1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 1, 1994 -------------------------------------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1984 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) (I.R.S. Employer Identification Number) 44 Franklin Street P.O. Box 2002 Nashua, New Hampshire 03061-2002 - - ---------------------------------------- ------------------------ (Address of principal executive offices) (Zip Code) 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 (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 ______ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at August 5, 1994 - - ----------------------------- -------------------------------- Common Stock, par value $1.00 6,346,310 shares (excluding, 23,850 shares held in treasury) 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - - ----------------------------- NASHUA CORPORATION AND SUBSIDIARIES ----------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (In thousands) July 1, 1994 December 31, (Unaudited) 1993 ------------ ------------ ASSETS - - ------ Cash and cash equivalents $ 8,916 $ 5,883 Accounts receivable 41,848 47,657 Inventories Materials and supplies 11,593 11,793 Work in process 5,279 4,875 Finished goods 11,233 17,000 -------- -------- 28,105 33,668 Other current assets 23,049 22,573 -------- -------- Total current assets 101,918 109,781 -------- -------- Plant and equipment 127,221 164,742 Accumulated depreciation (58,803) (93,509) -------- -------- 68,418 71,233 Other assets 43,271 38,051 -------- -------- Total assets $213,607 $219,065 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY: - - ------------------------------------ Notes and loans payable $ 300 $ 2,900 Current maturities of long-term debt 3,501 2,500 Accounts payable 34,355 29,951 Accrued expenses 32,325 48,669 Income taxes payable 445 2,033 -------- -------- Total current liabilities 70,926 86,053 Long-term debt 26,327 20,342 Other long-term liabilities 25,249 19,547 Common stock and additional capital 17,763 17,586 Retained earnings 79,355 82,166 Cumulative translation adjustment (5,228) (5,844) Treasury stock, at cost (785) (785) Commitments and contingencies -------- -------- Total liabilities and shareholders' equity $213,607 $219,065 ======== ======== The accompanying notes are an integral part of the condensed consolidated financial statements. -2- 3 NASHUA CORPORATION AND SUBSIDIARIES ----------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS --------------------------------------------------------------------- (UNAUDITED) ----------- (In thousands, except per share data) Three Months Ended Six Months Ended ------------------------- ----------------------- (Restated) (Restated) July 1, July 2, July 1, July 2, 1994 1993 1994 1993 -------- -------- ------- ------- Net sales $122,702 $120,325 $235,525 $236,524 Cost of products sold 90,793 88,547 177,465 176,481 Research, selling, distribution and administrative expenses 26,717 26,971 51,700 52,950 Restructuring and other unusual charges - - 2,600 - Interest expense 549 679 1,027 1,349 Interest income (55) (76) (98) (166) -------- -------- -------- -------- Income from continuing operations before income taxes 4,698 4,204 2,831 5,910 Income taxes 1,778 1,661 1,069 2,335 -------- -------- -------- -------- Income from continuing operations 2,920 2,543 1,762 3,575 Income (loss) from discontinued operations - 1,319 (2,295) 2,926 -------- -------- -------- -------- Net income (loss) 2,920 3,862 (533) 6,501 Retained earnings, beginning of period 77,575 107,383 82,166 105,880 Dividends (1,140) (1,136) (2,278) (2,272) -------- -------- -------- -------- Retained earnings, end of period $ 79,355 $110,109 $ 79,355 $110,109 ========= ======== ======== ======== Earnings (loss) per common and common equivalent share: Income (loss) from continuing operations $ .46 $ .40 $ .28 $ .57 Income (loss) from discontinued operations - .21 (.36) .46 -------- -------- -------- -------- Net income (loss) $ .46 $ .61 $ (.08) $ 1.03 ========= ======== ======== ======== Dividends per common share $ .18 $ .18 $ .36 $ .36 ========= ======== ======== ======== The accompanying notes are an integral part of the condensed consolidated financial statements. -3- 4 NASHUA CORPORATION AND SUBSIDIARIES ----------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (UNAUDITED) ----------- (In thousands) Six Months Ended --------------------------------- July 1 1994 July 2, 1993 ----------- ------------ Cash flows from continuing operating activities: Income from continuing operations $ 1,762 $ 3,575 Adjustments to reconcile income from continuing operations to cash provided by continuing operating activities: Depreciation and amortization 7,412 6,947 Net change in working capital (7,880) 6,039 -------- -------- Cash provided by continuing operating activities 1,294 16,561 -------- -------- Cash flows from investing activities of continuing operations: Investment in plant and equipment (7,273) (5,828) -------- -------- Cash used in investing activities (7,273) (5,828) -------- -------- Cash flows from financing activities of continuing operations: Proceeds from borrowings 17,400 - Repayment of borrowings (13,014) (10,713) Dividends paid (2,278) (2,272) Proceeds and tax benefits from shares issued under stock option plans 177 69 -------- -------- Cash provided by (used in) financing activities 2,285 (12,916) -------- -------- Proceeds from sale of discontinued operations 11,115 - Cash applied to activities of discontinued operations (4,597) (1,591) Effect of exchange rate changes on cash 209 (19) -------- -------- Increase (decrease) in cash and cash equivalents 3,033 (3,793) Cash and cash equivalents at beginning of period 5,883 12,212 -------- -------- Cash and cash equivalents at end of period $ 8,916 $ 8,419 ======== ======== Interest paid $ 1,015 $ 1,239 ======== ======== Income taxes paid $ 58 $ 2,511 ======== ======== The accompanying notes are an integral part of the condensed consolidated financial statements. -4- 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- Earnings Per Common and Common Equivalent Share - - ----------------------------------------------- Earnings per common and common equivalent share is computed based on the total of the weighted average number of common shares and the weighted average number of common equivalent shares outstanding during the period. Three Months Ended Six Months Ende ----------------------- ----------------------- July 1, July 2, July 1, July 2, 1994 1993 1994 1993 ------- ------- ------- ------- Common shares outstanding 6,331,123 6,311,395 6,326,284 6,310,797 Common share equivalents 17,132 27,938 24,011 27,481 Stock Options - - ------------- At July 1, 1994, options for 567,715 shares of common stock were outstanding. Stock options for an additional 150,705 shares may be awarded under the Company's 1987 Stock Option Plan and stock options for an additional 224,000 shares may be awarded under the Company's 1993 Stock Incentive Plan. Restructuring and Other Unusual Charges - - --------------------------------------- In the first quarter, the Company recorded a $5.7 million pretax charge relating to the Company's early retirement program, of which $2.6 million was included in continuing operations. In addition, as discussed below, the Company has sold its thin-film disk, oxide disk and head disk assembly operations in the second quarter of 1994. Based on the progress-to-date, the Company continues to expect to realize savings in personnel, facilities and other costs (exclusive of the oxide, diskette and thin-film manufacturing businesses) from its restructuring actions at an annualized rate of approximately $8.0 million pretax by the end of 1994. Segments - - -------- As part of the Company's restructuring actions in the first quarter, the Office Supplies and Coated Products segments were combined into a new segment, the Commercial Products Group. These two segments were combined as they share similar customers, technologies and industry risks. The remaining operation from the Computer Products Group, Precision Technologies, will be reported separately. Discontinued Operations - - ----------------------- During the second quarter of 1994, the Company disposed of its Computer Products businesses in two separate transactions for amounts not materially different from estimates included in the restructuring charge recorded as of the fourth quarter of 1993. As a result, the Company has classified these businesses as discontinuing operations. On May 19, 1994, the Company sold certain assets and liabilities of its thin-film disk operation. The Company received net cash proceeds of $10.0 million and a $4.9 million subordinated three-year note. In addition, the Company may receive additional cash proceeds of up to $5.0 million contingent on future operating results of the thin-film disk operation. On May 13, 1994, the Company sold certain assets of its oxide disk and head disk assembly operation. The purchase price included $1.1 million of cash, plus future royalty payments based on sales. -5- 6 The results of operations for the discontinued thin-film disk, oxide disk and head disk assembly operations have been reported separately in the condensed consolidated statement of operations and are summarized as follows: Six Months Ended -------------------------- (In thousands) July 1, 1994 July 2, 1993 ------------ ------------ Net sales $19,243 $27,832 ======= ======= Income (loss) before income taxes $(3,279) $ 2,657 Income taxes (benefit) (984) 1,050 ------- ------- Income (loss) from discontinued operations $(2,295) $ 1,607 ======= ======= Income (loss) before taxes for the six months ended July 1, 1994 includes a $3.1 million charge relating to the Company's early retirement program. Other - - ----- These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1993. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position as of July 1, 1994, the results of operations for the three-month and six-month periods ended July 1, 1994 and July 2, 1993, and cash flows for the six-month periods ended July 1, 1994 and July 2, 1993. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- Net sales for the second quarter of 1994 were $122.7 million, a 2 percent increase over the second quarter last year, as increased sales in the Commercial Products Group were partially offset by lower sales in the Photofinishing and Precision Technologies Groups. Net income from continuing operations for the quarter was $2.9 million versus $2.5 million in the prior year due to improvements in the Commercial Products and Photofinishing Groups partially offset by lower volume in Precision Technologies. Net sales for the first six months were essentially flat at $235.5 million verses $236.5 million last year. Increases in Commercial Products were more than offset by decreases in the other two groups. Income from continuing operations for the first six months decreased to $1.8 million from $3.6 million for the same period last year. The decrease was principally the result of a $2.6 million pretax charge relating to the Company's early retirement program and a $.9 million pretax charge relating to costs incurred in the first quarter related to a potential acquisition of a non-U.S. Photofinishing business. In the fourth quarter of 1993, the Company recorded restructuring and other unusual charges of $48.5 million largely as a result of the Company's decision to dispose of its Computer Products businesses. In the second quarter of 1994, the Company disposed of these businesses for amounts not materially different from estimates included in the restructuring charge recorded in 1993. At the end of the second quarter of 1994, the Company has substantially completed its restructuring activities except for the consolidation of certain facilities. Management is currently reviewing several options and anticipates completing -6- 7 these actions by year end. The Company expects to realize savings in personnel, facilities and other costs (exclusive of the oxide, diskette and thin-film manufacturing businesses) from its restructuring actions at an annualized rate of approximately $8.0 million pretax by the end of 1994. The Commercial Products Group's second quarter sales increased 6 percent to $82.1 million, due to significantly higher duct tape, label and copier toner volumes and the inclusion of sales from the office supplies catalog (Nashua Express), which was acquired in July 1993. The increases were partially offset by lower carbonless paper and diskette sales. For the first six months of 1994, sales increased 2 percent to $160.3 million, primarily attributable to higher duct tape sales volumes and the inclusion of Nashua Express, offset by significantly lower diskette and copier paper volumes. The Group had operating income of $2.6 million for the second quarter, an increase of 47 percent from the second quarter last year, primarily as a result of higher tape and label volumes, offset by weak Nashua Express sales volume, higher development costs associated with the remanufactured cartridges business and increased selling expenses. For the six months, operating income declined to $.2 million from $2.6 million for the same period a year ago, as the impact of improved sales volumes was more than offset by the aforementioned $2.6 million charge relating to early retirements, weak Nashua Express sales and significantly higher product development costs for the remanufactured laser cartridge business. Sales for the Photofinishing Group for the second quarter and first six months of 1994 declined approximately 4 percent. Lower U.S. and Canadian order volumes and the unfavorable effect of a weaker British pound than in the year ago period offset generally favorable pricing in the U.S. and U.K. Operating income increased by 6.4 percent and 3.4 percent for second quarter and first six months of 1994, respectively, primarily due to improved manufacturing productivity in the U.K., favorable promotional pricing and reduced marketing expenses. Lower sales to its principal customer accounted for Precision Technologies' sales decline of 21 percent and 13 percent, respectively, for the second quarter and first six months of 1994. The Group recorded small operating losses in the second quarter and year-to-date periods of 1994, versus operating profits last year, due to reduced sales volume and a sales mix of lower margin products. Administrative expense for the second quarter and for the first six months was substantially the same as the comparable periods last year as cost savings related to the restructuring were offset by the inclusion of Nashua Express acquired in the third quarter of 1993. Selling and distribution expense as a percentage of sales was relatively constant for the second quarter and the first six months compared to the same period one year ago. Research and development expense increased 36% in the second quarter from the second quarter in 1993 and 37% for the first six months as compared to the first six months in 1993, primarily due to increased spending on new product development. The effective income tax rate of 38 percent for the first six months of 1994 is higher than the U.S. statutory rate of 35 percent, primarily due to the unfavorable impact of non-deductible goodwill amortization and state income taxes. Working capital increased by $7.3 million to $31.0 million from December 31, 1993. The Company received proceeds of $11.1 million in the second quarter from the sale of the discontinued Computer Products Group which was used to fund operations and restructuring actions, primarily severance payments related to the Company's early retirement program. In July, 1994, the Company replaced its revolving credit facility with a new facility increasing the credit available to the Company under commitment to $40 million. The terms of the facility are substantially similar to those in the Company's previous facility. -7- 8 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - - -------------------------- In April 1994, Ricoh Company, Ltd. and Ricoh Corporation ("Ricoh") filed a Complaint with the United States District Court, District of New Hampshire, alleging Nashua's infringement of U.S. patents 4,611,730 and 4,878,603 relating to certain toner cartridges for Ricoh copiers. The Complaint seeks damages and injunctive relief. The products involved constitute an insignificant amount of Nashua's sales. The Company believes it has substantial defenses and intends to defend the action vigorously. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - - ------------------------------------------------------------ On April 22, 1994, the Annual Meeting of the stockholders of Nashua Corporation was held. The following individuals were elected Directors of the Company by the votes cast for and withheld from those individuals as indicated below: For Withheld --- -------- Joseph A. Baute 5,292,546 276,118 Richard E. Carter 5,292,581 276,083 Charles E. Clough 5,276,280 292,384 Thomas W. Eagar 5,294,691 273,973 Charles S. Hoppin 5,294,921 273,743 John M. Kucharski 5,294,921 273,743 William E. Mitchell 5,097,461 471,203 Guy W. Nichols 5,292,604 276,060 James F. Orr III 5,294,721 273,943 James Brian Quinn 5,293,446 275,218 ITEM 5. OTHER INFORMATION - - -------------------------- As of July 25, 1994 Nashua Corporation announced that William E. Mitchell, formerly Nashua's president and chief operating officer, was named chief executive officer. Mitchell succeeds Charles E. Clough who functioned as the Company's chief executive officer for the past 11 years. Clough remains the Company's non-executive chairman of the board. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - - ----------------------------------------- (a) Exhibits 4.01 Note Agreement dated as of July 29, 1994 (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed. -8- 9 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: August 12, 1994 By: /s/ W. Luke --------------- ----------------------------- W. Luke Vice President-Finance (principal financial and duly authorized officer) -9-