FOR IMMEDIATE RELEASE FOR FURTHER INFORMATION CONTACT:
DANIEL M. JUNIUS AT (978) 449-3416
NEW ENGLAND BUSINESS SERVICE, INC.
ANNOUNCES THIRD QUARTER RESULTS
GROTON, MA April 23, 2003 New England Business Service,
Inc. (NYSE: NEB) today announced results for its third
quarter ended March 29, 2003.
Revenues for the third quarter of fiscal 2003 were $127.3
million, versus $132.9 million in the prior year, a decline
of 4.2%. Net income of $5.9 million, or $.44 per share,
compares with $4.6 million, or $.35 per share, in the year
ago period. Excluding the impact of the non-recurring items
discussed in the paragraph below, net income was $5.3
million in the quarter, or $.40 per share, versus $4.9
million, or $.37 per share, in the prior year's third
quarter.
Earnings in the current period include a $1.0 million pretax
gain, or $.04 per share after-tax, from receipt of proceeds
from the sale of the Company's equity interests in Advantage
Payroll Services, Inc., as a result of their merger with
Paychex, Inc. The receipt of this payment in the third
quarter completes the Advantage transaction announced
earlier in the fiscal year. Fiscal 2002 third quarter
results include pretax costs related to previously announced
restructuring actions (including exit costs, training costs
and relocation costs) of $335,000, or $.02 per share after-
tax. In the third quarter of the current year, there were no
restructuring or integration charges.
Mr. Robert J. Murray, Chairman and CEO, commented,
"Continued cost management, favorable sales mix, lower
interest and amortization expense and the final proceeds
from the Advantage sale allowed us to increase pretax
earnings despite a sales decline. State tax changes enacted
during the quarter that were retroactive to the beginning of
our fiscal year resulted in a tax rate of 41.3% in the
quarter. This compares to 38.4% a year ago and an expected
rate of 38.8% for the full year, adversely impacting
earnings per share by approximately $.03 cents in the
quarter."
Mr. Murray continued, "During this past quarter we received
the final payment for our equity interest in Advantage
Payroll, now owned by Paychex. Our U.S. payroll service
sales are proceeding in line with expectations, and we
anticipate installing over 3,600 new payrolls in the fiscal
year. Our Canadian subsidiary, NEBS Business Products
Limited, recently acquired the payroll division of Parkwood
Computer Services Inc. This marks their entry into payroll
services which they will market through both their national
sales force and direct mail operations."
Mr. Murray added, "Given our third quarter results and
continuing uncertainty of the U.S. economy, we now expect
revenue for the year to be 3-5% below last year. We
currently expect results from operations in the fourth
quarter to be down from a year ago due to lower revenue,
offset by reduced interest expense year-to-year. This is
subject to any potential impact from the year-end intangible
asset review, particularly pertaining to our PremiumWear
subsidiary which has experienced declining revenue and
operating losses."
The Company repurchased 150,000 shares of its stock during
the third quarter, leaving approximately 975,000 shares
remaining under the current authorization.
The Board of Directors of the Company declared a dividend of
$.20 per share with a record date of May 9, 2003 and a
payment date of May 23, 2003.
The conference call to review the Company's third quarter
results will be broadcast live via the investor relations
section of the Company's web site, www.nebs.com, at 11:00 AM
ET on Thursday, April 24, 2003. A replay will be available
at the same location for one week after the broadcast.
The Company's consolidated financial results, balance sheet
and statement of changes in financial position are attached
along with supplemental information regarding revenues and
profit from operations by reporting segment.
New England Business Service, Inc. is a leading business-to-
business direct marketing company with 2.5 million active
small business customers in the United States, Canada, the
United Kingdom and France. The Company supplies a wide
variety of business products and services which are marketed
through direct mail, telesales, a direct sales force,
dealers and the Internet. The Company also designs,
embroiders and sells specialty apparel products through
distributors and independent sales representatives to the
promotional products/advertising specialty industry,
primarily in the United States. More information about New
England Business Service, Inc. is available at the Company's
web site, www.nebs.com.
This press release contains forward-looking statements,
including expectations for future revenue and earnings
performance arising from current trends in referenced
product lines and channels, and other initiatives. These
forward-looking statements reflect the Company's current
expectations only, and the Company expressly disclaims any
current intention to update such
statements. There can be no assurance that the Company's
actual results will not differ materially from those
expressed or implied by these statements due to various
risks and uncertainties, including changed customer
preferences or economic conditions affecting demand for the
Company's products, and other factors described in the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 28, 2002, on file with the Securities
and Exchange Commission.
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------- -------------------
Mar. 29, Mar. 30, Mar. 29, Mar. 30,
2003 2002 2003 2002
-------- -------- -------- --------
NET SALES $127,267 $132,879 $408,717 $423,926
COST OF SALES 54,765 58,554 172,182 184,310
-------- -------- -------- --------
GROSS PROFIT 72,502 74,325 236,535 239,616
PERCENT OF SALES 57.0% 55.9% 57.9% 56.5%
OPERATING EXPENSES
SELLING AND ADVERTISING 44,519 46,147 140,117 145,639
GENERAL AND ADMINISTRATIVE 17,393 17,313 55,908 53,655
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 61,912 63,460 196,025 199,294
-------- -------- -------- --------
INCOME FROM OPERATIONS 10,590 10,865 40,510 40,322
PERCENT OF SALES 8.3% 8.2% 9.9% 9.5%
OTHER (EXPENSE)/INCOME
INTEREST INCOME 35 37 110 135
INTEREST EXPENSE (1,622) (3,361) (6,677) (10,196)
LOSS ON SETTLEMENT OF INTEREST RATE SWAPS - - (3,277) -
GAIN ON SALE OF LONG-TERM INVESTMENT 1,027 - 11,424 -
-------- -------- -------- --------
TOTAL OTHER (EXPENSE)/INCOME (560) (3,324) 1,580 (10,061)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 10,030 7,541 42,090 30,261
PROVISION FOR INCOME TAXES 4,144 2,895 16,309 11,620
-------- -------- -------- --------
INCOME BEFORE THE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE 5,886 4,646 25,781 18,641
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE-
NET OF TAX - - - (2,792)
-------- -------- -------- --------
NET INCOME $ 5,886 $ 4,646 $ 25,781 $ 15,849
======== ======== ======== ========
PER SHARE AMOUNTS:
- ------------------
DILUTED EARNINGS PER SHARE BEFORE THE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE $ .44 $ .35 $ 1.93 $ 1.45
======== ======== ======== =======
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE $ - $ - $ - $ (.22)
-------- -------- -------- --------
DILUTED EARNINGS PER SHARE $ .44 $ .35 $ 1.93 $ 1.23
======== ======== ======== ========
DIVIDENDS $ .20 $ .20 $ .60 $ .60
======== ======== ======== ========
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 13,274 13,089 13,324 12,845
======== ======== ======== ========
The items identified below relate to past restructuring actions, benefits related to our
sale of our investment in Advantage Payroll Services, Inc. and charges related to the
settlement of interest rate swaps due to the sale of Advantage in various periods, which
is not in accordance with GAAP. These items are being separately identified as we believe
these restructuring actions and other events are unusual and infrequent in nature and are
not directly tied to the operations and results of our core business activities.
Therefore, it makes it easier to understand the trends in the base business without the
effects of these identified items. Management performance targets are also set and
measured against on a basis that excludes these items.
Net Income for the three months ended March 29, 2003 includes a net after-tax gain of
$605, or $0.04 per diluted share, related to the sale of equity interests in Advantage
Payroll, Inc.
Net Income for the three months ended March 30, 2002 included a net after-tax charge of
$207, or $0.02 per diluted share, related to previously announced restructuring actions.
On a pretax basis, the total costs were $335, reported in the following categories: Cost
of Sales $353, Selling and Advertising $26 and General and Administrative $(44).
Net Income for the nine months ended March 29, 2003 includes a net after-tax gain of
$6,997, or $0.52 per diluted share, related to the sale of equity interests in Advantage
Payroll, Inc. and a net after-tax charge of $2,007, or $0.15 per diluted share, related to
the loss on settlement of interest rate swaps.
Net Income for the nine months ended March 30, 2002 included a net after-tax charge of
$603, or $0.05 per diluted share, related to previously announced restructuring actions.
On a pre-tax basis, the total costs were $979, reported in the following categories: Cost
of Sales $724, Selling and Advertising $122, and General and Administrative $133.
Certain reclassifications have been made to the 2002 financial statements to conform to
the 2003 presentation.
NEW ENGLAND BUSINESS SERVICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
Mar. 29, June 29,
2003 2002
-------- --------
(unaudited)
ASSETS
- ------
CASH AND CASH EQUIVALENTS $ 5,728 $ 6,112
ACCOUNTS RECEIVABLE, NET 52,795 55,738
INVENTORIES, NET 35,036 34,095
DIRECT MAIL ADVERTISING MATERIALS, NET
AND PREPAID EXPENSES 13,107 13,374
DEFERRED INCOME TAX BENEFIT 11,474 13,240
-------- --------
TOTAL CURRENT ASSETS 118,140 122,559
PROPERTY AND EQUIPMENT, NET 70,478 73,602
NET PROPERTY HELD FOR SALE 328 328
GOODWILL, NET 68,066 67,964
INTANGIBLES, NET 11,727 12,046
CUSTOMER LISTS, NET 5,433 9,765
TRADENAMES, NET 30,073 30,073
LONG-TERM INVESTMENT - 30,521
DEFERRED INCOME TAXES AND OTHER ASSETS 22,277 22,064
-------- --------
TOTAL $326,522 $368,922
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
ACCOUNTS PAYABLE $ 12,779 $ 16,858
ACCRUED EXPENSES 44,207 48,126
CURRENT PORTION OF LONG-TERM DEBT 514 1,102
-------- --------
TOTAL CURRENT LIABILITIES 57,500 66,086
LONG-TERM DEBT 96,177 148,358
DEFERRED INCOME TAXES 18,008 17,758
STOCKHOLDERS' EQUITY 154,837 136,720
-------- --------
TOTAL $326,522 $368,922
======== ========
Certain reclassifications have been made to the 2002 financial statements to conform to
the 2003 presentation.
NEW ENGLAND BUSINESS SERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
Nine Months Ended
-------------------
Mar. 29, Mar. 30,
2003 2002
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
NET INCOME $ 25,781 $ 15,849
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH:
DEPRECIATION 14,774 13,945
AMORTIZATION 5,342 6,692
DEFERRED INCOME TAXES (79) -
LOSS ON DISPOSAL OF EQUIPMENT 52 57
GAIN ON SALE OF LONG-TERM INVESTMENT (11,424) -
CHANGE IN ACCOUNTING PRINCIPLE - 2,792
PROVISION FOR LOSSES ON ACCOUNTS RECEIVABLE 4,267 3,767
DEFERRED GRANTS (6) -
EMPLOYEE BENEFIT CHARGES 694 3,849
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE (1,124) (426)
INVENTORIES AND ADVERTISING MATERIAL (1,685) 7,590
PREPAID EXPENSES AND OTHER ASSETS 1,668 553
ACCOUNTS PAYABLE (4,123) (5,460)
INCOME TAXES PAYABLE 1,725 2,434
OTHER ACCRUED EXPENSES (1,418) (607)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 34,444 51,035
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
- --------------------------------------
ADDITIONS TO PROPERTY AND EQUIPMENT (11,501) (11,368)
PURCHASE OF LONG-TERM INVESTMENT (5,421) (17,652)
PROCEEDS FROM SALE OF LONG-TERM INVESTMENT 47,366 -
PROCEEDS FROM SALE OF EQUIPMENT 11 24
-------- --------
NET CASH PROVIDED BY/(USED IN)
INVESTING ACTIVITIES 30,455 (28,996)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
REPAYMENT OF DEBT (90,769) (98,140)
PROCEEDS FROM BORROWINGS - NET OF ISSUANCE COSTS 37,309 84,181
PROCEEDS FROM ISSUANCE OF COMMON STOCK 619 2,813
ACQUISITION OF TREASURY STOCK (4,894) -
DIVIDENDS PAID (7,811) (7,585)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (65,546) (18,731)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 263 (127)
- --------------------------------------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (384) 3,181
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,112 7,154
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,728 $ 10,335
======== ========
Certain reclassifications have been made to the 2002 financial statements to conform to
the 2003 presentation.
NEW ENGLAND BUSINESS SERVICE, INC.
SEGMENT FINANCIAL INFORMATION
(IN THOUSANDS)
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------- -------------------
Mar. 29, Mar. 30, Mar. 29, Mar. 30,
2003 2002 2003 2002
-------- -------- -------- --------
NET SALES
- ---------
DIRECT MARKETING-U.S. $ 62,626 $ 66,466 $207,406 $217,674
DIRECT SALES-U.S. 27,439 27,066 82,350 79,958
PACKAGING & DISPLAY PRODUCTS 18,577 18,342 60,891 59,877
INTERNATIONAL 9,306 9,045 29,146 29,466
APPAREL 9,319 11,960 28,924 36,951
-------- -------- --------- ---------
TOTAL $127,267 $132,879 $408,717 $423,926
-------- -------- --------- ---------
-------- -------- --------- ---------
PROFIT(LOSS) FROM OPERATIONS
- -----------------------------
DIRECT MARKETING-U.S. $ 13,126 $ 13,691 $ 47,060 $ 47,851
DIRECT SALES-U.S. 2,815 2,620 8,824 6,769
PACKAGING & DISPLAY PRODUCTS 278 411 1,863 1,369
INTERNATIONAL 152 457 1,758 2,058
APPAREL (1,347) (992) (2,440) (1,348)
-------- -------- --------- ---------
TOTAL $ 15,024 $ 16,187 $ 57,065 $ 56,699
-------- -------- --------- ---------
-------- -------- --------- ---------
Profit (loss) from operations is similar to income from operations as reported on the
consolidated statements of income in that it excludes interest and other income and
expense. This measure, however, also excludes certain items that are reported within
income from operations. These include management incentive compensation, amortization,
integration charges, restructuring charges, impairment charges and corporate expenses. The
chief operating decision-maker, in assessing segment results, does not consider these
items. In order to reconcile the segment numbers above to the Company's income before
income taxes, adjustments representing the items listed above totaling $4,994 and $8,646
for the three months and $14,975 and $26,438 for the nine months ended March 29, 2003 and
March 30, 2002, respectively, need to be made to the reported segment results.
Certain reclassifications have been made to the 2002 financial statements to conform to
the 2003 presentation.
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