-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PCVwuH6yfoPIF2O4TMFtkuKvKmVwk5u8/Cn2BEzmKc+kbW+/Bah4oy29kMJ2sYti e/pU8xcWmjLk9gXWkHdb0A== 0000950134-98-003224.txt : 19980415 0000950134-98-003224.hdr.sgml : 19980415 ACCESSION NUMBER: 0000950134-98-003224 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980414 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORWOOD PROMOTIONAL PRODUCTS INC CENTRAL INDEX KEY: 0000902793 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 742553074 STATE OF INCORPORATION: TX FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21800 FILM NUMBER: 98593373 BUSINESS ADDRESS: STREET 1: 9311 SAN PEDRO STREET 2: STE 900 CITY: SAN ANTONIO STATE: TX ZIP: 78216 BUSINESS PHONE: 2103419440 10-Q 1 FORM 10-Q FOR QUARTER ENDED FEBRUARY 28, 1998 1 United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q (MARK ONE) [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Period Ended February 28, 1998 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 for the Transition Period From to ---------------- Commission file number 0-21800 NORWOOD PROMOTIONAL PRODUCTS, INC. (Exact name of registrant as specified in its charter) TEXAS 74-2553074 --------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 106 EAST SIXTH STREET, SUITE 300, AUSTIN, TEXAS 78701 --------------------------------------------------------------------- (Address of Principal executive offices) (Zip Code) (512) 476-7100 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Applicable Only to Corporate Issuers Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 5,080,751 shares of Common Stock, no par value, as of April 6, 1998. 1 2 NORWOOD PROMOTIONAL PRODUCTS, INC. INDEX TO FORM 10-Q QUARTER ENDED FEBRUARY 28, 1998
PAGE NO. -------- PART I. Financial Information Item 1. Interim Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Statements of Income 3 Condensed Consolidated Balance Sheets 4 Consolidated Statements of Cash Flows 5 Consolidated Statements of Shareholders' Equity 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. Other Information Item 1. Legal Proceedings 12 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13 Index to Exhibits 14
2 3 NORWOOD PROMOTIONAL PRODUCTS, INC. ITEM 1. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- FEBRUARY 28, MARCH 1, FEBRUARY 28, MARCH 1, 1998 1997(a) 1998 1997 (a) Sales $ 39,988 $ 35,268 $ 86,953 $ 75,086 Cost of sales 29,756 25,261 63,501 52,850 Gross profit 10,232 10,007 23,452 22,236 Operating expenses 8,464 8,377 17,695 16,754 Operating income 1,768 1,630 5,757 5,482 Interest expense 1,040 644 1,902 1,313 Income before income taxes 728 986 3,855 4,169 Provision for income taxes 299 364 1,581 1,645 Income from continuing operations 429 622 2,274 2,524 Discontinued operations -- (457) -- (919) Net income $ 429 $ 165 $ 2,274 $ 1,605 Net income per common share: Basic: (b) (b) Income from continuing operations $ 0.08 $ 0.11 $ 0.45 $ 0.45 Discontinued operations -- (0.08) -- (0.16) Net income $ 0.08 $ 0.03 $ 0.45 $ 0.29 Diluted: Income from continuing operations $ 0.08 $ 0.11 $ 0.43 $ 0.44 Discontinued operations -- (0.08) -- (0.16) Net income $ 0.08 $ 0.03 $ 0.43 0.28 Weighted average number of common shares outstanding: Basic 5,075 5,620 5,075 5,620 Diluted 5,200 5,800 5,200 5,775
(a) Restated for discontinued operations reported in the fourth quarter, 1997 (b) Restated to conform with the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share See accompanying notes. 3 4 NORWOOD PROMOTIONAL PRODUCTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
FEBRUARY 28, AUGUST 30, 1998 1997 (UNAUDITED) (AUDITED) ASSETS Current Assets: Cash and cash equivalents $ 94 $ 2,609 Accounts receivable 19,481 24,282 Income taxes receivable 601 551 Other receivables 2,928 713 Inventories 34,788 32,105 Prepaid expenses and other current assets 2,448 2,464 Total current assets 60,340 62,724 Property, plant and equipment, net 18,334 21,141 Goodwill 37,366 39,009 Deferred income taxes 2,630 2,549 Other assets 8,857 9,771 Total assets 127,527 $ 135,194 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Trade accounts payable $ 8,909 $ 11,299 Accrued liabilities 5,384 11,197 Income taxes payable -- -- Current maturities of long-term debt and capital lease obligations 2,277 2,352 Total current liabilities 16,570 24,848 Long-term debt and capital lease obligations, less current maturities portion 57,245 59,070 Shareholders' equity: Common stock, no par value; 20,000,000 shares authorized; 5,654,558 and 5,638,789 shares issued and 5,078,028 and 5,062,259 shares outstanding at February 28, 1998 and August 30, 1997, respectively 23,020 22,858 Additional paid-in capital 29,340 29,340 Less cost of treasury stock, 576,530 shares at February 28, 1998 and August 30, 1997, respectively (7,391) (7,391) Retained earnings 8,743 6,469 Total shareholders' equity 53,712 51,276 Total liabilities and shareholders' equity $ 127,527 $ 135,194
See accompanying notes. 4 5 NORWOOD PROMOTIONAL PRODUCTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED FEBRUARY 28, MARCH 1, 1998 1997 OPERATING ACTIVITIES Net income $ 2,274 $ 1,605 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes (81) Deprecation 1,897 2,099 Amortization 2,034 1,904 (Gain) loss on sale of property & equipment 3 -- Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable, net 4,802 3,710 Income taxes receivable (50) Inventory (2,684) (860) Prepaid expenses and other 539 (1,274) Other receivables (102) 48 Accounts payable (1,490) (2,881) Accrued liabilities (5,726) (1,478) Income taxes payable -- (78) Net cash provided by operating activities 1,416 2,795 INVESTING ACTIVITIES Business acquisitions, net of cash -- (8,228) Purchase of property, plant & equipment (2,106) (2,487) Proceeds from retirement of property, plant & equipment -- 28 Net cash used in investing activities (2,106) (10,687) FINANCING ACTIVITIES Proceeds from long-term debt 25,400 36,940 Payments on long-term debt (27,387) (29,958) Proceeds from sale of common stock and shareholder notes 162 86 Net cash (used in) provided by financing activities (1,825) 7,068 Net change in cash (2,515) (824) Cash at beginning of period 2,609 1,861 Cash at end of period 94 $ 1,037
See accompanying notes. 5 6 NORWOOD PROMOTIONAL PRODUCTS, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED, IN THOUSANDS)
COMMON STOCK ADDITIONAL TOTAL ------------ PAID-IN RETAINED TREASURY SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY ------ ------ ---------- -------- -------- ------------- Balance at August 30, 1997 5,639 $22,858 $29,340 $6,469 $(7,391) $51,276 Purchases of common stock 16 162 -- -- -- 162 Net income -- -- -- 2,274 -- 2,274 Balance at February 28, 1998 5,655 $23,020 $29,340 $8,743 $(7,391) $53,712
See accompanying notes 6 7 NORWOOD PROMOTIONAL PRODUCTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED FEBRUARY 28, 1998 AND MARCH 1, 1997 1. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements include the accounts of Air-Tex Corporation ("Air-Tex"), ArtMold Products Corporation ("ArtMold"), Barlow Promotional Products, Inc. ("Barlow"), Key Industries, Inc. ("Key"), Radio Cap Company, Inc. ("RCC"), and Norcorp, Inc. ("Norcorp") and have been presented in accordance with the reporting requirements for interim financial statements. Such requirements do not include all of the disclosures normally required by generally accepted accounting principles or those normally made in an Annual Report of the registrant on Form 10-K. The information furnished herein reflects all adjustments which, in the opinion of management, are of a normal recurring nature and necessary for a fair statement of the results of interim periods. Such results for interim periods are not necessarily indicative of the results to be expected for a full year, principally due to seasonal fluctuations in product line revenue. 2. INVENTORIES Inventories at February 28, 1998 and March 1, 1997 consist of (in thousands):
FEBRUARY 28, MARCH 1, 1998 1997 Raw materials $ 8,745 $ 10,731 Work in process 1,104 1,241 Finished goods 24,939 20,969 Total $ 34,788 $ 32,941
3. EARNINGS PER SHARE The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128 (issued by the Financial Accounting Standards Board in February 1997) during the second quarter ended February 28, 1998. As required by SFAS No. 128, the method used by the Company to compute earning per share was changed and prior periods have been restated. Under the new requirements for calculating basic (formerly primary) earnings per share, the dilutive effect of stock options and warrants is excluded. In addition for calculating diluted (formerly fully diluted) earnings per share, the treasury stock method is applied using the average price for the period rather than the higher of the average price or the closing price on the last day of the period. 4. SUBSEQUENT EVENT The Company announced on March 16, 1998 that it has signed a merger agreement with FPK, LLC, a limited liability company formed by the Company's Chairman and Chief Executive Officer, under which each share of the common stock of the Company (other than shares held by certain members of Norwood's management and employees) will be converted into the right to receive $20.70 per share in cash. Under the merger agreement, FPK, LLC will form a wholly owned subsidiary which will be merged with and into the Company, with the Company being the surviving corporation. The merger is subject, among other things, to the approval of the holders of at least two-thirds of the outstanding common stock of the Company, the consummation of debt and equity financing to finance the transaction and the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Financing is being arranged by FPK, LLC. Based on the recommendation of a Special Committee of the Board of Directors, the merger agreement was unanimously approved by the Board of Directors of the Company (with two interested directors abstaining) and by the Sole Manager and Member of FPK, LLC. It is anticipated that the transaction will close in the second calendar quarter of 1998. Upon completion of the transaction, the Company will continue to operate as an independent company. 7 8 NORWOOD PROMOTIONAL PRODUCTS, INC. ITEMS 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following is Management's discussion and analysis of the results of operations and financial condition of Norwood Promotional Products, Inc. and its subsidiaries ("the Company") during the periods included in the accompanying consolidated financial statements. The discussion below relates to material changes in the results of operations for the three and six months ended February 28, 1998 as compared to the same periods ended March 1, 1997, and to material changes in the financial condition of the Company occurring since the prior fiscal year end of August 30, 1997. The Company's results of operations for the periods discussed below were significantly affected by the acquisitions of Wesburn Golf (acquired in February 1997) and DM Apparel, Inc. (acquired in February 1997) (collectively referred to as the "fiscal 1997 acquisitions"). For further information, refer to the Company's Annual Report on Form 10-K for the year ended August 30, 1997. THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 1, 1997 Sales for the second quarter of fiscal 1998 increased $4.7 million, or 13.3%, to $40.0 million from $35.3 million (restated for discontinued operations reported August 1997) in the second quarter of fiscal 1997. Excluding businesses acquired during the second half of fiscal 1997, sales for the second quarter increased approximately 5% from the comparable period last year. Significant sales increases for the second quarter were realized at RCC (16.2% increase) and Barlow (9.3% increase) over the same quarter last year while Air-Tex posted a decrease in sales of 13.6% compared to the same quarter last year. Gross profit for the second quarter of fiscal 1998 increased $225,000, or 2.2%, to $10.2 million from $10.0 million in the second quarter of fiscal 1997. This increase was attributable to the fiscal 1997 acquisitions offset by a decline in overall gross profit percentage from 28.4% to 25.6%. This decrease was attributable to the growth in logo golf ball sales which have lower gross profit margins (offset by lower operating expenses) and lower margins recorded by the Company's custom sewing jacket company and the Air-Tex bag company. In addition, due to higher sales volumes, the Company has experienced labor variances in plastic drinkware processing at RCC and at Barlow in order to meet tight delivery deadlines. Operating expenses for the second quarter of fiscal 1998 increased $87,000, or 1.0%, to $8.5 million from $8.4 million in the second quarter of fiscal 1997. This increase was primarily attributable to the fiscal 1997 acquisitions. Operating expenses as a percentage of sales decreased from 23.8% to 21.2%. This decrease reflects the lower operating expenses of the logo golf ball business, the realignment of the operating companies into two groups undertaken at the end of fiscal 1997 and to other cost saving initiatives undertaken by the Company's subsidiaries. Operating income for the second quarter of fiscal 1998 increased $138,000, or 8.5%, to $1.8 million from $1.6 million in the second quarter of fiscal 1997. Operating income as a percentage of sales decreased from 4.6% to 4.4%. This decrease was mainly attributable to lower contributions from the custom sewing jacket operation, bag product lines at Air-Tex and California Line. Management believes the bag product lines lower operating income will recover. Interest expense was $1,040,000 for the second quarter of fiscal 1998 compared to $644,000 in the second 8 9 quarter of fiscal 1997. The increase was attributable to the increase in borrowings used to finance the 1997 acquisitions and to repurchase 575,100 shares of the Company's common stock in April 1997. The Company's effective tax rate was 41.0% during the second quarter of fiscal 1998 compared with 36.9% in the second quarter of fiscal 1997. Discontinued operations for fiscal 1997 relates to the Company's decision to discontinue the operations of the Alpha Products retail division. The after-tax operating loss attributable to the Alpha Products division in the second quarter of fiscal 1997 was $457,000. Net income for the second quarter of fiscal 1998 increased $264,000 to $429,000 from $165,000 in the second quarter of fiscal 1997. The Company announced at the end of fiscal 1997 that its operating entities had been reorganized into two groups: RCC Group and Barlow Group. The RCC Group is comprised of operations producing drinkware, Koozie(R), headwear and promotional bag products, while the Barlow Group's products include writing instruments, pocket tools, business gifts and awards, and desktop and office products. For the second quarter of 1998, the RCC Group recorded sales of $17.5 million, a 12.1% increase from sales of $15.6 million in the same period for 1997. The Barlow Group's sales for the 1998 second quarter increased $2.9 million to $22.5 million from $19.6 million reported in the 1997 second quarter. Adjusted for fiscal 1997 acquisitions, Barlow group sales increased 5.8% from the comparable quarter. The gross profit margin of the RCC Group was 24.0% for the second quarter of fiscal 1998 compared to 27.4% for the same period of 1997; and for the Barlow Group, the gross profit margin was 27.7% compared to 29.2% for the same respective periods. The variance for the RCC Group was due to the start-up expenses of the Alpha Products operations which moved from Atlanta to San Antonio and the variance for the Barlow Group was due to the increase in logo golf ball sales; which traditionally have lower gross margins on sales. Operating expenses in the second quarter of 1998 as a percentage of sales were approximately 17.8% and 19.9% for the RCC Group and Barlow Group, respectively, compared to 21.1% and 21.5%, respectively, for the same period of 1997. SIX MONTHS ENDED FEBRUARY 28, 1998 COMPARED WITH SIX MONTHS ENDED MARCH 1, 1997 Sales for the first six months of fiscal 1998 increased $11.9 million, or 15.8%, to $87.0 million from $75.1 million (restated for discontinued operations reported August 1997) in the first six months of fiscal 1997. Excluding businesses acquired during the second half of fiscal 1997, sales for the first six months of fiscal 1998 increased approximately 6% from the comparable period last year. Significant sales increases for the first six months of fiscal 1998 were realized at RCC (13.5% increase) and Barlow (9.0% increase) over the same quarter last year while Air-Tex posted a decrease in sales of 17.6% compared to the same period last year. Gross profit for the first six months of fiscal 1998 increased $1.2 million, or 5.5%, to $23.4 million from $22.2 million in the first six months of fiscal 1997. This increase was attributable to the fiscal 1997 acquisitions offset by a decline in overall gross profit percentage from 29.6% to 27.0%. This decrease was attributable to the growth in logo golf ball sales which have lower gross profit margins (offset by lower operating expenses) and lower margins recorded by the Company's custom sewing jacket company and the Air-Tex bag company. In addition, due to higher sales volumes, the Company has experienced labor variances in plastic drinkware processing at RCC and at Barlow in order to meet tight delivery deadlines. Operating expenses for the first six months of fiscal 1998 increased $941,000 or 5.6%, to $17.7 million from $16.8 million in the first six months of fiscal 1997. This increase was primarily attributable to the fiscal 1997 acquisitions. Operating expenses as a percentage of sales decreased from 22.3% to 20.3%. This decrease reflects the lower operating expenses of the logo golf ball business, the realignment of the operating companies into two 9 10 groups undertaken at the end of fiscal 1997 and to other cost saving initiatives undertaken by the Company's subsidiaries. Operating income for the first six months of fiscal 1998 increased $275,000, or 5.0%, to $5.8 million from $5.5 million in the first six months of fiscal 1997. Operating income as a percentage of sales decreased from 7.3% to 6.6%. This decrease was mainly attributable to lower gross profit due to the relocation of the promotional products division of Alpha Products from Atlanta to San Antonio and lower contributions from the custom sewing jacket operation, bag product lines at Air-Tex and California Line. Management believes the bag product lines lower operating income will recover. Interest expense was $1.9 million for the first six months of fiscal 1998 compared to $1.3 million in the first six months of fiscal 1997. The increase was attributable to the increase in borrowings used to finance the 1997 acquisitions (February 1997) and to repurchase 575,100 shares of the Company's common stock in April 1997. The Company's effective tax rate was 41.0% during the first six months of fiscal 1998 compared with 39.5% in the first six months of fiscal 1997. Discontinued operations for fiscal 1997 relates to the Company's decision to discontinue the operations of the Alpha Products retail division. The after-tax operating loss attributable to the Alpha Products retail division for the six months ended March 1, 1997 was $919,000. Net income for the first six months of fiscal 1998 increased $670,000, or 41.7%, to $2.3 million from $1.6 million in the first six months of fiscal 1997. For the first six months of fiscal 1998, the RCC Group recorded sales of $38.6 million, a 9.5% increase from sales of $35.2 million in the same period for 1997. The Barlow Group's sales for the first six months of 1998 increased 21.4% to $48.4 million from $39.9 million reported in the same period for 1997. Adjusted for fiscal 1997 acquisitions, Barlow group sales increased 9.2% from the comparable period. The gross profit margin of the RCC Group was 25.9% for the first six months of 1998 compared to 28.7% for the same period of 1997; and for the Barlow Group, the gross profit margin was 28.2% compared to 30.2% for the same respective periods. The variance for the RCC Group was due to the start-up expenses of the Alpha Products operations which moved from Atlanta to San Antonio and the variance for the Barlow Group was due to the increase in logo golf ball sales; which traditionally have lower gross margins on sales. Operating expenses in the first six months of 1998 as a percentage of sales were approximately 16.5% and 18.2% for the RCC Group and Barlow Group, respectively, compared to 19.0% and 20.6%, respectively, for the same period of 1997. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its business activities primarily with borrowings under its bank credit facilities (the "1997 Credit Facility"), notes payable to former owners of acquired businesses, the sale of Common Stock and cash provided from operations. The 1997 Credit Facility provides for aggregate borrowings of up to $125.0 million, comprised of a $40.0 million term loan facility, all of which was used to repay the Company's then existing bank debt ($39.8 million outstanding at February 28, 1998), a $60.0 million reducing revolving credit facility to be used for future acquisitions ($ 0 outstanding at February 28, 1998) and a $25 million revolving credit facility to be used for working capital purposes ($6.2 million outstanding at February 28, 1998). Pursuant to the terms of the 1997 Credit Facility, the Company is required to maintain certain financial ratios and is subject to limitation on dividends, additional indebtedness, liens, investments, issuances of stock, 10 11 mergers and acquisitions, and sales of assets. The Company is required to make quarterly payments on the term loan facility through maturity at the end of fiscal 2005. The reducing revolving credit facility and the revolving credit facility terminate at the end of fiscal 2003. Amounts outstanding under the 1997 Credit Facility bear interest at a rate equal to either the agent bank's prime rate or the London Interbank Offered Rate, plus an interest rate spread which varies based on the Company's leverage ratio (determined under the credit agreement). Indebtedness under the 1997 Credit Facility is secured by a first priority security interest in substantially all the assets of the Company. Additionally, any assets acquired with financing under the 1997 Credit Facility will serve as security. Borrowings under the 1997 Credit Facility are jointly and severally guaranteed by all existing, acquired or created subsidiaries of the Company. WORKING CAPITAL AND CAPITAL EXPENDITURES Net cash provided by operating activities was $1.4 million and $2.8 million for the six months ended February 28, 1998 and March 1, 1997, respectively. Capital expenditures were approximately $2.1 million and $2.5 million for the six months ended February 28, 1998 and March 1, 1997, respectively. During the current fiscal year, the Company's principal capital needs will be to finance ongoing capital expenditures. Although the Company currently believes that cash flow from operations and available borrowing capacity under the 1997 Credit Facility will be sufficient to meet the Company's working capital and capital expenditure requirements and future debt service obligations for at least the next 12 months, there can be no assurance that this will be the case. The Company believes its fiscal 1998 capital expenditure requirements will be approximately $4.0 million primarily to acquire additional processing equipment, management information systems, furniture and fixtures and leasehold improvements. YEAR 2000 ISSUES Some of the Company's older computer programs were written using two digits rather than four to define the applicable year. This could cause a system failure or miscalculations causing disruptions of operations, including among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company has initiated an assessment and will modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. The Company does not expect that the Year 2000 Issue will materially affect future financial results. FORWARD LOOKING STATEMENTS This report contains forward looking statements within the meaning of Sections 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended, that are not historical facts. Such statements may include, but not be limited to, projected capital expenditure requirements, plans for future operations, financing needs or plans, and plans relating to products or services of the Company, as well as assumptions relating to the foregoing. These statements involve management's assumptions and are subject to risks and uncertainties, including those set forth below, along with factors set forth in the Company's Annual Report on Form 10-K in "Business--Risk Factors". The following factors could affect the Company's results, causing such results to differ materially from those in any forward looking statement contained in this report: (i) the failure of the Company to maintain or control its internal growth or the failure of the Company to manage its expanding operations effectively; (ii) a change in risks inherent in the Company's foreign sourcing of supplies; (iii) the loss of the services of one or more key management personnel; (iv) a change in the risks inherent in the Company's leverage position; (v) the loss of the Company's single supplier of Koozie(R) insulation material; and (vi) an increase in competition. 11 12 NORWOOD PROMOTIONAL PRODUCTS, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 1, 1997 PART II Item 1. Legal Proceedings On March 16, 1998, Harbor Finance Partners an alleged shareholder of the Company, filed a lawsuit against the Company seeking to enjoin the proposed merger of the Company with a subsidiary of FPK, LLC, a limited liability company formed by Frank P. Krasovec, the Company's Chairman and Chief Executive Officer. The plaintiff alleges that the proposed transaction is unfair to the Company's shareholders. The lawsuit also names the Company's directors individually and, as alternative relief, seeks unspecified damages for an alleged breach of their fiduciary duties. The suit was filed in the 250th District Court of Travis County, Texas and is styled Harbor Finance Partners v. Frank P. Krasovec, et al. The suit seeks to be certified as a class action on behalf of all shareholders of the Company except the individual defendants and their affiliates. The Company believes that the allegations made in the lawsuit are without merit and intends to contest them vigorously. On April 10, 1998, the Company filed an answer denying the allegations and asserting that the plaintiff is not entitled to the requested relief as a matter of law. Item 6. Exhibits and Reports on Form 8-K 6 (a) Exhibits: See Index to Exhibits. 6 (b) Reports on Form 8-K: The following is the date and description of the events reported on Forms 8-K filed during the second quarter of 1998:
Date of Earliest Event Reported on Form 8-K Description ------------------------------------------------------------ None
12 13 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Norwood Promotional Products, Inc. ----------------------------------- (Registrant) Date: April 14, 1998 /s/ James P. Gunning, Jr. ----------------------------------- James P. Gunning, Jr. Secretary, Treasurer and Chief Financial Officer 13 14 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION 11.0 -- Computation of earnings per share 27.0 -- Financial data schedule
14 EX-11.0 2 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.0 COMPUTATION OF EARNINGS PER SHARE (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- FEBRUARY 28, MARCH 1, FEBRUARY 28, MARCH 1, 1998 1997 (a) 1998 1997 (a) BASIC: (b) (b) Weighted average common shares outstanding 5,075 5,620 5,075 5,620 Income from continuing operations $ 429 $ 622 $ 2,274 $ 2,524 Discontinued operations -- (457) -- (919) Net Income $ 429 $ 165 $ 2,274 $ 1,605 Per share amounts: Income from continuing operations $ 0.08 $ 0.11 $ 0.45 $ 0.45 Discontinued operations -- (0.08) -- (0.16) Net Income $ 0.08 $ 0.03 $ 0.45 $ 0.29 DILUTED: (b) (b) Weighted average common shares outstanding 5,075 5,620 5,075 5,620 Weighted average dilutive potential common shares outstanding 125 180 125 155 Total 5,200 5,800 5,200 5,775 Income from continuing operations $ 429 $ 622 $ 2,274 $ 2,524 Discontinued operations -- (457) -- (919) Net Income $ 429 $ 165 $ 2,274 $ 1,605 Per share amounts: Income from continuing operations $ 0.08 $ 0.11 $ 0.43 $ 0.44 Discontinued operations -- (0.08) -- (0.16) Net Income $ 0.08 $ 0.03 $ 0.43 $ 0.28
(a) Restated for discontinued operations reported in the fourth quarter, 1997 (b) Restated to conform with the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share EX-27.0 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF NORWOOD PROMOTIONAL PRODUCTS, INC. FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q. 1,000 6-MOS AUG-29-1998 AUG-31-1997 FEB-28-1998 94 0 20,275 794 34,788 60,340 34,445 16,111 127,527 16,570 0 0 0 23,020 30,692 127,527 86,953 86,953 63,501 17,695 0 0 1,902 3,855 1,581 2,274 0 0 0 2,274 0.45 0.43
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