Page 1
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 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 41-0882640
--------- ----------
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Numbers)
7130 Northland Circle North Brooklyn Park, Minnesota 55428
- -----------------------------------------------------------------------
(Address or Principal Executive Offices) Zip Code
Registrant's telephone number, including area code (763) 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 June 6, 2000
----- ---------------------------
Common Stock, $ .05 par value 2,754,058 Shares
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Part 1. Financial Information
Item 1. Financial Statements
NORTHSTAR COMPUTER FORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
April 30, October 31,
2000 (Unaudited) 1999
----------------------- ---------------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,455,360 $ 3,878,447
Accounts receivable, less
allowance for doubtful accounts
of $197,000 at April 30, 2000 and $153,000 at October 31, 1999 5,102,581 5,958,522
Inventories 2,109,156 2,294,119
Other current assets 1,076,635 442,743
Deferred income taxes 267,456 261,656
----------------------- ---------------------
Total current assets 14,011,188 12,835,487
----------------------- ---------------------
Property, plant and equipment 32,723,465 31,970,784
Less accumulated depreciation and
amortization (19,889,442) (18,602,108)
----------------------- ---------------------
Net property, plant and equipment 12,834,023 13,368,676
----------------------- ---------------------
Notes receivable, less current portion 23,546 60,634
Goodwill, net 1,254,033 1,354,786
Other assets, net 1,258,818 1,256,641
----------------------- ---------------------
Total assets $29,381,608 $28,876,224
======================= =====================
See accompanying notes to unaudited Condensed
Consolidated Financial Statements
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NORTHSTAR COMPUTER FORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET, CONTINUED
April 30, October 31,
2000 (Unaudited) 1999
--------------------------- -------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 335,000 $ 335,000
Accounts payable 1,688,260 1,296,485
Accrued liabilities 1,494,727 2,608,969
--------------------------- -------------------------
Total current liabilities 3,517,987 4,240,454
Deferred compensation 790,402 773,333
Deferred income taxes 1,494,133 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, 2,753,858 at April 30, 2000
and 2,744,708 at October 31, 1999 137,693 137,235
Additional paid-in capital 2,913,109 2,862,678
Retained earnings 19,188,284 18,060,891
--------------------------- -------------------------
Total stockholders' equity 22,239,086 21,060,804
--------------------------- -------------------------
Total liabilities and stockholders' equity $ 29,381,608 $ 28,876,224
=======================================================
See accompanying notes to unaudited Condensed
Consolidated Financial Statements
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NORTHSTAR COMPUTER FORMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Three Months Ended Six Months Ended
April 30 April 30
2000 1999 2000 1999
---- ---- ---- ----
Net sales $ 11,059,406 $ 11,878,269 $ 22,670,865 $ 22,521,887
Cost of goods sold 7,947,568 8,492,505 16,728,860 16,408,754
--------------------- --------------------- --------------------- ----------------------
Gross profit 3,111,838 3,385,764 5,942,005 6,113,133
Selling, general and
administrative expenses 2,053,103 2,142,427 4,122,833 4,088,147
--------------------- --------------------- --------------------- ----------------------
Operating income 1,058,735 1,243,337 1,819,172 2,024,986
Other income (expense):
Interest expense (26,860) (76,202) (54,105) (168,222)
Other, net, principally
interest income 39,169 21,691 83,326 92,560
--------------------- --------------------- --------------------- ----------------------
12,309 (54,511) 29,221 (75,662)
--------------------- --------------------- --------------------- ----------------------
Earnings before income taxes 1,071,044 1,188,826 1,848,393 1,949,324
Provision for income taxes 417,500 491,500 721,000 780,500
--------------------- --------------------- --------------------- ----------------------
Net earnings $ 653,544 $ 697,326 $ 1,127,393 $ 1,168,824
--------------------- --------------------- --------------------- ----------------------
Net earnings per common share:
Basic $ 0.24 $ 0.26 $ 0.41 $ 0.43
--------------------- --------------------- --------------------- ----------------------
Diluted $ 0.22 $ 0.25 $ 0.38 $ 0.41
--------------------- --------------------- --------------------- ----------------------
Dividends declared per
common share $ ---- 0.07 $ ---- 0.07
===================== ===================== ===================== ======================
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 six months ended April 30, 2000 and 1999
2000 1999
---- ----
Cash flows from operating activities:
Net earnings $ 1,127,393 $ 1,168,824
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 1,332,639 1,307,642
Amortization 189,849 191,186
Provision for doubtful accounts 40,200 27,600
Gain on sale of equipment (3,281) (7,900)
Deferred income taxes 26,700 163,400
Changes in certain operating assets and liabilities (210,290) (289,613)
----------------------- ------------------------
Net cash provided by operating activities 2,503,210 2,561,139
----------------------- ------------------------
Cash flows from investing activities:
Capital expenditures and equipment deposits (797,986) (1,035,054)
Proceeds from sale of equipment 3,281 13,600
Notes receivable repayments 37,088 46,356
----------------------- ------------------------
Net cash used in investing activities (757,617) (975,098)
----------------------- ------------------------
Cash flows from financing activities:
Principal payments on long-term debt --- (1,525,000)
Dividends paid (219,569) (190,017)
Stock options exercised 50,889 83,832
----------------------- ------------------------
Net cash used in financing activities (168,680) (1,631,185)
----------------------- ------------------------
Net increase (decrease) in cash and cash equivalents 1,576,913 (45,144)
Cash and cash equivalents at beginning of period 3,878,447 4,162,845
----------------------- ------------------------
Cash and cash equivalents at end of period $ 5,455,360 $ 4,117,701
======================= ========================
See accompanying notes to unaudited Condensed
Consolidated Financial Statements
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NORTHSTAR COMPUTER FORMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
April 30, 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 as of April 30, 2000, and for the three and six month periods
ended April 30, 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.
For the six months ended April 30, 2000 and 1999, 63,000 and 178,600
outstanding options were excluded from the computation of diluted EPS
because the options' exercise prices were greater than the average
market price of the Company's common shares. For the three months ended
April 30, 1999, 39,000 outstanding options were excluded from the
computation of diluted EPS. No shares were excluded from the
computation of diluted EPS for the three months ended April 30, 2000.
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For all periods presented, the weighted average common and common
equivalent shares outstanding are as follows:
For the three months For the six months
ended April 30 ended April 30
2000 1999 2000 1999
---- ---- ---- ----
Weighted average common shares
outstanding 2,749,425 2,729,386 2,747,558 2,724,244
Common equivalent shares
outstanding 232,482 103,234 188,811 98,706
------- ------- ------- ------
Weighted average common and common
equivalent shares outstanding
2,981,907 2,832,620 2,936,369 2,822,950
========= ========= ========= =========
3. At April 30, 2000 and October 31, 1999, inventories consisted of the
following:
April 30, October 31,
2000 1999
---- ----
Raw materials $1,428,831 $1,503,444
Work in process 407,437 573,993
Finished goods 272,888 216,682
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$2,109,156 $2,294,119
============ ============
4. Subsequent Event
On February 21, 2000, the Company announced that it 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, including stockholder approval. The
special meeting for stockholder approval was held on June 6, 2000, and
the merger was approved. The merger was subsequently completed on that
date.
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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 and six months ended
April 30, 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.
Three Months Ended April 30
Percentage of Net Sales Change
----------------------- ------
2000 1999 2000 vs. 1999
---- ---- -------------
Net Sales......................................... 100.0% 100.0% (6.9)%
Cost of Goods Sold................................ 71.9 71.5 (6.4)
---- ---- -----
Gross Profit................................. 28.1 28.5 (8.1)
---- ---- -----
Selling, General and Administrative Expenses...... 18.6 18.0 (4.2)
---- ---- -----
Operating Income.................................. 9.6 10.5 (14.8)
Net Earnings...................................... 5.9 5.9 (6.3)
--- --- -----
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Six Months Ended April 30
Percentage of Net Sales Change
----------------------- ------
2000 1999 2000 vs. 1999
---- ---- -------------
Net Sales........................................ 100.0% 100.0% 0.7 %
Cost of Goods Sold............................... 73.8 72.9 2.0
---- ---- ---
Gross Profit................................ 26.2 27.1 (2.8)
---- ---- -----
Selling, General and Administrative Expenses .... 18.2 18.1 0.8
---- ---- ---
Operating Income ................................ 8.0 9.0 (10.2)
Net Earnings..................................... 5.0 5.2 (3.5)
--- --- -----
Net sales in the second quarter of 2000 decreased $818,863 from $11,878,269 for
the second quarter of 1999 to $11,059,406. For the six months ended April 30,
2000, net sales increased $148,978 from $22,521,887 in 1999 to $22,670,865. The
Company sells two product specialties - internal bank forms and negotiable
documents - as well as other custom business forms. The following table sets
forth the percentage of sales of each product for the periods specified:
THREE MONTHS ENDED APRIL 30 SIX MONTHS ENDED APRIL 30
PERCENTAGE OF TOTAL SALES PERCENTAGE OF TOTAL SALES
2000 1999 2000 1999
---- ---- ---- ----
Internal Bank Forms 58% 62% 59% 64%
Negotiable Documents 27% 26% 27% 23%
Other Custom Business Forms 15% 12% 14% 13%
Sales of internal bank forms decreased $950,000 for the second quarter and
six-month period. 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 negotiable documents and
related services accounted for $2.9 million in sales for the second quarter of
2000, a decrease of $180,000 or a 5.8 percent decrease over the second quarter
of 1999 sales of $3.1 million. Negotiable documents accounted for $6.2 million
in sales for the six-month period, an increase of $880,000 or a 16.8 percent
increase over the same period in 1999.
Custom business forms accounted for $1.7 million in sales for the second quarter
of 2000, an increase of $320,000 or a 23 percent increase over the second
quarter of 1999. For the six-month period, custom business forms accounted for
$3.1 million in sales, an increase of $214,000 or 7.4 percent increase over the
same period in 1999. This product line is sold to various distributors/printers
for resale.
GROSS PROFIT. Gross profit was $3,111,838 (28.1 percent of net sales) in the
second quarter of 2000 compared to $3,385,764 (28.5 percent of net sales) in
1999. For the six-month period, gross profit was $5,942,005 (26.2 percent of net
sales) in 2000 compared to $6,113,133 (27.1 percent of net sales) in 1999. This
decrease in the gross profit percentage is
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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.
Sales volume changes have a significant impact on the absorption of fixed costs
such as depreciation, building occupancy costs and semi-fixed costs such as
indirect labor. Although these costs did not increase for the three months ended
April 30, 2000, the decreased sales during this period resulted in these costs
accounting for a one percent increase in costs as a percentage of sales for the
period.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE. Selling, general, and
administrative expense decreased $89,324 for the second quarter of fiscal 2000
compared to 1999. For the six-month period, selling, general, and administrative
expense increased $34,686 compared to 1999. However, as a percentage of sales
these costs remained relatively stable.
OTHER INCOME AND EXPENSE. Interest expense decreased $49,342 and $114,117 for
the three and six month periods respectively, due to debt repayment.
EARNINGS BEFORE INCOME TAXES. Earnings before income taxes for 2000 were 9.7
percent of net sales for the second quarter of 2000 compared to 10.0 percent of
sales for the second quarter of 1999. For the six-month period, earnings before
income taxes for 2000 were 8.2 percent of net sales compared to 8.7 percent in
1999.
PROVISION FOR INCOME TAXES. The provision for income taxes for the second
quarter and six-month period of 2000 was 39.0 percent of pre-tax income
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 $2,814,597 for the six months ended
April 30, compared to $2,561,139 for the same period of 1999. Working capital
was $10.2 million on April 30, 2000, compared to $8.6 million on October 31,
1999.
During the second quarter of 2000 the Company continued to expand and modernize
its manufacturing capacity by the acquisition of $797,986 in equipment compared
to capital expenditures of $1,035,054 for equipment for the comparable period of
1999. The Company anticipated 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.
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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, including stockholder approval. The special
meeting for stockholder approval was held on June 6, 2000, and the merger was
approved. The merger was subsequently completed on that date.
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 negotiable documents, the Company's sales continue to grow with the growth of
the Company's largest customer.
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.
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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 4. Submission of Matters to a Vote of Security Holders
The registrant held its Annual Meeting of Stockholders on
April 11, 2000.
(a) The shareholders re-elected the incumbent Board of
Directors: Roger T. Bredesen, John G. Mutschler, J.
S. Braun, Kenneth E. Overstreet, Roy W. Terwilliger,
and Dr. Lester A. Wanninger.
(b) The shareholders approved the re-appointment of
PricewaterhouseCoopers, LLP as independent
accountants of the Company for the year ending
October 31, 2000.
2,413,390 shares were voted affirmatively. There were
775 votes against and 3,984 votes abstained.
Item 6. Exhibits and Reports on Form 8-K
On March 3, 2000, the Company filed Form 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.
None of the other items contained in Part II of Form 10-Q is applicable to the
Company for the quarter ended April 30, 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: June 10, 2000 By: Mary Ann Morin
-------------------------- ---------------------------------
Mary Ann Morin
Chief Financial Officer
(Principal Financial Officer)