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 30, 1995.
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 1-11427
NEW ENGLAND BUSINESS SERVICE, INC.
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(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 30,
1995 was 14,888,777.
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Data)
Sept. 30, June 30,
1995 1995
--------- ---------
ASSETS
Current Assets
Cash and cash equivalents $ 6,253 $ 11,604
Short term investments 19,598 11,360
Accounts receivable 31,051 29,332
Inventories 10,480 9,880
Direct mail advertising 3,759 2,939
Prepaid expenses 1,941 2,716
Deferred income tax benefit 10,764 9,678
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Total current assets 83,846 77,509
Property and Equipment
Land and buildings 29,555 35,796
Less: accumulated depreciation 16,464 18,833
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Net 13,091 16,963
Equipment 74,326 70,890
Less: accumulated depreciation 55,468 51,818
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Net 18,858 19,072
Property and equipment - net 31,949 36,035
Property Held for Sale 4,513 2,587
Other Assets - net 4,570 8,415
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TOTAL ASSETS $124,878 $124,546
======== ========
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED BALANCE SHEET (Continued)
(In Thousands Except Share Data)
Sept. 30, June 30,
1995 1995
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 8,633 $ 7,158
Federal and state income taxes 3,277 2,506
Accrued profit-sharing distribution 1,617 2,408
Accrued payroll expense 4,388 5,731
Accrued employee benefit expense 6,344 6,005
Accrued exit costs/restructuring charge 3,821 2,020
Other accrued expenses 6,257 6,341
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Total current liabilities 34,337 32,169
Deferred Income Taxes 464 854
STOCKHOLDERS' EQUITY
Preferred stock
Common stock 15,788 15,770
Additional paid in capital 12,759 12,450
Cumulative foreign currency translation
adjustment ( 1,292) ( 1,683)
Retained earnings 79,979 82,412
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Total 107,234 108,949
Less: treasury stock ( 17,157) ( 17,426)
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Stockholders' Equity 90,077 91,523
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $124,878 $124,546
======== ========
See Notes to Consolidated Financial Statements
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
Three Months Ended
------------------------
Sept. 30, Sept. 23,
1995 1994
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NET SALES $ 63,788 $ 62,079
OPERATING EXPENSES:
Cost of sales 23,384 22,041
Selling and advertising 23,022 20,772
General and administrative 12,128 11,349
Exit costs 3,034 0
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Total operating expenses 61,568 54,162
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INCOME FROM OPERATIONS 2,220 7,917
OTHER INCOME/(EXPENSE):
Investment income 301 322
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INCOME BEFORE INCOME TAXES 2,521 8,239
PROVISION FOR INCOME TAXES:
Federal 684 2,740
State 294 780
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Total 978 3,520
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NET INCOME BEFORE LOSS ON
EQUITY METHOD INVESTMENT 1,543 4,719
Loss on equity method investment, net of
income tax benefit of $653 in 1995 ( 1,002) ( 86)
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NET INCOME $ 541 $ 4,633
======== ========
PER SHARE AMOUNTS:
Net Income $ . 04 $ .30
======== ========
Dividends $ .20 $ .20
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 14,871 15,481
======== ========
See Notes to Consolidated Financial Statements
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
------------------------
Sept. 30, Sept. 23,
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 541 $ 4,633
Adjustments to reconcile net income to cash:
Depreciation and amortization 6,891 2,695
Deferred income taxes ( 639) ( 1,910)
Other non-cash items 4,589 839
Changes in assets and liabilities:
Accounts receivable ( 2,343) ( 2,066)
Inventories and advertising material ( 1,371) ( 1,621)
Prepaid expenses 655 ( 643)
Accounts payable 1,457 1,605
Income taxes payable ( 63) 1,010
Other accrued expenses ( 2,351) ( 2,286)
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Net cash provided by operating activities 7,366 2,256
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ( 2,402) ( 3,170)
Purchase of investments ( 14,612) ( 1,008)
Proceeds from sale of investments 6,484 7,402
Other assets ( 56) 0
Equity method investment 0 ( 1,800)
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Net cash provided by (used in) investing
activities ( 10,586) 1,424
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt 14 ( 23)
Proceeds from issuing common stock 327 201
Issuance (purchase) of treasury stock 269 188
Dividends paid ( 2,974) ( 3,094)
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Net cash (used in) financing activities ( 2,364) ( 2,728)
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EFFECT OF EXCHANGE RATE ON CASH 233 234
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NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
Three Months Ended
------------------------
Sept. 30, Sept. 23,
1995 1994
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NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS ( 5,351) 1,186
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 11,604 3,456
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,253 $ 4,642
========= ========
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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 30, 1995 from the Company's 1995 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 30, 1995 from the Company's 1995 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 30, 1995 and June 30, 1995 consisted
of:
Sept. 30, June 30,
1995 1995
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Raw paper $ 1,263,000 $ 1,130,000
Business forms and related office products 9,217,000 8,750,000
----------- -----------
Total $10,480,000 $ 9,880,000
=========== ===========
4. Equity Method Investment
------------------------
During the first quarter of fiscal year 1996, the Company revalued
its 19 percent equity interest in GST Software, plc (GST). This was
impacted by the continued operational losses of GST and a strategic
decision by the Company. Accordingly, the Company's investment in GST
has been written down to $0 as of September 30, 1995. This $1,002,000
loss, net of the related income tax benefit of $653,000 has been
included in the consolidated statements of income as loss on equity
method investment.
5. Exit Costs
----------
During the first quarter of fiscal year 1996, the Company implemented
a plan to restructure operations, including the closure of the
Company's Flagstaff , Arizona manufacturing facility. The objectives
of this program are to improve manufacturing efficiency, to outsource
select corporate functions and to reduce fixed costs. The accompanying
consolidated statements of income include a $3,034,000 pretax charge
for exit costs associated with this restructuring plan recognized in
the first quarter ended September 30, 1995. The charge for exit costs
reduced first quarter net income by $1,839,000 or $.12 per share.
The $3,034,000 pretax charge for exit costs consisted of anticipated
costs related to the closure of the Flagstaff facility of $1,214,000
and termination benefits of $1,820,000. Approximately 110 employees
will be terminated as a result of the restructuring plan. The Company
also expects to incur an additional $3,575,000 of operating expense
during the remainder of fiscal year 1996 associated with the plan to
restructure operations.
As of September 30, 1995, approximately $48,000 has been expended
related to termination benefits. The restructuring plan is expected to
be substantially complete by the end of fiscal year 1996.
6. Other Charges
-------------
During the first quarter of fiscal year 1996, the Company revalued
certain software-related assets resulting in a first quarter charge of
approximately $3,683,000. Due to an impairment of their future
realizable value resulting from changes in the competitive environment
and strategic decisions on the part of the Company, it was determined
that these assets should be revalued. As such, amounts of $646,000,
$2,030,000, and $1,007,000 were included in cost of sales, selling and
advertising, and general and administrative expense, respectively at
September 30, 1995. An additional $990,000 is anticipated to be
charged to cost of sales during the duration of fiscal year 1996 as
a result of the revaluation.
MANAGEMENT DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities was $7.4 million in 1995, representing
an increase from the $2.3 provided in 1994. The increase was due primarily
to the non-cash expense related to the revaluation of certain software-related
assets, the current quarter's exit cost charge and changes in the balances of
non-cash assets and liabilities.
Working capital at September 30, 1995 amounted to $49.5 million, including
$25.9 million of cash and short term investments. This compares to working
capital of $55.4 million and cash and short term investment balances of $35.9
million at the same time last year. At the end of the fiscal year working
capital was $45.3 million and cash and short term investments were $23.0
million. The increase in working capital from year end was due primarily to
increased receivable and inventory balances.
Capital expenditures of $2.4 million were lower than the $3.1 million expended
in 1994 were lower due to general cost reduction 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 1996. These outlays are occurring in order to upgrade
existing systems increase capacity and meet the needs of strategic initiatives
throughout the Company.
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
- ---------------------
Net sales increased to $63.8 million from $62.1 million in 1994 or 2.8%. This
sales increase was composed of price increases of approximately 2.5% or $1.5
million and unit volume growth of .3% or $.2 million. The marketing
communication product lines and software product lines accounted for
approximately 95% of the growth.
Cost of sales increased from 35.5% of sales in 1994 to 36.7% in 1995. This
increase was due primarily to costs resulting from the revaluation of certain
software-related assets and investments in color printing technology. See
Note 6 in the Notes to Consolidated Financial Statements.
Selling and advertising expenses increased as a percentage of sales from 33.5%
in 1994 to 36.1% in 1995 due to the ongoing investment in the Company's new
product and channel development initiatives as well as costs resulting from
the revaluation of certain software-related assets. See Note 6 in the Notes
to Consolidated Financial Statements.
General and administrative expenses increased as a percentage of sales from
18.3% in 1994 to 19.0% in 1995 due primarily to the ongoing investment in the
Company's new product and channel development initiatives.
During fiscal 1994, the Company recorded a $5.5 million pretax charge related
to a restructuring program. As of September 30, 1995 approximately $.2 million
is remaining in the reserve; these amounts will be expended pursuant to
severance and other agreements.
During the third quarter of fiscal 1995, the Company recorded a $2.0 million
pretax charge related to exit costs associated with the closure of the
Company's Wisconsin based SYCOM subsidiary. As of September 30, 1995
approximately $.8 million is remaining in the reserve, of which approximately
$.4 million will be expended pursuant to severance agreements and $.4 related
to facility closure costs and equipment writeoffs over the remainder of
fiscal 1996.
During the first quarter of fiscal 1996, the Company recorded a $3.0 million
pretax charge, or $.12 per share, related to exit costs associated with a
plan to restructure operations including the closure of the Company's
Flagstaff , Arizona manufacturing facility. The objectives of this program
are to improve manufacturing efficiency, to outsource select corporate
functions and to reduce fixed costs. The $3.0 million pretax charge consisted
of (i) approximately $1.8 million of anticipated cash payments related to
postemployment benefits in conjunction with the termination of approximately
110 employees, and (ii) approximately $1.2 million related to the anticipated
non-cash outflows associated with closure of the Flagstaff facility. The
Company also expects to incur an additional $3.6 million of operating expense
during the remainder of fiscal year 1996 associated with the plan to
restructure operations. The restructuring program is expected to be completed
over the remainder of fiscal 1996.
Investment income decreased from 1994 to 1995 due to lower investable balances.
The provision for income taxes as a percentage of pre-tax income decreased from
1994 to 1995 due to a decrease in the proportion of taxable income resulting
from the exit cost charge taken in the first quarter of fiscal 1996 in relation
to non-taxable permanent differences.
The loss on investment resulted from the Company's revaluation of its
investment in GST Software, plc. See Note 4 in the Notes to Consolidated
Financial Statements.
PART II - OTHER INFORMATION
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
a. The Annual Meeting of Stockholders was held on October 27,
1995.
b. Not applicable.
c. The stockholders fixed the number of Directors to be elected
at eight and elected the following as Directors:
For Against No Vote
--- ------- -------
Peter A. Brooke 12,205,974 28,326 2,645,649
Benjamin H. Lacy 12,086,661 147,639 2,645,649
William C. Lowe 12,151,696 82,604 2,645,649
Robert J. Murray 12,205,183 29,117 2,645,649
Frank L. Randall, Jr. 12,202,474 31,826 2,645,649
Jay R. Rhoads, Jr. 12,152,719 81,581 2,645,649
Richard H. Rhoads 12,155,814 78,486 2,645,649
Brian E. Stern 12,200,719 33,581 2,645,649
To ratify the selection of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending June 30, 1996:
For Against Abstain No Vote
--- ------- ------- -------
12,203,844 10,690 19,766 2,645,949
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 September 26, 1995 the Company filed a Form 8-K under Item 5
to report a cost reduction program and first quarter charge to
be taken by the Company.
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 14, 1995 /s/Russell V. Corsini, Jr.
- ----------------- --------------------------
Date Russell V. Corsini, Jr.,
Principal Financial and Accounting
Officer