FORM 10-Q
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
SEPTEMBER 28, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
COMMISSION FILE NUMBER 1-5492-1
NASHUA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 02-0170100
(State of Incorporation) (IRS Employer Identification No.)
TRAFALGAR SQUARE, 2ND FLOOR 03063
NASHUA, NEW HAMPSHIRE (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (603) 880-2323
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, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
AS OF NOVEMBER 2, 2001, THE COMPANY HAD 5,862,831 SHARES OF COMMON
STOCK, PAR VALUE $1 PER SHARE, OUTSTANDING.
-1-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NASHUA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Sept. 28, 2001 December 31,
ASSETS: (Unaudited) 2000
- ------- -------------- ------------
Cash and cash equivalents $ 432 $ 1,035
Accounts receivable 33,465 27,915
Inventories
Raw materials 8,974 12,112
Work in process 4,590 3,658
Finished goods 7,248 8,956
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20,812 24,726
Taxes receivable 597 10,708
Other current assets 6,086 7,159
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Total current assets 61,392 71,543
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Plant and equipment 86,081 91,018
Accumulated depreciation (39,611) (36,465)
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46,470 54,553
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Goodwill, net of amortization 29,302 30,490
Other assets 16,416 13,885
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Total assets $ 153,580 $ 170,471
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
- -------------------------------------
Current maturities of long-term debt $ 3,187 $ 9,806
Accounts payable 19,927 19,104
Accrued expenses 16,825 20,102
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Total current liabilities 39,939 49,012
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Long-term debt 29,440 35,905
Other long-term liabilities 13,380 13,217
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Total long-term liabilities 42,820 49,122
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Common stock 6,886 7,012
Additional paid-in capital 15,703 15,268
Retained earnings 63,154 64,979
Treasury stock, at cost (14,922) (14,922)
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Total shareholders' equity 70,821 72,337
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Total liabilities and shareholders' equity $ 153,580 $ 170,471
========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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NASHUA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data) Three Months Ended Nine Months Ended
------------------------ ------------------------
Sept. 28, Sept.29, Sept. 28, Sept. 29,
2001 2000 2001 2000
--------- --------- --------- ---------
Net sales $ 69,523 $ 73,310 $ 206,894 $ 186,043
Cost of products sold 54,903 59,279 164,196 147,717
--------- --------- --------- ---------
Gross margin 14,620 14,031 42,698 38,326
Selling, distribution and administrative expenses 11,949 13,701 36,725 36,106
Research and development expense 839 1,232 2,473 3,321
Pension settlement income -- -- -- (18,606)
Restructuring and unusual charges (income) 3,030 (136) 3,175 1,320
(Income) loss from equity investment (10) (5) (51) 9
Interest expense, net 596 918 2,296 1,347
--------- --------- --------- ---------
Income (loss) before income taxes (1,784) (1,679) (1,920) 14,829
Provision (benefit) for income taxes -- (644) (95) 5,821
--------- --------- --------- ---------
Net income (loss) $ (1,784) $ (1,035) $ (1,825) 9,008
========= ========= ========= =========
Basic earnings per share:
Net income (loss) per common share $ (0.31) $ (0.18) $ (0.32) $ 1.60
========= ========= ========= =========
Average common shares 5,713 5,651 5,681 5,648
========= ========= ========= =========
Diluted earnings per share:
Net income (loss) per common share assuming dilution $ (0.31) $ (0.18) $ (0.32) $ 1.59
========= ========= ========= =========
Dilutive effect of stock options -- -- -- 21
========= ========= ========= =========
Average common and potential common shares 5,713 5,651 5,681 5,669
========= ========= ========= =========
Dividends declared per share $ -- $ -- $ -- $ .01
========= ========= ========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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NASHUA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months Ended
-----------------------
Sept. 28, Sept. 29,
2001 2000
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Cash flows from operating activities of continuing operations:
Net income (loss) $ (1,825) $ 9,008
Adjustments to reconcile net income (loss) to cash provided
by continuing operating activities:
Depreciation and amortization 7,417 6,710
Pension settlement income -- (18,606)
Net change in working capital and other assets 6,654 4,668
Other (337) (378)
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Cash provided by continuing operating activities 11,909 1,402
-------- --------
Cash flows from investing activities of continuing operations:
Investment in plant and equipment (2,026) (7,497)
Proceeds from sale of plant and equipment 748 1,854
Business acquisition, net of cash acquired -- (58,619)
Other -- (107)
-------- --------
Cash used in investing activities of continuing operations (1,278) (64,369)
-------- --------
Cash flows from financing activities of continuing operations:
Repayment of borrowings (13,084) (383)
Proceeds from borrowings -- 38,000
Dividends paid -- (59)
Other 204 393
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Cash provided by (used in) financing activities of continuing operations (12,880) 37,951
-------- --------
Cash provided by activities of discontinued operation 1,646 896
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Decrease in cash and cash equivalents (603) (24,120)
Cash and cash equivalents at beginning of period 1,035 25,056
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Cash and cash equivalents at end of period $ 432 $ 936
======== ========
Interest paid $ 2,491 $ 839
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Income taxes paid (refunded) for continuing operations, net $ (5,194) $ 2,565
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying financial
statements contain all adjustments consisting of normal recurring accruals
necessary to present fairly the financial position, results of operations and
cash flows for the periods presented. The accompanying financial statements
should be read in conjunction with the consolidated financial statements and
footnotes thereto included in Nashua Corporation's (the "Company") Annual Report
on Form 10-K for the year ended December 31, 2000.
Certain amounts from the prior year have been reclassified to conform to the
current year presentation.
BUSINESS ACQUISITION
On April 17, 2000, the Company completed the acquisition of all outstanding
shares of stock of Rittenhouse Paper Company, an Illinois corporation
("Rittenhouse"), pursuant to a Stock Purchase Agreement, dated March 21, 2000,
by and among the Company, Rittenhouse and the stockholders of Rittenhouse.
Rittenhouse manufactures and markets a wide range of paper media,
pressure-sensitive labels and imaging supplies. In paper, Rittenhouse is
primarily a converter of large rolls of paper into products such as cut/roll,
bond paper, thermal, point-of-sale, ATM and wide format papers. In labels, it
manufactures a wide assortment of pressure-sensitive and entertainment tickets
for both commercial and consumer use. In imaging, it manufactures and markets
ribbons for use in imaging devices.
Total consideration, including direct acquisition costs, paid by the Company was
approximately $61.8 million. The Company funded $35.0 million of the purchase
price from borrowings under a secured loan agreement and the remainder from its
cash reserves. The acquisition of Rittenhouse was accounted for using the
purchase method of accounting and the operations of Rittenhouse are included in
the Consolidated Statement of Operations and Retained Earnings from the date of
acquisition. Purchase consideration was allocated to the assets acquired and
liabilities assumed based on their respective fair values, with the excess of
purchase consideration over the fair value of net assets of $31.6 million
allocated to goodwill. Goodwill is being amortized on a straight-line basis over
twenty years.
The Company began formulating plans related to workforce reductions and plant
closings prior to the purchase date. Liabilities assumed included restructuring
charges of approximately $2.1 million related primarily to planned workforce
reductions in the acquired business. The provision for planned workforce
reductions included amounts for salary and benefits for 67 employees. Payments
for severance and other plant closing costs through the third quarter of 2001
totaled $1.9 million.
RESTRUCTURING AND UNUSUAL CHARGES
Restructuring and unusual charges for the three months ended September 28, 2001
represent net charges related to the shutdown of the lamination business in the
Label Products segment of $3.6 million, partially offset by unusual income from
the sale of unutilized land in Merrimack, New Hampshire of $.6 million.
Restructuring and unusual income of $.1 million for the three months ended
September 29, 2000 represented an adjustment to a previous charge related to the
discontinuance of the remanufactured laser product line in the Imaging Supplies
segment.
Restructuring and unusual charges for the nine months ended September 28, 2001
of approximately $3.2 million related to a workforce reduction in the Toner
Division of the Imaging Supplies segment and the shutdown of the lamination
business in the Label Products segment, partially offset by the sale of
unutilized land in Merrimack, New Hampshire. Restructuring and unusual charges
for the nine months ended
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September 29, 2000 of approximately $1.3 million related primarily to the
Company's decision to discontinue its remanufactured laser cartridge product
line in its Imaging Supplies segment.
PENSION SETTLEMENT
In the first quarter of 2000, the Company recorded a pretax gain of $18.6
million associated with the purchase of non-participating annuity contracts from
Principal Life Insurance Company to settle the Company's pension benefit
obligation with respect to the retired salaried and hourly employees covered
under its pension plans and receiving pension benefits as of December 1, 1999.
SEGMENT AND RELATED INFORMATION
The table below presents information about reportable segments.
For the Quarter:
- ----------------
(In thousands) Net Sales Pretax Income (Loss)
----------------------- -----------------------
Three Months Ended Three Months Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2001 2000 2001 2000
--------- --------- --------- ---------
Imaging Supplies $ 6,398 $ 6,147 $ 210 $ (1,475)
Specialty Paper Products 38,373 43,313 1,803 2,511
Label Products 26,000 29,182 1,765 656
Reconciling items:
Eliminations (1,286) (5,537) -- --
Other 38 205 120 570
Unallocated corporate expenses -- -- (1,660) (2,751)
Amortization of goodwill -- -- (396) (408)
Interest expense, net -- -- (596) (918)
Restructuring and unusual charges -- -- (3,030) 136
-------- -------- -------- --------
Consolidated $ 69,523 $ 73,310 $ (1,784) $ (1,679)
======== ======== ======== ========
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For the Nine Months:
- --------------------
(In thousands) Net Sales Pretax Income (Loss)
----------------------- ------------------------
Nine Months Ended Nine Months Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2001 2000 2001 2000
--------- --------- --------- ---------
Imaging Supplies $ 18,456 $ 23,135 $ 97 $ (2,866)
Specialty Paper Products 114,404 100,589 4,056 6,262
Label Products 83,862 75,955 5,726 3,647
Reconciling items:
Eliminations (9,980) (13,932) -- --
Other 152 296 567 676
Unallocated corporate expenses -- -- (5,707) (8,086)
Amortization of goodwill -- -- (1,188) (743)
Interest expense, net -- -- (2,296) (1,347)
Restructuring and unusual charges -- -- (3,175) (1,320)
Pension settlement income -- -- -- 18,606
-------- -------- -------- --------
Consolidated $206,894 $186,043 $ (1,920) $ 14,829
======== ======== ======== ========
CONTINGENCIES
In December 1999, the Internal Revenue Service ("IRS") completed an examination
of the Company's corporate income tax returns for the years 1995 through 1997.
On December 16, 1999, the IRS issued a Notice of Proposed Adjustment which
assessed additional taxes of $5.2 million, excluding interest. The assessment
represents a total of $14.0 million of proposed adjustments to taxable income
for the years under review. The proposed adjustments relate to the deductibility
of restructuring and other reserves applicable to continuing and discontinued
operations, as well as the utilization of foreign net operating losses primarily
associated with discontinued operations. The Company disagrees with the position
taken by the IRS and filed a formal protest of the proposed adjustments on April
6, 2000. A hearing was held before the IRS Appeals Officer on March 14, 2001. No
determination has yet been made by the IRS Appeals Officer relating to this
matter.
In December 1998, the IRS completed an examination of the Company's corporate
income tax returns for the years 1992 through 1994. On December 11, 1998, the
IRS issued a Notice of Proposed Adjustment which assessed additional taxes of
$4.6 million, excluding interest. The assessment represents a total of $18.2
million of adjustments to taxable income for the years under review. The
proposed adjustments relate to the deductibility of restructuring and other
reserves applicable to discontinued operations, as well as certain losses
deducted in connection with the divestiture of the Company's Computer Products
Division. The Company disagrees with the positions taken by the IRS and filed a
formal protest of the proposed adjustment on January 12, 1999. Formal hearings
were held before the IRS Appeals Officer on November 16, 1999 and March 14,
2001. No determination has yet been made by the IRS Appeals Officer relating to
this matter.
The Company believes that it will prevail in all material respects against the
IRS' assertions related to the corporate income tax returns filed for years 1992
through 1994, and that it is adequately reserved for potential liabilities for
tax deficiencies that could arise from resolution of the IRS's examination of
the corporate tax returns filed for years 1995 through 1997. While management
believes that it has provided adequately for its tax liabilities, including
liabilities related to matters in dispute with taxing authorities, it can
provide no assurances that the Company will prevail in its defense against
adjustments proposed in these pending or future federal and state examinations.
In addition, management can provide no assurances that the ultimate resolution
of these open tax matters will not be in excess of current provisions.
-7-
In August and September 1996, two individual plaintiffs initiated lawsuits in
the Circuit Court of Cook County, Illinois against the Company, Cerion
Technologies, Inc. ("Cerion"), certain directors and officers of Cerion, and the
Company's underwriter, on behalf of classes consisting of all persons who
purchased the common stock of Cerion between May 24, 1996 and July 9, 1996.
These two complaints were consolidated. In March 1997, the same individual
plaintiffs joined by a third plaintiff filed a Consolidated Amended Class Action
Complaint (the "Consolidated Complaint"). The Consolidated Complaint alleged
that, in connection with Cerion's initial public offering, the defendants issued
materially false and misleading statements and omitted the disclosure of
material facts regarding, in particular, certain significant customer
relationships. In October 1997, the Circuit Court, on motion by the defendants,
dismissed the Consolidated Complaint. The plaintiffs filed a Second Amended
Consolidated Complaint alleging substantially similar claims as the Consolidated
Complaint seeking damages and injunctive relief. On May 6, 1998, the Circuit
Court, on motion by the defendants, dismissed with prejudice the Second Amended
Consolidated Complaint. The plaintiffs filed with the Appellate Court an appeal
of the Circuit Court's ruling. On November 19, 1999, the Appellate Court
reversed the Circuit Court's ruling dismissing the Second Amended Consolidated
Complaint. The Appellate Court ruled that the Second Amended Consolidated
Complaint stated a claim and remanded the case to the Circuit Court for further
proceedings. On December 27, 1999, the Company filed a Petition for Leave to
Appeal from the Appellate Court with the Supreme Court of Illinois. In that
Petition, the Company asked the Supreme Court of Illinois to hear the Company's
further appeal and determine whether the Circuit Court or the Appellate Court is
correct. That Petition was denied and the case was remanded to the Circuit Court
for trial. Discovery is in process. The Company believes that the lawsuit is
without merit and will continue to defend itself in this matter.
The Company is involved in certain environmental matters and has been designated
by the Environmental Protection Agency ("EPA") as a potentially responsible
party ("PRP") for certain hazardous waste sites. In addition, the Company has
been notified by certain state environmental agencies that some of the Company
sites not addressed by the EPA require remedial action. These sites are in
various stages of investigation and remediation. Due to the unique physical
characteristics of each site, the technology employed, the extended timeframes
of each remediation, the interpretation of applicable laws and regulations and
the financial viability of other potential participants, the ultimate cost to
the Company of remediation for each site is difficult to estimate. Based on the
facts currently known and the Company's prior experience with these matters, the
Company has concluded that there is at least a reasonable possibility that site
assessment, remediation and monitoring costs will be incurred by the Company
with respect to those sites which can be reasonably estimated in the aggregate
range of $1.0 million to $1.2 million for certain of the Company's continuing
operations, and a range of $.1 million to $.2 million for certain of the
Company's discontinued operations. These ranges are based, in part, on an
allocation of certain sites' costs which, due to the joint and several nature of
the liability, could increase if the other PRPs are unable to bear their
allocated share. At September 28, 2001, the Company's accrual balances were $1.1
million for continuing operations and $.2 million for discontinued operations,
which represent, in management's view, the most likely amounts within the ranges
stated above. Based on information currently available to the Company,
management believes that it is probable that the major responsible parties will
fully pay the costs apportioned to them. Management believes that, based on its
financial position and the estimated environmental accrual recorded, its
remediation expense with respect to those sites is not likely to have a material
adverse effect on its consolidated financial position or results of operations.
SUBSEQUENT EVENT
During the fourth quarter of 2001, the Company will recognize $1.4 million in
unusual income related to a settlement received in antitrust litigation
associated with the acquired Rittenhouse businesses.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - FOR THE QUARTER:
Quarterly sales decreased by $3.8 million, or 5 percent, to $69.5 million from
third quarter 2000 sales of $73.3 million. Decreased sales in the Label Products
and Specialty Paper Products segments more than offset improvement in the
Imaging Supplies segment. Gross margin increased to $14.6 million, or 21.0
percent, for the quarter compared to $14.0 million, or 19.1 percent, for the
third quarter of 2000. Gross margin improvements in the Imaging Supplies and
Label Products segments were more than offset by a decline in the Specialty
Paper Products segment. Selling and distribution expenses, as a percent of
sales, decreased from 10.8 percent for the third quarter of 2000 to 10.3 percent
for the third quarter of 2001 due to improvement in the Imaging Supplies
segment. Administrative expenses, as a percentage of sales, decreased to 6.9
percent for the third quarter of 2001 from 7.9 percent for the third quarter of
2000. Prior year administrative costs were higher primarily due to integration
costs associated with the Rittenhouse acquisition. Research and development
expenses decreased by $.4 million mainly due to staff reductions in the Imaging
Supplies segment. Net interest expense declined $.3 million to $.6 million for
the third quarter of 2001 due to decreased debt and decreased interest rates.
The Company's pretax loss was $1.8 million compared to a loss of $1.7 million
for the third quarter of 2000. Improvements in the profitability of the Imaging
Supplies and Label Products segments and a decrease in corporate expenses and
interest expense were more than offset by net restructuring and unusual charges
of $3.0 million and by a decline in the profitability of the Specialty Paper
Products segment. Corporate administrative expenses declined mainly due to a
decrease in integration costs and staff reductions resulting from the
Rittenhouse acquisition. Restructuring and unusual charges for the three months
ended September 28, 2001 represent charges related to the shutdown of the
lamination business in the Label Products segment of $3.6 million, partially
offset by unusual income from the sale of unutilized land in Merrimack, New
Hampshire of $.6 million. Restructuring and unusual income of $.1 million for
the three months ended September 29, 2000 represented an adjustment to a
previous charge related to the discontinuance of the remanufactured laser
product line in the Imaging Supplies segment.
Net loss for the third quarter of 2001 was $1.8 million, or $.31 per share,
compared to a net loss of $1.0 million, or $.18 per share, in the third quarter
of 2000.
Details of the restructuring and unusual activity recorded during the third
quarter of 2001 follows:
(In thousands) Balance Current Current Balance
June 29, Period Period Sept. 28,
2001 Provision Utilization 2001
-------- --------- ----------- ---------
Provisions for severance related
to workforce reductions $ 223 $1,171 $ (105) $1,289
Other -- 511 -- 511
------ ------ ------ ------
Total $ 223 $1,682 $ (105) $1,800
====== ====== ====== ======
The current period provision for restructuring activities represents the net
increase in the Company's reserves and includes severance for 96 employees and
other costs associated with the shutdown of the lamination business of the Label
Products segment. Approximately $2.9 million of the lamination restructuring
charges are non cash items relating to the write-off of fixed assets. Proceeds
from this transaction, including the sale of certain lamination equipment will
result in a positive cash flow for Nashua.
The estimated annual effective income tax rate was a benefit of 5 percent as of
September 28, 2001 and this benefit is lower than the U.S. statutory rate
principally due to the impact of non-deductible goodwill and state income taxes.
The changes in the estimated annual effective rate from a benefit of 70 percent
at the end of the second quarter of 2001 to a benefit of 5 percent at the end of
the third quarter of 2001 resulted in no income tax benefit being recorded for
the current quarter.
-9-
RESULTS OF OPERATIONS BY REPORTABLE OPERATING SEGMENT FOR THE QUARTER:
IMAGING SUPPLIES SEGMENT
The Imaging Supplies segment reported a 4.1 percent increase in sales to $6.4
million for the third quarter of 2001, compared to $6.1 million for the same
period last year. This improvement was primarily due to increased sales of
private label toner products.
The gross margin percentage increased from 8.4 percent to 27.0 percent, due to
manufacturing yield and productivity improvements and decreased raw material
pricing. The segment also benefited from staff and cost reductions associated
with its restructuring in the fourth quarter of 2000 and the first quarter of
2001.
The segment's pretax income for the third quarter of 2001 was $.2 million, an
improvement of $1.7 million compared to the third quarter of 2000. Improved
results were primarily due to an improvement in gross margins of $1.2 million
and a reduction in selling and distribution expenses of $.4 million. The
decrease in selling and distribution expenses was associated with staff
reductions and the discontinuance of an outsourcing arrangement for
telemarketing and customer service.
SPECIALTY PAPER PRODUCTS SEGMENT
The Specialty Paper Products segment reported an 11.4 percent decrease in sales
to $38.4 million for the third quarter of 2001, compared to $43.3 million for
the same period last year. The decrease was mainly attributable to reduced sales
volumes for cut-sheet office papers and thermal papers, as well as pricing
pressures in other product lines.
Gross margin percentage declined from 20.7 percent to 20.5 percent, contributing
to a decline in gross margin of $1.1 million. The decline in the segment's gross
margin is mainly attributable to lower sales revenues.
The segment's pretax income for the quarter declined by $.7 million to $1.8
million, compared to $2.5 million in the third quarter of 2000. This decline is
mainly attributable to lower sales revenues.
LABEL PRODUCTS SEGMENT
The Label Products segment reported a 10.9 percent, or $3.2 million decrease in
sales for the third quarter of 2001 to $26.0 million, compared to $29.2 million
for the same period last year. This decline was primarily due to the
discontinuance of the lamination product line during the quarter and decreased
volume in thermal labels.
Gross margin increased by $.4 million to $4.9 million from $4.5 million for the
third quarter of 2000, primarily due to an improved gross margin percentage.
Gross margin percentage increased from 15.3 percent to 18.7 percent, due to
improved product mix, synergies from the integration of the Nashua and
Rittenhouse businesses and improved inventory management and cost controls.
The segment's pretax income increased $1.1 million to $1.8 million, compared to
$.7 million in the third quarter of 2000. This increase is primarily
attributable to gross margin improvements, acquisition synergies and cost
controls. Additionally, administrative expenses for the third quarter of 2000
were negatively impacted by a charge related to an environmental clean-up at the
segment's Omaha, Nebraska plant.
-10-
RESULTS OF OPERATIONS - FOR NINE MONTHS YEAR-TO-DATE:
Results for the first nine months of 2001 include a full nine months of
Rittenhouse operations, while the nine months ended September 29, 2000, include
Rittenhouse results subsequent to the acquisition date of April 17, 2000. Sales
for the first nine months of 2001 increased to $206.9 million, an 11.2 percent
increase over sales for the first nine months of 2000 of $186.0 million,
primarily due to the acquisition of Rittenhouse. Increases in the Specialty
Paper Products and Label Products segments were partially offset by a decline in
the Imaging Supplies segment. Gross margin percentage of 20.6 percent for the
first nine months of 2001 was unchanged from the first nine months of 2000.
Increases in the gross margin percentages for the Label Products and Imaging
Supplies segments were offset by a decrease in the Specialty Paper Products
segment. Selling and distribution expenses, as a percent of sales, decreased to
10.5 percent from 11.0 percent, primarily due to decreases in the Imaging
Supplies and Label Products segments. Administrative expenses, as a percentage
of sales, decreased from 8.4 percent to 7.3 percent, primarily due to a
reduction in Corporate administrative expenses. Corporate administrative
expenses declined mainly due to decreases in integration and proxy related costs
and staff reductions. Research and development expenses decreased by $.8 million
to $2.5 million, as compared to $3.3 million for the same period in 2000,
primarily a result of exiting the remanufactured laser cartridge product line in
the first quarter of 2000, and staff reductions in the Toner division of the
Imaging Supplies segment during the fourth quarter of 2000 and the first quarter
of 2001. Net interest expense was $2.3 million for the first nine months of
2001, compared to $1.3 million for the same period last year. Increased interest
expense resulted from borrowings incurred to finance the Rittenhouse
acquisition. The Company's profit before income taxes, pension settlement income
and restructuring and unusual charges was $1.3 million, compared to a loss of
$2.5 million for the first nine months of 2000. Improvements in the
profitability of the Imaging Supplies and Label Products segments and a
reduction in corporate expenses were partially offset by a decrease in the
profitability of the Specialty Paper Products segment and increases in net
interest expense and goodwill amortization.
Pretax income from the sale of technology contributed $.5 million to the
Company's pretax profit for the first nine months of 2001, compared to $.7
million for the same period in the prior year. The Company recognized the final
payment from the sale of its Microsharp technology during the second quarter of
2001 and has fully recognized income resulting from this sale of technology.
Net loss for the first nine months of 2001 was $1.8 million, or $(0.32) per
share, compared to net income of $9.0 million, or $1.59 per diluted share, for
the same period in 2000. Net income for the first nine months of 2001 included a
net pretax restructuring charge of approximately $3.2 million relating to
workforce reductions in the Toner Division of the Imaging Supplies segment and
the shutdown of the lamination business in the Label Products segment, partially
offset by the sale of unutilized land in Merrimack, New Hampshire. Results for
the first nine months of 2000 included pretax pension settlement income of $18.6
million, and a pretax restructuring charge of approximately $1.3 million,
relating primarily to the Company's decision to discontinue its remanufactured
laser cartridge product line.
The estimated annual effective income tax rate was a benefit of 5 percent as of
September 28, 2001 and this benefit is lower than the U.S. statutory rate
principally due to the impact of non-deductible goodwill and state income taxes.
RESULTS OF OPERATIONS BY REPORTABLE OPERATING SEGMENT FOR NINE MONTHS
YEAR-TO-DATE:
IMAGING SUPPLIES SEGMENT
The Imaging Supplies segment reported a 20.2 percent decrease in sales to $18.5
million for the first nine months of 2001, compared to $23.1 million for the
same period last year. This decline was primarily due to
-11-
the discontinuance of the remanufactured laser cartridge product line in the
first quarter of 2000, decreased sales of Xerox-compatible toners and lower
sales volumes for a large international customer. Remanufactured laser cartridge
sales were $2.5 million for the first nine months of 2000. Sales of
Xerox-compatible toners were negatively impacted by a major customer's decision
during the first quarter of 2000 to discontinue its line of private label
Xerox-compatible toners manufactured by the Company.
Gross margin percentage increased from 17.3 percent to 24.9 percent, resulting
in a $.6 million improvement in gross margin to $4.6 million for the nine months
ended September 28, 2001. Part of the improvement in gross margin percentage is
attributable to the discontinuance of the remanufactured laser cartridge product
line. The gross margin percentage for the Toner product line also improved due
to manufacturing yield and productivity improvements.
The segment recorded pretax income for the first nine months of 2001 of $.1
million, an improvement of $3.0 million, compared to the first nine months of
2000. Improved results were mainly due to lower selling and distribution and
research and development expenses and an improved gross margin percentage.
Selling and distribution expenses decreased by $1.9 million compared to the same
period in 2000 mainly due to lower sales revenues and staff and cost reductions.
The segment also benefited from the discontinuance of its remanufactured laser
cartridge product line, which had a loss of $.8 million for the first nine
months of 2000.
SPECIALTY PAPER PRODUCTS SEGMENT
As a result of the Rittenhouse acquisition, the Specialty Paper Products segment
reported a $13.8 million increase in sales for the first nine months of 2001 to
$114.4 million, compared to $100.6 million for the same period last year.
Increased sales from the Rittenhouse paper converting business were partially
offset by volume declines in the cut sheet paper product and thermal product
lines.
While gross margin increased by $1.1 million, the segment's gross margin
percentage declined from 21.1 percent to 19.5 percent. The decline in gross
margin percentage resulted from pricing pressures in the converting business and
an unfavorable change in product mix.
The segment's pretax income for the first nine months of 2001 decreased $2.2
million to $4.1 million, compared to $6.3 million for the first nine months of
2000. Increases in selling, distribution and administrative expenses more than
offset the increase in gross margin dollars. As a percentage of sales, selling,
distribution and administrative expenses increased from 13.6 percent to 14.9
percent. This increase is mainly attributable to a freight allowance provided to
a major customer.
LABEL PRODUCTS SEGMENT
The Label Products segment reported a $7.9 million, or 10.4 percent, increase in
sales to $83.9 million for the first nine months of 2001 compared to $76.0
million for the same period last year. This increase was primarily a result of
the Rittenhouse acquisition. The segment also benefited from increased volume in
transportation labels and retail shelf labels.
Gross margin percentage for the first nine months of 2001 increased to 18.6
percent from 17.2 percent, for the same period in the prior year. Gross margin
increased by $2.5 million to $15.6 million due to increased sales revenues and
increased gross margin percentage. The improvement in gross margin percentage is
due to synergies realized through the integration of the Nashua and Rittenhouse
businesses and improved inventory and cost controls.
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The segment's pretax income increased $2.1 million to $5.7 million compared to
$3.6 million in the first nine months of 2000. This improvement was primarily
due to the contribution of the acquired Rittenhouse business. Increased gross
margin was partially offset by increased selling, distribution and
administrative expenses. Selling, distribution and administrative expenses as a
percentage of sales decreased to 11.8 percent from 12.2 percent, primarily
attributable to a reduction in environmental charges.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Cash and cash equivalents decreased $.6 million from December 31, 2000 to $.4
million at September 28, 2001. Cash provided by continuing operating activities
of $11.9 million consisted primarily of cash flow from operations and proceeds
from tax refunds and inventory reductions, partially offset by an increase in
accounts receivable. Cash used in investing and financing activities for the
first nine months of 2001 of $1.3 million and $12.9 million, respectively, was
partially offset by cash provided by continuing operating activities and
discontinued operations. Cash provided by discontinued operations related
primarily to tax refunds. Net cash used in investing activities consisted of
capital expenditures across all segments. Net cash used in financing activities
consisted of repayments on the Company's debt.
Working capital decreased $1.1 million from December 31, 2000 to $21.5 million
at September 28, 2001. Decreases in inventory, taxes receivable and other
current assets, along with an increase in accounts payable, more than offset
decreases in the current portion of long-term debt and accrued expenses and an
increase in accounts receivable.
The Company's Loan Agreement requires the Company to maintain certain financial
covenants such as Total Funded Debt to earnings before interest, income taxes,
depreciation and amortization and a Fixed Charge Coverage Ratio. The Company was
in compliance with the above financial covenants for the quarter ended September
28, 2001.
Management believes that current cash and cash equivalents, cash flows from
operations and amounts available under the Company's financing agreement are
sufficient to fund its planned capital expenditures, working capital needs and
other cash requirements.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("FAS 142"). FAS 142 supercedes APB Opinion No. 17,
"Intangible Assets", which required that goodwill and intangible assets be
amortized over a life not to exceed forty years. Under FAS 142, goodwill and
indefinite lived intangible assets are no longer amortized but are reviewed
annually, or more frequently if impairment indicators arise, for impairment.
The amortization provisions of FAS 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, the amortization provisions of FAS 142 are
effective upon adoption of FAS 142. FAS 142 is effective for fiscal years
beginning after December 15, 2001 (i.e., January 1, 2002 for calendar year
companies) and must be adopted as of the beginning of a fiscal year. The Company
will adopt FAS 142 for its 2002 fiscal year.
Adoption of FAS 142 will have a significant effect on the Company's results of
operations, and could have a significant effect on its financial position. FAS
142 will eliminate the amortization of the Company's goodwill, which is
approximately $1.6 million on an annual basis. FAS 142 will also require an
annual
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review of the Company's goodwill for impairment. Goodwill at September 28, 2001
was $29.3 million. The Company has not yet evaluated its goodwill for impairment
under the new guidelines of FAS 142.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In August and September 1996, two individual plaintiffs initiated lawsuits in
the Circuit Court of Cook County, Illinois against the Company, Cerion
Technologies Inc. (Cerion), certain directors and officers of Cerion, and the
Company's underwriter, on behalf of classes consisting of all persons who
purchased the common stock of Cerion between May 24, 1996 and July 9, 1996.
These two complaints were consolidated. In March 1997, the same individual
plaintiffs joined by a third plaintiff filed a Consolidated Amended Class Action
Complaint (the "Consolidated Complaint"). The Consolidated Complaint alleged
that, in connection with Cerion's initial public offering, the defendants issued
materially false and misleading statements and omitted the disclosure of
material facts regarding, in particular, certain significant customer
relationships. In October 1997, the Circuit Court on motion by the defendants,
dismissed the Consolidated Complaint. The plaintiffs filed a Second Amended
Consolidated Complaint alleging substantially similar claims as the Consolidated
Complaint seeking damages and injunctive relief. On May 6, 1998, the Circuit
Court, on motion by the defendants, dismissed with prejudice the Second Amended
Consolidated Complaint. The plaintiffs filed with the Appellate Court an appeal
of the Circuit Court's ruling. On November 19, 1999, the Appellate Court
reversed the Circuit Court's ruling dismissing the Second Amended Consolidated
Complaint. The Appellate Court ruled that the Second Amended Consolidated
Complaint stated a claim and remanded the case to the Circuit Court for further
proceedings. On December 27, 1999, the Company filed a Petition for Leave to
Appeal from the Appellate Court with the Supreme Court of Illinois. In that
Petition, the Company asked the Supreme Court of Illinois to hear the Company's
further appeal and determine whether the Circuit Court or the Appellate Court is
correct. That petition was denied and the case was remanded to the Circuit Court
for trial. Discovery is in process. The Company believes that the lawsuit is
without merit and will continue to defend itself in this matter.
ITEM 5. OTHER INFORMATION
ANNUAL MEETING OF STOCKHOLDERS
The Company's Annual Stockholders' Meeting will be held on May 1, 2002 at the
Nashua Marriott, 2200 Southwood Drive, Nashua, NH, at 10:00 a.m.
STOCKHOLDER PROPOSALS
Any proposal that a stockholder wishes the Company to consider for inclusion in
the proxy statement and form of proxy card for the Company's 2002 Annual Meeting
of Stockholders must be received by the Company on or before November 28, 2001.
Such proposals should be directed to Nashua Corporation, Second Floor, 11
Trafalgar Square, Nashua, New Hampshire 03063, Attention: Secretary.
In addition, the Company's By-laws require all stockholder proposals to be
timely submitted in advance to the Secretary of the Company at the above address
(other than proposals submitted for inclusion in the proxy statement and form of
proxy as described above). To be timely, the Secretary must receive such notice
not less than 60 days nor more than 90 days prior to the 2002 Annual Meeting;
provided that, if less than 70 days' notice or prior public disclosure of the
date of the 2002 Annual Meeting is given or made, the
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notice must be received not later than the close of business on the 10th day
following the date on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever occurs first.
MATTERS AFFECTING FUTURE RESULTS
Information provided by the Company in this Form 10-Q may contain
forward-looking statements, as that term is defined in the Private Securities
Litigation Reform Act of 1995. The Company may also make forward-looking
statements in other reports filed with the Securities and Exchange Commission,
in materials delivered to stockholders and in press releases. In addition, the
Company's representatives may from time to time make oral forward-looking
statements. Forward-looking statements provide current expectations of future
events based on certain assumptions and include any statement that is not
directly related to historical or current fact. Words such as "anticipates,"
"believes," "expects," "estimates," "intends," "plans," "projects," "can," "may"
and similar expressions are intended to identify such forward-looking
statements. Forward-looking statements are subject to risks and uncertainties
which could cause actual results to differ materially from those anticipated.
Such risks and uncertainties include, but are not limited to, the Company's
future capital needs, stock market conditions, price of the Company's stock,
fluctuations in customer demand, intensity of competition from other vendors,
timing and acceptance of new product introductions, general economic and
industry conditions, delays or difficulties in programs designed to increase
sales and improve profitability, the settlement of various tax issues, the
possibility of a final award of material damages in the Cerion securities
litigation and other risks detailed in this Form 10-Q and the Company's other
filings with the Securities and Exchange Commission. The Company assumes no
obligation to update the information contained in this Form 10-Q or to revise
any forward-looking statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
On July 12, 2001, the Company filed a Current Report on Form 8-K, dated
July 9, 2001, reporting under Items 5 and 7 that the Company had entered
into supply and purchase agreements with Avery Dennison relating to
laminated and coated products.
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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.
NASHUA CORPORATION
-----------------------------------------
(Registrant)
Date: November 9, 2001 By: /s/ John L. Patenaude
----------------------- --------------------------------------
John L. Patenaude
Vice President-Finance and
Chief Financial Officer
(principal financial and duly
authorized officer)
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