOR INFORMATION
ANNUAL MEETING
The annual meeting of the shareholders of CORPORATE OFFICES
Northstar ComputerForms, Inc. will be held 7130 Northland Circle North
Tuesday, April 11, 2000 at 3:30 P.M. at Brooklyn Park, MN 55428-1530
the Radisson Plaza Hotel, 35 South (612) 531-7340
7th Street, Minneapolis, MN 55402.
FORM 10-K TRANSFER AGENT
A copy of the Form 10-K Report filed with the Norwest Bank Minnesota
Securities and Exchange Commission by the Stock Transfer
Company may be obtained without charge by P.O. Box 64854
written request to: Mary Ann Morin, Northstar St. Paul, MN 55164-0854
Computer Forms, Inc., 7130 Northland (800) 468-9716
Circle North, BrooklynPark, MN 55428-1530
INDEPENDENT ACCOUNTANTS LEGAL COUNSEL
PricewaterhouseCoopers LLP Parsinen Kaplan Rosberg &
650 Third Avenue South Gotlieb, P.A.
Minneapolis, MN 55402 100 South Fifth Street
Suite 1100
Minneapolis, MN 55402
QUARTERLY FINANCIAL INFORMATION
(Unaudited and not reviewed)
FISCAL YEAR 1999 FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
JAN. '99 APR. '99 JULY '99 OCT. '99
- -------------------------------------------------------------------------------------------------------------------
Net Sales $10,643,618 $11,878,269 $11,804,045 $12,012,861
Earnings before taxes 760,498 1,188,826 1,257,904 1,150,520
Provision for income taxes 289,000 491,500 502,500 407,000
Net earnings 471,498 697,326 755,404 743,520
Earnings per share (diluted) 0.17 0.25 0.26 0.25
Depreciation and amortization 742,174 756,654 749,388 742,868
FISCAL YEAR 1998 FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
JAN. '98 APR. '98 JULY '98 OCT. '98
- -------------------------------------------------------------------------------------------------------------------
44
Net Sales $10,608,027 $10,753,943 $10,358,271 $10,089,697
Earnings before taxes 791,575 719,173 589,912 894,281
Provision for income taxes 297,000 277,000 225,000 413,000
Net earnings 494,575 442,173 364,912 481,281
Earnings per share (diluted) 0.18 0.15 0.12 0.17
Depreciation and amortization 715,290 726,930 678,818 740,788
45