10-Q 1 a10-q.txt 10-Q 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 Page 2 Part 1. Financial Information Item 1. Financial Statements NORTHSTAR COMPUTER FORMS, INC. CONDENSED CONSOLIDATED BALANCE SHEET

See accompanying notes to unaudited Condensed Consolidated Financial Statements Page 3 NORTHSTAR COMPUTER FORMS, INC. CONDENSED CONSOLIDATED BALANCE SHEET, CONTINUED

See accompanying notes to unaudited Condensed Consolidated Financial Statements Page 4 NORTHSTAR COMPUTER FORMS, INC. CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (Unaudited)

See accompanying notes to unaudited Condensed Consolidated Financial Statements Page 5 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

See accompanying notes to unaudited Condensed Consolidated Financial Statements Page 6 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. Page 7 For all periods presented, the weighted average common and common equivalent shares outstanding are as follows:

3. At April 30, 2000 and October 31, 1999, inventories consisted of the following:

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. Page 8 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.

Page 9

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:

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 Page 10 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. Page 11 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. Page 12 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. Page 13 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)

NORTHSTAR COMPUTER FORMS INC/MN 10-Q