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 28, 1996.
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 October 25,
1996 was 13,015,603.
NEW ENGLAND BUSINESS SERVICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Data)
Sept. 28, June 29,
1996 1996
(unaudited)
--------- ---------
ASSETS
Current Assets
Cash and cash equivalents $ 5,696 $ 6,508
Short-term investments 3,675 10,868
Accounts receivable 30,723 30,636
Direct mail advertising and inventories 8,743 8,675
Prepaid expenses 7,091 5,176
Deferred income tax benefit 9,471 9,471
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Total current assets 65,399 71,334
Property and equipment - net 29,452 31,012
Property Held for Sale 631 631
Other Assets - net 530 565
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TOTAL ASSETS $ 96,012 $103,542
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NEW ENGLAND BUSINESS SERVICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
(In Thousands Except Share Data)
Sept. 28, June 29,
1996 1996
(unaudited)
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 11,087 $ 8,575
Accrued expenses 21,254 18,698
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Total current liabilities 32,341 27,273
Deferred Income Taxes 345 353
STOCKHOLDERS' EQUITY
Preferred stock
Common stock 14,010 14,005
Additional paid in capital 13,659 13,603
Cumulative foreign currency translation
adjustment ( 1,739) ( 1,761)
Retained earnings 47,985 50,069
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Total 73,915 75,916
Less: treasury stock ( 10,589) ( 0)
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Stockholders' Equity 63,326 75,916
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 96,012 $103,542
======== ========
See Notes to Consolidated Financial Statements
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
(unaudited)
Three Months Ended
------------------------
Sept. 28, Sept. 30,
1996 1995
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NET SALES $ 60,702 $ 63,788
OPERATING EXPENSES:
Cost of sales 21,961 22,230
Selling and advertising 22,369 24,885
General and administrative 10,196 11,419
Exit costs 5,201 3,034
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Total operating expenses 59,727 61,568
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INCOME FROM OPERATIONS 975 2,220
OTHER INCOME/(EXPENSE):
Investment income 172 301
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INCOME BEFORE INCOME TAXES 1,147 2,521
PROVISION FOR INCOME TAXES:
Federal 367 684
State 102 294
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Total 469 978
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NET INCOME BEFORE LOSS ON
EQUITY METHOD INVESTMENT 678 1,543
Loss on equity method investment, net of
income tax benefit of $653 in 1995 ( 0) ( 1,002)
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NET INCOME $ 678 $ 541
======== ========
PER SHARE AMOUNTS:
Net Income $ . 05 $ .04
======== ========
Dividends $ .20 $ .20
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WEIGHTED AVERAGE SHARES OUTSTANDING 13,828 15,052
======== ========
See Notes to Consolidated Financial Statements
NEW ENGLAND BUSINESS SERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(unaudited)
Three Months Ended
------------------------
Sept. 28, Sept. 30,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 678 $ 541
Adjustments to reconcile net income to cash:
Depreciation and amortization 2,264 6,891
Deferred income taxes ( 9) ( 639)
Other non-cash items 5,605 4,589
Changes in assets and liabilities:
Accounts receivable ( 757) ( 2,343)
Inventories and prepaid expenses ( 2,090) (716)
Accounts payable 2,512 1,457
Accrued expenses ( 433) ( 2,414)
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Net cash provided by operating activities 7,770 7,366
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ( 2,488) ( 2,402)
Purchase of investments ( 3,800) ( 14,612)
Proceeds from sale of investments 10,993 6,484
Other assets 0 ( 56)
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Net cash provided by (used in) investing
activities 4,705 ( 10,586)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt 0 14
Proceeds from issuing common stock 61 327
Issuance (purchase) of treasury stock ( 10,589) 269
Dividends paid ( 2,762) ( 2,974)
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Net cash used in financing activities ( 13,290) ( 2,364)
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EFFECT OF EXCHANGE RATE ON CASH 3 233
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NEW ENGLAND BUSINESS SERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
(unaudited)
Three Months Ended
------------------------
Sept. 28, Sept. 30,
1996 1995
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NET DECREASE IN
CASH AND CASH EQUIVALENTS ( 812) ( 5,351)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 6,508 11,604
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,696 $ 6,253
========= ========
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. Basis of Presentation
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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 29, 1996 from the Company's 1996 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 29, 1996 from the Company's 1996 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 28, 1996 and June 29, 1996 consisted
of:
Sept. 28, June 29,
1996 1996
(unaudited)
---------- ----------
Raw paper $ 470,000 $ 434,000
Business forms and related office products 8,273,000 8,241,000
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Total $ 8,743,000 $ 8,675,000
=========== ===========
4. Exit Costs
----------
During the first quarter of fiscal year 1997, the Company reached a
joint decision with Kinko's Corporation to pursue a new strategy for
its retail channel initiative. This decision resulted in a plan to
close the Company's 75 existing NEBS manned print desks in Kinko's
stores, its administrative offices in Phoenix and its stationery
plant in Scottsdale, Arizona. The accompanying consolidated
statements of income include a $5,201,000 pretax charge for exit costs
associated with this plan recognized in the first quarter ended
September 28, 1996. The charge for exit costs, net of a reduction in
profit sharing plan expense, had the effect of reducing first quarter
net income by $2,833,000 or $.21 per share.
The $5,201,000 pretax charge for exit costs consisted of anticipated
costs related to facility closures of $1,160,000, equipment write-offs
of $1,815,000 and termination benefits of $2,226,000. Approximately 230
employees will be terminated as a result of the restructuring plan.
5. Impairment of Long-Lived Assets
-------------------------------
As of June 29, 1996, the Company adopted SFAS No. 121, entitled
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The adoption of this standard did not have
a material effect on the accompanying consolidated financial statements.
MANAGEMENT DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities of $7.8 million in the first quarter
of fiscal year 1997 represented a slight increase from the $7.4 provided
in the first quarter of fiscal year 1996. A decline in non-cash expense
associated with exit cost charges and the software asset revaluation
was more than offset by a decrease in cash invested in working capital
during the period.
Working capital at September 28, 1996 amounted to $33.1 million, including
$9.4 million of cash and short-term investments. This compares to working
capital of $49.5 million and cash and short-term investment balances of $25.9
million at the same time last year. At the end of the fiscal year 1996,
working capital amounted to $44.1 million, including cash and short-term
investments of $17.4 million. The decrease in working capital from year-end
was due primarily to cash outflows of $10.9 million associated with the
repurchase of 694,000 shares of the Company's common stock during the
quarter, offset in part by increased accounts payable and accrued exit costs
balances.
Capital expenditures of $2.5 million for the three months ended September 28,
1996 were approximately equivalent to capital expenditures during last year's
first quarter. 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 1997.* Planned capital outlays
for fiscal year 1997 are primarily related to a plan to upgrade the Company's
order entry, financial and related systems.
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 unsecured lines of credit with a major
bank for $20.0 million. At present, there are no outstanding balances against
this line.
Results of Operations
- ---------------------
Net sales decreased 4.8% to $60.7 million from $63.8 million in the first
quarter of fiscal 1996. This sales decrease was composed of approximately 3.5%
or $2.3 million attributable to the divestiture of One-Write Plus product line,
and 1.3% or $.8 million attributable to higher promotional discounting and the
timing of shipping of seasonal products at quarter-end.
Cost of sales increased to 36.2% of sales in the first quarter of fiscal 1997
from 34.9% in last year's first quarter. This increase was due primarily to a
decline in the sale of higher margin software products and increased investment
in stationery printing capacity.
Selling and advertising expenses decreased as a percentage of sales from 39.0%
in fiscal 1996 to 36.9% in fiscal 1997. The decrease was primarily associated
with reduced software marketing expense following the divestiture of One-Write
Plus and the effect of one-time costs recognized for the revaluation of
software-related assets in the first quarter of 1996. These cost savings were
offset, in part, by increased expenses related to the NEBS custom print desks
in Kinko's stores and an increase in direct mail advertising expense.
General and administrative expenses decreased as a percentage of sales from
17.9% in the first quarter of fiscal 1996 to 16.8% in the first quarter of
fiscal 1997 due to the effect of the one-time costs resulting from the
revaluation of certain software-related assets in the first quarter of 1996
offset by increased costs related to the Company's program to re-engineer its
financial and operational information systems.
During the first quarter of fiscal 1996, the Company recorded a $3.0 million
pre-tax 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. As of September 28, 1996 the
plan was substantially complete.
During the first quarter of fiscal year 1997, the Company recorded a $5.2
million pre-tax charge, or $.21 per share, related to exit costs associated with
a plan to close the Company's 75 NEBS manned print desks in Kinko's stores, its
adminitrative offices in Phoenix and its stationary plant in Scottsdale,
Arizona. The $5,201,000 pretax charge for exit costs consisted of facility
closure costs of $1,160,000, equipment write-offs of $1,815,000 and
postemployment benefits of $2,226,000 in conjunction with the termination of
approximately 230 employees. The Company also expects to incur an additional
$1.3 million of operating expense during the remainder of fiscal year 1997
associated with the plan to restructure operations.* The restructuring plan is
expected to be substantially completed during fiscal year 1997.*
Investment income decreased from $301,000 in the first quarter of fiscal 1996
to $172,000 in the first quarter of fiscal year 1997 due primarily to lower
investable balances.
The provision for income taxes as a percentage of pre-tax income increased from
fiscal 1996 to fiscal 1997 due to a decrease in the proportion of tax-free
investment income to income before taxes due to the lower investment balances
during the quarter.
In 1996 the Company's adoption of Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", was not significant to the financial
statements.
- - - - - - -
* This statement is a forward-looking statement reflecting the Company's current
expectations. There can be no assurance that the Company's actual results will
not differ materially from those projected in such forward-looking statements
due to the important factors described in Exhibit 99 to this Quarterly Report
on Form 10-Q.
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 25,
1996.
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 12,179,030 14,038 1,387,440
Robert L. Gable 12,178,656 14,412 1,387,440
Benjamin H. Lacy 12,178,431 14,637 1,387,440
Herbert W. Moller 12,178,456 14,612 1,387,440
Robert J. Murray 12,179,030 14,038 1,387,440
Jay R. Rhoads, Jr. 12,179,030 14,038 1,387,440
Richard H. Rhoads 12,178,414 14,654 1,387,440
Brian E. Stern 12,178,456 14,612 1,387,440
To ratify the selection of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending June 28, 1997:
For Against Abstain No Vote
--- ------- ------- -------
12,170,067 8,484 14,517 1,387,440
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
(99) Safe Harbor for Forward Looking Statements
b. Reports on Form 8-K
On September 20, 1996 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.
On October 25, 1996 the Company filed a Form 8-K under Item 5
to report first quarter earnings.
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 12, 1996 /s/John F. Fairbanks
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Date John F.Fairbanks
Principal Financial and
Accounting Officer