Page 1
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q SB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1997
-----------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-19056
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Northstar Computer Forms, Inc.
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(Exact name of registrant as specified in its charter)
Minnesota 41-0882640
- ------------------------------ ----------------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification Numbers)
incorporation or organization)
7130 Northland Circle North Brooklyn Park, Minnesota 55428
- -------------------------------------------------------- ---------
(Address or Principal Executive Offices) Zip Code
Registrant's telephone number, including area code (612) 531-7340
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- ------------------------------------------------------------------------------
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 September 5, 1997
----- --------------------------------
Common Stock, $ .05 par value 1,770,571 Shares
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Part 1. Financial Information
Item 1. Financial Statements
NORTHSTAR COMPUTER FORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, October 31,
1997 (Unaudited) 1996
---------------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 4,551,348 $ 2,378,105
Accounts receivable, less
allowance for doubtful accounts
of $185,000 at July 31, 1997
and $144,000 at October 31, 1996 6,454,867 4,728,735
Inventories 923,143 2,292,057
Other current assets 240,666 216,280
Deferred income taxes 162,640 148,796
------------ ------------
Total current assets 12,332,664 9,763,973
------------ ------------
Property, plant and equipment 29,744,812 27,730,780
Accumulated depreciation and
amortization (13,670,855) (11,561,128)
------------ ------------
Net property, plant and
equipment 16,073,957 16,169,652
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Notes receivable, less current portion 860,840 990,060
Goodwill 1,808,176 1,959,305
Other assets 479,009 518,442
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Total assets $ 31,554,646 $ 29,401,432
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------------ ------------
See accompanying notes to Condensed
Consolidated Financial Statements
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NORTHSTAR COMPUTER FORMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
July 31, October 31,
1997 (Unaudited) 1996
---------------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,320,000 $ 1,029,825
Accounts payable 2,263,608 2,103,537
Accrued liabilities 1,429,151 1,249,388
------------ ------------
Total current liabilities 6,012,759 4,382,750
Deferred compensation 761,325 775,199
Deferred income taxes 1,313,009 1,039,773
Long-term debt, less current portion 8,683,050 10,565,175
Commitments
Stockholders' equity:
Common stock, $.05 par value
authorized, 5,000,000 shares; issued
and outstanding, 1,739,671 at
July 31, 1997 and 1,716,571 at
October 31, 1996 86,983 85,828
Additional paid-in capital 2,145,182 1,995,177
Retained earnings 12,552,338 10,557,530
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Total stockholders' equity 14,784,503 12,638,535
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Total liabilities and
stockholders' equity $ 31,554,646 $ 29,401,432
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------------ ------------
See accompanying notes to unaudited Condensed
Consolidated Financial Statements
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NORTHSTAR COMPUTER FORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
July 31 July 31
1997 1996 1997 1996
---- ---- ---- ----
Net sales $11,330,222 $ 6,077,608 $34,679,910 $17,603,510
Cost of goods sold 7,870,793 4,859,440 24,506,609 14,434,170
---------- ---------- ----------- -----------
Gross profit 3,459,429 1,218,168 10,173,301 3,169,340
Selling, general and
administrative expenses 2,069,002 873,045 6,095,665 2,405,750
---------- ---------- ----------- -----------
Operating income 1,390,427 345,123 4,077,636 763,590
Other income (expense):
Interest expense (223,238) (57,743) (671,472) (137,011)
Other, net, principally
interest income 91,607 13,235 128,668 57,117
Gain on sale of assets 2,500 5,325 5,766 3,687
---------- ---------- ----------- -----------
(129,131) (39,183) (537,038) (76,207)
Earnings before
income taxes 1,261,296 305,940 3,540,598 687,383
Provision for income taxes 503,500 127,500 1,416,500 276,000
---------- ---------- ----------- -----------
Net earnings $ 757,796 $ 178,440 $ 2,124,098 $ 411,383
---------- ---------- ----------- -----------
Net earnings
per common share:
Primary $ 0.40 $ 0.10 $ 1.15 $ 0.24
---------- ---------- ----------- -----------
Fully diluted $ 0.40 $ 0.10 $ 1.12 $ 0.24
---------- ---------- ----------- -----------
Weighted average common and
common equivalent shares
outstanding:
Primary 1,871,505 1,780,656 1,851,920 1,780,656
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Fully diluted 1,885,633 1,780,656 1,894,214 1,780,656
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Dividends paid $ - $ - $ 0.075 $ 0.065
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
See accompanying notes to unaudited Condensed
Consolidated Financial Statements
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NORTHSTAR COMPUTER FORMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
for the nine months ended July 31, 1997 and 1996
1997 1996
---- ----
Cash flows from operating activities:
Net earnings $ 2,124,098 $ 411,383
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation and amortization 2,021,304 1,170,193
Provision for losses on receivables 41,400 41,400
Gain on sale of equipment (5,766) (3,687)
Net changes in operating assets and liabilities 284,372 789,546
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Net cash provided by operating activities 4,465,408 2,408,835
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Cash flows from investing activities:
Capital expenditures and equipment deposits (1,721,562) (913,412)
Proceeds from sale of equipment 11,400 5,850
Notes receivable repayments 104,155 76,720
Purchase of certain assets of a division of
Deluxe Corp. (9,298,281)
Other (4,500)
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Net cash used in investing activities (1,610,507) (10,129,123)
----------- ------------
Cash flows from financing activities:
Borrowing on bank term note 9,000,000
Principle payment on long-term debt (591,950)
Dividends paid (240,868) (222,914)
Stock options exercised 151,160
Redemption of common stock (2,723)
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Net cash (used) in provided by financing activities (681,658) 8,774,363
----------- ------------
Net increase in cash and cash equivalents 2,173,243 1,054,075
Cash and cash equivalents at beginning of period 2,378,105 1,180,788
----------- ------------
Cash and cash equivalents at end of period $ 4,551,348 $ 2,234,863
----------- ------------
----------- ------------
Supplemental disclosure of cash flow:
Cash paid during the period for:
Income taxes $ 1,528,580 $ 258,530
Interest 459,914 137,011
See accompanying notes to unaudited Condensed
Consolidated Financial Statements
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NORTHSTAR COMPUTER FORMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements included in this Form
10-QSB 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 condensed consolidated financial
statements should be read in conjunction with the financial statements
and related notes included in the Company's 1996 Annual Report on Form
10-KSB as filed with the Securities and Exchange Commission.
The condensed consolidated financial statements presented herein as of
July 31, 1997 and for the three and nine months then ended reflect, in
the opinion of management, all adjustments (which include only normal,
recurring adjustments) necessary for a fair presentation of financial
position and results of operations for the periods presented. The
results of operations for any interim period are not necessarily
indicative of results for the full year.
2. Earnings per share
Earnings per common and common equivalent share are computed using the
weighted average number of common and common equivalent shares
outstanding. Common equivalent shares are the result of dilutive stock
options.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, a new standard for computing and presenting
earnings per share. The Company is required to adopt the new standard
in the first quarter of fiscal 1998; earlier adoption is not
permitted. The Company expects that earnings per share computed under
the new standard will approximate earnings per share currently
reported.
3. Acquisition of Assets of a Division of Deluxe Corporation
In July 1996, the Company purchased substantially all of the assets of
the Financial Forms Division of Deluxe Corporation. The Company
renamed the division Northstar Financial Forms. The purchase price of
$9,200,000 cash and $124,754 of direct acquisition costs was financed
with a $9,000,000 term loan. The assets acquired consist principally
of manufacturing equipment. Northstar Financial Forms manufactures
internal bank forms which is the same product line manufactured by the
Company's subsidiary, General Financial Supply, Inc.
The division's financial results are included in the Statements of
Earnings for the three and nine months ended July 31, 1997. The
Company's results of operations for the three and nine months ended
July 31, 1996 on a pro forma basis as though the division had been
acquired as of November 1, 1995 are as follows:
Three Months Ended Nine Months Ended
July 31, 1996 July 31, 1996
Sales $10,629,336 $32,097,298
Net earnings 415,904 1,151,897
Primary earnings per common share .24 .65
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4. Stock Options
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation." This
statement establishes financial accounting and reporting standards for
stock-based employee compensation plans. The Company intends to
follow the option that permits entities to continue to apply current
accounting standards to stock-based employee compensation
arrangements. Effective with fiscal year-end 1997 reporting, the
Company will disclose pro forma net income and earnings per share
amounts as if Statement No. 123 accounting were applied to the
Company's stock compensation programs.
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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
Results of Operations
The following table sets forth, for the periods indicated, certain items in
the Company's unaudited condensed consolidated statements of earnings as a
percentage of net sales and the percentage changes of the dollar amounts of
such items as compared with the prior period.
Three Months Ended July 31
Percentage of Net Sales Increase
----------------------- --------
1997 1996 1997 vs. 1996
---- ----- -------------
Net Sales. . . . . . . . . . . . . 100.0 % 100.0 % 86.4 %
Cost of Goods Sold . . . . . . . . 69.5 80.0 62.0
Gross Profit . . . . . . . . . . 30.5 20.0 184.0
Selling, General and
Administrative Expenses. . . . . 18.3 14.4 137.0
Operating Income . . . . . . . . . 12.3 5.7 302.9
Net Earnings . . . . . . . . . . . 6.7 2.9 324.7
Nine Months Ended July 31
Percentage of Net Sales Increase
----------------------- --------
1997 1996 1997 vs. 1996
---- ----- -------------
Net Sales. . . . . . . . . . . . . 100.0 % 100.0 % 97.0 %
Cost of Goods Sold . . . . . . . . 70.7 82.0 69.8
Gross Profit . . . . . . . . . . 29.3 18.0 221.0
Selling, General and
Administrative Expenses. . . . . 17.6 13.7 153.4
Operating Income . . . . . . . . . 11.8 4.3 434.0
Net Earnings . . . . . . . . . . . 6.1 2.3 416.3
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The following table sets forth the sales for the periods indicated of the
internal bank forms, general business forms and consolidated sales.
INTERNAL GENERAL CONSOLIDATED
BANK FORMS % BUSINESS FORMS % SALES
----------- -- -------------- -- -------------
Current Quarter
1997 $ 8,360,909 74 $2,969,313 26 $ 11,330,222
1996 $ 3,659,310 60 $2,418,298 40 $ 6,077,608
Increase 4,701,599 551,015 5,252,614
Percentage Increase 128.5% 22.8% 86.4%
Nine Months
1997 $25,174,512 73 $9,505,398 27 $ 34,679,910
1996 $10,072,186 57 $7,531,324 43 $ 17,603,510
Increase 15,102,326 1,974,074 17,076,400
Percentage Increase 149.9% 26.2% 97.0%
Approximately 90 percent of the internal bank form sales increase for the
three and nine months ended July 31, 1997, over the comparable 1996 periods
was sales from the new division, Northstar Financial Forms. The remaining
increase occurred mainly due to growth in standard bank form orders.
In the general business forms business, the sales increase is due to an
increase in orders from existing customers. Sales in one product line
increased approximately $530,000 for the third quarter of 1997 and $1,350,000
for the nine months, accounting for approximately 68 percent of the year to
date sales increase in general business forms.
Gross profit for the third quarter of 1997 increased from 20.0 percent in
1996 to 30.5 percent in 1997. For the nine months, gross profit increased
from 18.0 percent to 29.3 percent in 1997. The gross profit of Northstar
Financial Forms is typically higher than the Company's other divisions
because this division sells directly to the end user customer while the other
divisions sell primarily through distributors. This higher gross profit is
partially offset by higher sales and administrative expense in this division.
Generally, retail sales require a larger sales and administrative staff than
is required by facilities which sell to distributors and printers. Without
the contribution of the new division, gross profit for the third quarter
would have been 24.6 percent. During 1997, variable manufacturing costs,
exclusive of material, remained relatively constant as a percentage of sales.
Material costs decreased during the nine months due to certain paper price
declines and the increased volumes improved the absorption of fixed costs.
Approximately $185,000 or 83 percent of the third quarter interest expense
relates to the $9,000,000 term loan incurred in July 1996 to acquire the new
division. Earnings before income taxes were $1,261,296 or 11.1 percent of
sales in the third quarter of 1997, compared with $305,940 or 5.0 percent of
sales in the third quarter of 1996. For the nine months, earnings before
income taxes were $3,540,598 or 10.2 percent of sales in 1997 compared with
$687,383 or 3.9 percent of sales in 1996. Primary earnings per share for the
nine months were $1.15 in 1997 and $.24 in 1996.
Financial Condition
The Company's long-term debt consists of the acquisition term loan and
Variable Rate Demand Industrial Development Revenue Bonds. The Company's
obligation to repay the bonds is collateralized by an irrevocable, direct-pay
letter of credit. The term loan and the bonds are collateralized by the
Company's property, plant and equipment, inventories and accounts receivable.
The term loan principal is payable in quarterly installments beginning July
31, 1997 and from annual excess cash flow as defined in the loan agreement
(estimated at $1,245,000 at July 31, 1997 and included in current
liabilities) with any remaining principal balance due on July 31, 2003.
Interest is payable monthly. The bonds require annual principal payments and
monthly interest payments at a variable rate based upon comparable tax-exempt
issues. Both the term loan and the bonds specify limits on capital
expenditures and dividends. Both also specify working capital, net worth and
certain financial ratios that the Company must maintain.
Page 10
The Company continues to expand its manufacturing capacity by the acquisition
of equipment. Capital expenditures for equipment during the nine months
ended July 31, 1997 were $1,721,562 compared to $913,412 for the comparable
period of 1996. The Company anticipates capital expenditures of approximately
$2,000,000 in fiscal 1997.
Net cash provided by operations was $4,465,408 for the nine months ended July
31, 1997 compared to $2,408,835 for the same period in 1996. The Company's
working capital was $6.3 million on July 31, 1997 compared to $5.4 million
on October 31, 1996. If necessary to finance operations, the Company has
available a bank line of credit for $1.5 million at an interest rate equal to
the bank's reference rate.
The Company believes its existing financial resources are adequate to fund
its fiscal year 1997 capital expenditures and dividend payments and foresees
no events or uncertainties that are likely to have a material impact on its
liquidity. The Company expects to be able to generate sufficient cash flow
from operations to avoid relying on external sources of financing, beyond the
financing sources already in existence.
Outlook
The acquisition of the financial forms division continues to have a
significant impact on the Company's business. Management continues to focus
on integrating operations, developing computer reporting systems and
implementing marketing plans. This integration continues to improve the
operating efficiency between manufacturing locations.
The Company is not aware of any trends, events or other uncertainties that
will have a significant impact on its financial condition or results of
operations.
New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, a new standard for computing and presenting earnings per share. The
Company is required to adopt the new standard in the first quarter of fiscal
1998; earlier adoption is not permitted. The Company expects that earning
per share computed under the new standard will approximate earnings per share
currently reported.
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NORTHSTAR COMPUTER FORMS, INC.
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit
II Statement re Computation of Per Share Earnings
b) Reports on Form 8-K
None
None of the other items contained in Part II of Form 10-QSB is applicable to
the Company for the quarter ended July 31, 1997.
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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: September 5, 1997 By: Mary Ann Morin
------------------------- -----------------------------
Mary Ann Morin
Chief Financial Officer
(Principal Financial Officer)
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NORTHSTAR COMPUTER FORMS, INC.
Exhibit
11. Schedule of Computation of Per Share Earnings.