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 September 23, 1994.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-8564
NEW ENGLAND BUSINESS SERVICE, INC.
(Exact name of the registrant as specified in its charter)
Delaware 04-2942374
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
500 Main Street, Groton, Massachusetts 01471
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(Address of principal executive offices) (Zip Code)
(508) 448-6111
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 and 15(d) of the Securities 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
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The number of common shares of the Registrant outstanding on September 23,
1994 was 15,489,346.
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Data)
Sept. 23, June 24,
1994 1994
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ASSETS
Current Assets
Cash and cash equivalents $ 4,642 $ 3,456
Short term investments 31,229 37,532
Accounts receivable 29,408 27,963
Inventories 8,161 7,740
Direct mail advertising materials 2,948 1,698
Prepaid expenses 2,095 1,439
Deferred income tax benefit 7,439 5,460
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Total current assets 85,922 85,288
Property and Equipment
Land and buildings 39,618 38,417
Less: accumulated depreciation 19,292 18,849
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Net 20,326 19,568
Equipment 68,609 66,648
Less: accumulated depreciation 50,443 48,525
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Net 18,166 18,123
Property and equipment - net 38,492 37,691
Other Assets - net 10,294 8,712
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TOTAL ASSETS $134,708 $131,691
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NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED BALANCE SHEET (Continued)
(In Thousands Except Share Data)
Sept. 23, June 24,
1994 1994
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 8,294 $ 6,702
Accrued Federal and state income taxes 3,522 2,519
Accrued profit-sharing distribution 1,638 2,627
Accrued payroll expense 3,890 5,466
Accrued employee benefit expense 6,119 5,637
Accrued restructuring charge 1,255 1,887
Other accrued expenses 5,798 5,254
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Total current liabilities 30,516 30,092
Deferred Grants 332 326
Deferred Income Taxes 1,786 1,794
STOCKHOLDERS' EQUITY
Preferred stock
Common stock 15,583 15,572
Additional paid in capital 9,670 9,480
Cumulative foreign currency translation adjustment ( 1,485) ( 2,152)
Retained earnings 79,845 78,306
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Total 103,613 101,206
Less: treasury stock ( 1,539) ( 1,727)
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Stockholders' Equity 102,074 99,479
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $134,708 $131,691
======== ========
See Notes to Consolidated Financial Statements
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Data)
Three Months Ended
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Sept. 23, Sept. 24,
1994 1993
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NET SALES $ 62,079 $ 59,820
OPERATING EXPENSES:
Cost of sales 22,041 23,051
Selling and advertising 16,126 16,881
General and administrative 15,995 12,789
Restructuring charge 0 6,000
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Total operating expenses 54,162 58,721
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INCOME FROM OPERATIONS 7,917 1,099
OTHER INCOME/(EXPENSE):
Investment income 322 206
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INCOME BEFORE INCOME TAXES 8,239 1,305
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PROVISION FOR INCOME TAXES:
Federal 2,740 390
State 780 153
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Total 3,520 543
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NET INCOME BEFORE EQUITY IN LOSSES
OF INVESTMENT 4,719 762
Equity in losses of investment ( 86) 0
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NET INCOME $ 4,633 $ 762
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PER SHARE AMOUNTS:
Net Income $ . 30 $ .05
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Dividends $ .20 $ .20
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WEIGHTED AVERAGE SHARES OUTSTANDING 15,481 15,293
======== ========
See Notes to Consolidated Financial Statements
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
-------------------------
Sept. 23, Sept. 24,
1994 1993
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,633 $ 762
Adjustments to reconcile net income to cash:
Depreciation and amortization 2,695 3,020
Deferred income taxes ( 1,910) ( 924)
Other non-cash items 839 6,604
Changes in assets and liabilities:
Accounts receivable ( 2,066) ( 1,539)
Inventories and advertising material ( 1,621) ( 1,951)
Prepaid expenses ( 643) ( 440)
Accounts payable 1,605 2,031
Income taxes payable 1,010 ( 330)
Other accrued expenses ( 2,286) ( 1,263)
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Net cash provided by operating activities 2,256 5,970
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ( 3,170) ( 1,063)
Purchase of investments ( 1,008) ( 5,434)
Proceeds from sale of investments 7,402 3,894
Acquisition of product line 0 ( 208)
Investment in unconsolidated subsidiary ( 1,800) 0
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Net cash provided by (used in) investing activities 1,424 ( 2,811)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt ( 23) ( 28)
Proceeds from issuing common stock 201 64
Issuance (purchase) of treasury stock 188 0
Dividends paid ( 3,094) ( 3,059)
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Net cash (used in) financing activities ( 2,278) ( 3,023)
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EFFECT OF EXCHANGE RATE ON CASH 234 ( 21)
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NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
Three Months Ended
-------------------------
Sept. 23, Sept. 24,
1994 1993
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,186 115
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,456 10,061
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,642 $ 10,176
======== ========
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements contained in this report
are unaudited but reflect all adjustments, consisting only of normal
recurring adjustments, which are, in the opinion of management,
necessary for a fair statement of the results of the interim periods
reflected. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant
to applicable rules and regulations of the Securities and Exchange
Commission. The results of operations for the interim period
reported herein are not necessarily indicative of results to be
expected for the full year.
2. Accounting Policies
The consolidated financial statements included herein should be read
in conjunction with the financial statements and notes thereto, and
the Report of Independent Public Accountants incorporated by
reference in the Company's Annual Report on Form 10-K for the fiscal
year ended June 24, 1994 from the Company's 1994 Annual Report to
Shareholders.
Reference is made to the accounting policies of the Company described
in the notes to consolidated financial statements incorporated by
reference in the Company's Annual Report on Form 10-K for the fiscal
year ended June 24, 1994 from the Company's 1994 Annual Report to
Shareholders. The Company has consistently followed those policies
in preparing this report.
3. Inventories
Inventories are carried at the lower of first-in, first-out cost or
market. Inventories at September 23, 1994 and June 24, 1994 consisted
of:
Sept. 23, June 24,
1994 1994
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Raw paper $ 680,000 $ 721,000
Business forms and related office products 7,481,000 7,019,000
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Total $ 8,161,000 $ 7,740,000
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4. Accounting for Income Taxes
During the first quarter of fiscal year 1995, the Internal Revenue Service
completed an examination of the Company's federal income tax returns for
years 1989 through 1992 and proposed various adjustments to increase
taxable income in these periods. The most significant adjustments involve
disallowances of current deductions in favor of future deductions.
Accordingly, because of the nature of these adjustments, there was no
significant impact on the Company's current year effective tax rate.
5. Investment in Unconsolidated Subsidiary
On July 8, 1994, the Company acquired a 19 percent equity interest in GST
Software, plc (GST) for $1,800,000 together with an option to acquire the
balance of GST shares. GST is a privately held company based in the United
Kingdom which develops and markets desktop publishing graphic design
software which the Company will market under an exclusive distribution
agreement in North America. The Company has elected to treat its investment
under the equity method of accounting due to the degree of control it
can exercise over GST's operations. Accordingly, it is recording a share of
GST's losses for the period. The difference between the Company's
underlying equity in net tangible assets of GST and its investment has been
recorded as goodwill.
6. Postemployment Benefits
As of June 25, 1994, the Company adopted SFAS No. 112, entitled
"Employers' Accounting for Postemployment Benefits." The adoption of this
standard did not have a material effect on the accompanying consolidated
financial statements.
7. Investments in Debt and Equity Securities
As of June 25, 1994, the Company adopted SFAS No. 115, entitled
"Accounting for Certain Investments in Debt and Equity Securities."
Adoption of this standard resulted in the Company classifying the
investments held in its portfolio as "available-for-sale securities."
The adoption of this standard did not have a material effect on the
accompanying consolidated financial statements as the market value of
the underlying investments approximated the amount carried on the balance
sheet at September 23, 1994.
8. Subsequent Events
On October 20, 1994, the Company announced a plan to repurchase up to
$22,000,000 of its common stock in the open market. Unless renewed or
completed earlier, the repurchase will terminate on June 30, 1995.
On October 20, 1994, the Company announced an amendment to the Company's
Rights Agreement. The material changes in the agreement include the
deletion of the Adverse person provision, the lowering of the threshold
at which an acquiring person will trigger the rights from 20% to 15%, and
the inclusion of a one common share per right exchange feature.
On October 28, 1994, the stockholders approved The NEBS 1994 Key Employee
and Eligible Director Stock Option and Stock Appreciation Rights Plan.
Under the "1994 Plan," options or stock appreciation rights for up to
1,200,000 shares of common stock may be granted.
On October 28, 1994 the stockholders approved the New England
Business Service, Inc. Stock Compensation Plan (the "Plan"). The purpose
of the Plan is to provide for the mandatory or voluntary receipt of shares
of the Company's common stock in lieu of an equivalent amount of cash, in
payment in whole or in part for certain types of regular, bonus or other
special compensation. There are a total of 300,000 shares available for
issuance under the Plan.
MANAGEMENT DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
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Cash provided by operating activities was $2.3 million in 1994, representing a
decrease from the $6.0 provided in 1993. The decrease was due primarily to the
payment of a cash settlement with the Internal Revenue Service, the payment
of costs related to last year's restructuring charge, and changes in the
balances of non-cash assets and liabilities.
Working capital at September 23, 1994 amounted to $55.4 million, including
$35.9 million of cash and short term investments. This compares to working
capital of $44.4 million and cash and short term investment balances of $29.6
million at the same time last year. At the end of the fiscal year working
capital was $55.2 million and cash and short term investments were $41.0
million.
Capital expenditures of $3.2 million were significantly higher than the
$1.1 million expended in 1993 which were lower due to the cost containment
activities. The Company had no significant commitments for capital projects
at quarter end. The Company anticipates that capital outlays will continue
at the first quarter pace throughout fiscal year 1995. These outlays are
occurring in order to upgrade existing systems and increase capacity, and,
to a lesser extent, to meet the needs of strategic initiatives throughout
the Company.
On July 8, 1994, the Company acquired a 19 percent equity interest in GST
Software, plc (GST) for $1.8 million together with an option to acquire the
balance of GST shares. GST is a privately held company based in the United
Kingdom which develops and markets desktop publishing graphic design software
which the Company will market under an exclusive distribution agreement in
North America. This investment is being accounted for under the equity method
of accounting.
In October, 1994 the Company announced a plan to purchase up to $22.0 million
of its common stock by the end of June, 1995. The purchase will be made from
existing cash and short term investments.
In addition to its present cash and investment balances, the Company has
consistently generated sufficient cash internally to fund its needs for
working capital, dividends and capital expenditures. However, should the
Company need additional funds, it has an unsecured line of credit with a
major bank for $10.0 million. At present, there are no outstanding balances
against this line.
Results of Operations
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Net sales increased to $62.1 million from $59.8 million in 1993 or 3.8%.
This sales increase was composed of price increases of approximately 1.0%
or $.6 million and unit volume growth of 2.8% or $1.7 million. The computer
forms and software product lines accounted for approximately 75% of the growth.
Cost of sales decreased from 38.5% of sales in 1993 to 35.5% in 1994. This
improvement was the result of price increases in several product lines
accompanied by stable material costs, reduced spoilage and the positive
impact of cost controls across all product lines.
Selling and advertising expenses decreased as a percentage of sales from
28.2% in 1993 to 26.0% in 1994 due to more effective promotional programs
and the effect of staff reductions as a result of the restructuring program.
General and administrative expenses increased to 25.9% of sales from 21.4%
a year ago due to costs associated with servicing the Company's expanded
software product line as well as the impact of decreased profit sharing
in the first quarter of fiscal year 1994 resulting from the Company's
restructuring charge.
During the first quarter of last year the Company recorded a $6.0 million
pretax charge related to a restructuring program. The objectives of this
program were to increase the Company's competitiveness, permit investment
in new business development and to strengthen margins. The restructuring
program included the realignment of the Company's marketing and manufacturing
organizations. As of September 23, 1994 approximately $1.2 million is
remaining in the reserve; these amounts will be expended pursuant to severance
and other agreements. Operations in fiscal 1995 to date reflect the work
force reduction; this is evidenced by the improvements in cost of sales and
selling and advertising expenses as a percent of sales.
Investment income increased due to higher investable balances and higher
interest rates.
The provision for income taxes as a percentage of pre-tax income increased
from 1993 to 1994 due to changes in Federal tax laws creating a higher
corporate tax rate and less favorable treatment of certain foreign source
income.
In 1994 the Company's adoption of Statement of Financial Accounting Standards
(SFAS) No. 112, "Employers' Accounting for Post Employment Benefits" and
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" were not significant to the financial statements.
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
a. The Annual Meeting of Stockholders was held on October 28, 1994.
b. Not applicable.
c. The stockholders fixed the number of Directors to be elected at
eight and elected the following as directors:
For Withheld
--- --------
Peter A. Brooke 13,351,432 54,676
Benjamin H. Lacy 13,332,503 73,605
William C. Lowe 13,331,277 74,831
Robert J. Murray 13,351,394 54,714
Frank L. Randall, Jr. 13,347,503 58,605
Jay R. Rhoads, Jr. 13,332,286 73,822
Richard H. Rhoads 13,331,338 74,770
Robert Ripp 13,351,548 54,560
To approve The NEBS 1994 Key Employee and Eligible Director Stock
Option and Stock Appreciation Rights Plan:
For Against Abstain No Vote
--- ------- ------- -------
10,761,761 681,099 489,070 1,474,178
To approve the New England Business Service, Inc. Stock
Compensation Plan:
For Against Abstain No Vote
--- ------- ------- -------
11,275,860 633,665 339,189 1,157,394
To ratify the selection of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending June 30, 1995
Compensation Plan:
For Against Abstain
--- ------- -------
13,366,010 11,282 28,816
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit No. Description
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(11) Statement re computation of per share
earnings.
(27) Article 5 Financial Data Schedule
b. Reports on Form 8-K
On October 25, 1994 the Company filed a Form 8-K under Item 5 to
report an amendment of the Company's Rights Agreement.
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.
NEW ENGLAND BUSINESS SERVICE, INC.
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(Registrant)
November 4, 1994 /s/Russell V. Corsini, Jr.
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Date Russell V. Corsini, Jr.,
Principal Financial and Accounting
Officer