-----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, PsOw8Um1+iQPovdb8Nbn7oPhrsu2LohYrKXS9Dd2dpg3N2o6+UFF6Q8sRMR4QtmE xxN0+jezqBiTisIXpk8/vQ== 0000950134-98-000200.txt : 19980114 0000950134-98-000200.hdr.sgml : 19980114 ACCESSION NUMBER: 0000950134-98-000200 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971129 FILED AS OF DATE: 19980113 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: 98505941 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 1 United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended November 29, 1997 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 E. 6th Street, Suite 300, Austin, Texas 78701 ----------------------------------------------------------------- (Address of Principal executive offices) (Zip Code) (210) 341-9440 -------------- (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 --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 5,071,169 shares of Common Stock, no par value, as of January 6, 1998. 1 2 NORWOOD PROMOTIONAL PRODUCTS, INC. INDEX TO FORM 10-Q QUARTER ENDED NOVEMBER 29, 1997
PART I Financial Information PAGE NO. 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 Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II Other Information Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12 Index to Exhibits 13
2 3 NORWOOD PROMOTIONAL PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NOVEMBER 29, NOVEMBER 30, 1997 1996(a) Sales $ 46,964 $ 39,818 Cost of sales 33,744 27,589 Gross profit 13,220 12,229 Operating expenses 9,230 8,377 Operating income 3,990 3,852 Interest expense 863 669 Income before income taxes 3,127 3,183 Provision for income taxes 1,282 1,281 Income from continuing operations 1,845 1,902 Discontinued operations -- (462) Net income $ 1,845 $ 1,440 Net income per common share: Primary: Income from continuing operations $ 0.35 $ 0.33 Discontinued operations -- (0.08) Net income $ 0.35 $ 0.25 Fully diluted: Income from continuing operations $ 0.35 $ 0.33 Discontinued operations -- (0.08) Net income $ 0.35 $ 0.25 Weighted average number of common shares outstanding: Primary 5,200 5,746 Fully Diluted 5,200 5,746
(a) Restated for discontinued operations reported in the fourth quarter, 1997. See accompanying notes 3 4 NORWOOD PROMOTIONAL PRODUCTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
NOVEMBER 29, AUGUST 30, 1997 1997 (UNAUDITED) (AUDITED) ASSETS Current Assets: Cash and cash equivalents $ 1,002 $ 2,609 Accounts receivable 22,717 24,282 Income taxes receivable -- 551 Other receivables 725 713 Inventories 32,040 32,105 Prepaid expenses and other current assets 1,916 2,464 Total current assets 58,400 62,724 Property, plant and equipment, net 20,920 21,141 Goodwill 38,320 39,009 Deferred income taxes 2,630 2,549 Other assets 9,063 9,771 Total assets $ 129,333 $ 135,194 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Trade accounts payable $ 11,897 $ 11,299 Accrued liabilities 6,025 11,197 Income taxes payable 710 -- Current maturities of long-term debt and capital lease obligations 2,349 2,352 Total current liabilities 20,981 24,848 Long-term debt and capital lease obligations, less current maturities portion 55,148 59,070 Shareholders' equity: Common stock, no par value; 20,000,000 shares authorized; 5,646,744 and 5,638,789 shares issued and 5,070,214 and 5,062,259 shares outstanding at November 29, 1997 and August 30, 1997, respectively 22,941 22,858 Additional paid-in capital 29,340 29,340 Less cost of treasury stock, 576,530 shares at November 29, 1997 and August 30, 1997, respectively (7,391) (7,391) Retained earnings 8,314 6,469 Total shareholders' equity 53,204 51,276 Total liabilities and shareholders' equity $ 129,333 $ 135,194
See accompanying notes 4 5 NORWOOD PROMOTIONAL PRODUCTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED,IN THOUSANDS)
THREE MONTHS ENDED NOVEMBER 29, NOVEMBER 30, 1997 1996 OPERATING ACTIVITIES Net income $ 1,845 $ 1,440 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes (81) -- Depreciation 971 1,048 Amortization 1,015 938 Loss on sale of property & equipment 3 -- Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable 1,566 1,286 Income taxes receivable 551 -- Inventories 65 450 Prepaid expenses and other 928 (378) Other receivables (12) 17 Accounts payable 598 (2,122) Accrued liabilities (5,172) (407) Income taxes payable 710 680 Net cash provided by operating activities 2,987 2,952 INVESTING ACTIVITIES Business acquisitions, net of cash -- -- Purchase of property, plant & equipment (752) (1,527) Proceeds from retirement of property, plant & equipment -- -- Net cash used in investing activities (752) (1,527) FINANCING ACTIVITIES Proceeds from long-term debt 8,081 11,040 Payments on long-term debt (12,006) (14,129) Debt refinancing fees -- -- Proceeds from sale of common stock and shareholder notes 83 7 Net cash used in financing activities (3,842) (3,082) Net change in cash (1,607) (1,657) Cash at beginning of period 2,609 1,861 Cash at end of period $ 1,002 $ 204
See accompanying notes 5 6 NORWOOD PROMOTIONAL PRODUCTS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED, IN THOUSANDS)
RECEIVABLES FOR COMMON STOCK ADDITIONAL PURCHASES PURCHASES TOTAL ------------ PAID-IN RETAINED OF COMMON OF TREASURY SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS STOCK STOCK EQUITY Balance at August 30, 1997 5,639 $22,858 $29,340 $ 6,469 $-- $(7,391) $51,276 Sale of common stock 8 83 -- -- -- -- 83 Payment on shareholder notes -- -- -- -- -- -- -- Net Income -- -- -- 1,845 -- -- 1,845 Balance at November 29, 1997 5,647 $22,941 $29,340 $ 8,314 $-- $(7,391) $53,204
See accompanying notes 6 7 NORWOOD PROMOTIONAL PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED NOVEMBER 29, 1997 AND NOVEMBER 30, 1996 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. 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 November 29, 1997 and August 30, 1997 consist of (in thousands):
NOVEMBER 29, AUGUST 30, 1997 1997 Raw materials $ 8,861 $ 9,164 Work in process 1,494 1,298 Finished goods 21,685 21,643 Total $32,040 $32,105
7 8 NORWOOD PROMOTIONAL PRODUCTS, INC. ITEM 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 months ended November 29, 1997 as compared to the same period ended November 30, 1996, 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 TEE-OFF Enterprises, Inc. (acquired in January 1996), Alpha Products, Inc. (acquired in April 1996) (collectively referred to as the "fiscal 1996 acquisitions"), Wesburn Golf (acquired in February 1997) and DM Apparel, Inc. (acquired in February 1997) (collectively referred to as the "fiscal 1997 acquisitions"). Reference is made to Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the year ended August 30, 1997 for further details regarding the significant factors affecting the results of operations and financial condition of the Company. THREE MONTHS ENDED NOVEMBER 29, 1997 COMPARED WITH THREE MONTHS ENDED NOVEMBER 30, 1996 Sales for the first quarter of fiscal 1998 increased $7.1 million, or 17.9%, to $46.9 million from $39.8 million (restated for discontinued operations reported August 1997) in the first quarter of fiscal 1997. Of this increase, $2.8 million was attributable to increased sales of the Company's existing product lines, and $4.3 million was due to the fiscal 1997 acquisitions. Gross profit for the first quarter of fiscal 1998 increased $991,000, or 8.1%, to $13.2 million from $12.2 million in the first quarter of fiscal 1997. This increase was primarily attributable to the fiscal 1997 acquisitions. Gross profit as a percentage of sales decreased from 30.7% to 28.1%. This decrease was primarily attributable to the growth in logo golf ball sales which have lower gross profit margins offset by lower operating expenses. Operating expenses for the first quarter of fiscal 1998 increased $853,000, or 10.2%, to $9.2 million from $8.4 million in the first quarter of fiscal 1997. This increase was primarily attributable to the fiscal 1997 acquisitions. Operating expenses as a percentage of sales decreased from 21.0% to 19.7%. 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 first quarter of fiscal 1998 increased $138,000, or 3.6%, to $4.0 million from $3.9 million in the first quarter of fiscal 1997. Operating income as a percentage of sales decreased from 9.7% to 8.5%. This decrease was mainly attributable to the relocation of the promotional products division of Alpha Products and to the lower than expected earnings contribution from the bag product lines. Management believes the latter to be a timing difference. Interest expense was $863,000 during the first quarter of fiscal 1998 compared to $669,000 in the first quarter 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 common stock in April 1997. 8 9 The Company's effective tax rate was 41.0% during the first quarter of fiscal 1998 compared with 40.2% in the first quarter of fiscal 1997. Discontinued operations in fiscal 1997 relates to the Company's decision to discontinue the operations of the Alpha Products retail division. The loss attributable to the Alpha Products division in the first quarter of fiscal 1997 was $462,000. As a result of the above, first quarter of fiscal 1998 net income increased $405,000, or 28.1%, to $1.85 million from $1.44 million in the first 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 first quarter of 1998, the RCC Group recorded sales of $21.0 million, a 4% increase from sales of $20.3 million in the same period for 1997. The Barlow Group's sales for the 1998 first quarter increased 28% to $26.0 million from $20.3 million reported in the 1997 first quarter. Adjusted for fiscal 1997 acquisitions, Barlow group sales increased 10% from the comparable quarter. The gross profit margin of the RCC Group was 27.5% for the first quarter of fiscal 1998 compared to 29.7% for the same period of 1997; and for the Barlow Group, the gross profit margin was 28.7% compared to 31.1% for the same respective periods. The variance for the RCC Group was due to the start-up of the Alpha Products operations in San Antonio and the variance for the Barlow Group was due to the increase in logo golf ball sales. Operating expenses as a percent of sales were approximately 14.0% in the first quarter of 1998 for both groups compared to approximately 16.4% for both groups for the same period of 1997. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its business activities primarily with borrowings under its recently obtained 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 ($40.0 million outstanding at November 29, 1997), a $60.0 million reducing revolving credit facility to be used for future acquisitions ($ 0 outstanding at November 29, 1997) and a $25 million revolving credit facility to be used for working capital purposes ($3.3 million outstanding at November 29, 1997). 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, 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 $3.0 million and $2.9 million for the first quarter of 1998 and 1997, respectively. Capital expenditures were approximately $752,000 and $1.5 million for the first quarter of 1998 and 1997, respectively. 9 10 The Company's principal capital needs will be to finance any future acquisitions and 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 18 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, but there can be no assurance that the Company will actually spend such amounts. The Company anticipates that such capital expenditures will be required primarily to acquire additional processing equipment, management information systems, furniture and fixtures and leasehold improvements. FORWARD LOOKING STATEMENTS This report contains forward looking statements within the meaning of Section 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. 10 11 NORWOOD PROMOTIONAL PRODUCTS, INC. FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 29, 1997 PART II 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 first quarter of 1998: Date of Earliest Event Reported on Form 8-K Description ------------------------------------------- September 10, 1997 Credit Agreement dated as of August 28, 1997 11 12 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: January 13, 1998 /s/ James P. Gunning, Jr. ---------------------------------- James P. Gunning, Jr. Secretary, Treasurer and Chief Financial Officer 12 13 INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION ----------- ----------- 11.1 -- Computation of per share earnings 27.0 -- Financial data schedule 13 EX-11.1 2 COMPUTATION OF PER SHARE EARNING 1 EXHIBIT 11.1 COMPUTATION OF EARNINGS PER SHARE (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED ---------------------------- NOVEMBER 29, NOVEMBER 30, 1997 1996 PRIMARY: Weighted average common shares outstanding 5,069 5,615 Weighted average common equivalent shares outstanding 131 131 Total 5,200 5,746 Income from continuing operations $ 1,845 $ 1,902 Discontinued operations -- (462) Net income $ 1,845 $ 1,440 Per share amounts: Income from continuing operations $ 0.35 $ 0.33 Discontinued operations -- $ (0.08) Net income $ 0.35 $ 0.35 FULLY DILUTED: Weighted average common shares outstanding 5,069 5,615 Weighted average common equivalent shares outstanding 131 131 Total 5,200 5,746 Income from continuing operations $ 1,845 $ 1,902 Discontinued operations -- (462) Net income $ 1,845 $ 1,440 Per share amounts: Income from continuing operations $ 0.35 $ 0.33 Discontinued operations -- $ (0.08) Net income $ 0.35 $ 0.35
14 EX-27.0 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENT OF NORWOOD PROMOTIONAL PRODUCTS, INC. FOR THE THREE MONTHS ENDED NOVEMBER 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q. 1,000 3-MOS AUG-29-1998 AUG-31-1997 NOV-29-1997 1,002 0 23,632 915 32,040 58,400 36,105 15,185 129,333 20,981 0 0 0 22,941 30,263 129,333 46,964 46,964 33,744 33,744 9,230 0 863 3,127 1,282 1,845 0 0 0 1,845 0.35 0.35
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