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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 March 29, 1996
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1984
For the transition period from to
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Commission file number 1-5492-1
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NASHUA CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 02-0170100
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(State of incorporation) (I.R.S. Employer Identification Number)
44 Franklin Street
P.O. Box 2002
Nashua, New Hampshire 03061-2002
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (603) 880-2323
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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
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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.
Class Outstanding at May 1, 1996
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Common Stock, par value $1.00 6,598,990 shares (excluding 23,630 shares held
in treasury)
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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NASHUA CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(In thousands)
March 29, 1996 December 31,
ASSETS: (Unaudited) 1995
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Cash and cash equivalents $ 11,064 $ 8,390
Accounts receivable 30,990 29,579
Inventories
Materials and supplies 6,300 10,318
Work in process 2,684 2,835
Finished goods 6,953 8,870
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15,937 22,023
Other current assets 31,370 31,785
Net current assets of discontinued operations 7,020 7,415
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Total current assets 96,381 99,192
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Plant and equipment 128,271 127,658
Accumulated depreciation (60,133) (57,601)
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68,138 70,057
Intangible assets 44,616 45,705
Accumulated amortization (9,183) (8,814)
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35,433 36,891
Other assets 17,271 18,590
Net non-current assets of discontinued operations 5,227 6,642
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Total assets $222,450 $231,372
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LIABILITIES AND SHAREHOLDERS' EQUITY:
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Current maturities of long-term debt $ 8,375 $ 500
Accounts payable 25,676 26,858
Accrued expenses 31,877 33,385
Income taxes payable 4,588 6,662
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Total current liabilities 70,516 67,405
Long-term debt 60,475 68,350
Other long-term liabilities 19,352 20,742
Common stock and additional capital 18,681 18,681
Retained earnings 59,529 61,563
Cumulative translation adjustment (5,352) (4,618)
Treasury stock, at cost (751) (751)
Commitments and contingencies
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Total liabilities and shareholders' equity $222,450 $231,372
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
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NASHUA CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
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(UNAUDITED)
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(In thousands, except per share data) Three Months Ended
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March 29, March 31,
1996 1995
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Net sales $101,497 $109,570
Cost of products sold 75,297 82,725
Research, selling, distribution and
administrative expenses 28,764 25,464
Interest expense 1,539 1,451
Interest income (122) (221)
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Income (loss) from continuing operations
before income taxes (3,981) 151
Income taxes (benefit) (1,741) 60
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Income (loss) from continuing operations (2,240) 91
Income (loss) from discontinued operations 206 (21)
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Net income (loss) (2,034) 70
Retained earnings, beginning of period 61,563 79,744
Dividends - (1,152)
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Retained earnings, end of period $ 59,529 $ 78,662
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Earnings (loss) per common and common equivalent share:
Income (loss) from continuing operations $ (.35) $ .01
Income from discontinued operations .03 -
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Net income (loss) $ (.32) $ .01
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Dividends per common share $ - $ .18
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
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NASHUA CORPORATION AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(UNAUDITED)
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(In thousands)
Three Months Ended
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March 29, March 31,
1996 1995
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Cash flows from operating activities of continuing operations:
Net income (loss) $(2,034) $ 70
Adjustments to reconcile net income (loss) to cash
provided by (used in) continuing operating activities:
Depreciation and amortization 4,283 3,957
(Income) loss from discontinued operations (206) 21
Net change in working capital and other assets 1,667 1,088
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Cash provided by continuing operating activities 3,710 5,136
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Cash flows from investing activities of continuing operations:
Investment in plant and equipment (2,263) (3,281)
Acquisition of business - (25,739)
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Cash used in investing activities of continuing operations (2,263) (29,020)
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Cash flows from financing activities of continuing operations:
Proceeds from borrowings - 32,200
Repayment of borrowings - (1,356)
Dividends paid - (1,152)
Proceeds and tax benefits from shares
issued under stock option plans - 14
Purchase and reissuance of treasury stock - 26
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Cash provided by financing activities of continuing operations - 29,732
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Cash provided by (applied to) activities of discontinued operations 1,257 (8,530)
Effect of exchange rate changes on cash (30) 88
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Increase (Decrease) in cash and cash equivalents 2,674 (2,594)
Cash and cash equivalents at beginning of period 8,390 10,219
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Cash and cash equivalents at end of period $11,064 $ 7,625
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Interest paid $ 1,269 $ 3,680
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Income taxes paid $ 37 $ 6,053
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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Indebtedness
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On March 27, 1996, the Company reached agreement with its lenders on the terms
of amendments to existing lending agreements which will supersede the terms and
conditions of the $75 million revolving credit facility and the Company's senior
note agreement. Under the provisions agreed to with the lenders, the revolving
credit facility will be replaced with a bank facility (the "Bank Facility").
Advances under the Bank Facility will be made pursuant to both a term loan
arrangement and a revolving credit facility with an initial aggregate credit
availability of up to $66 million. Interest on amounts outstanding under both
the term loan and revolving credit portion of the agreement will be payable at
the Agent Bank's Prime Rate plus .5 percent. The revised senior note will be at
a rate of 11.85 percent per annum.
The total balance outstanding under the old revolving credit facility on the
Bank Facility's closing date (April 5, 1996) was $53 million with $48 million
designated as outstanding under the term loan portion of the Bank Facility and
$5 million designated as outstanding under the revolving credit portion of the
Bank Facility.
The revolving credit portion of the Bank Facility will provide for initial
credit availability equal to the lesser of $18 million or the sum of defined
percentages of eligible accounts receivable and inventory. The Bank Facility
will also provide for up to $5 million of the revolving credit portion of the
facility to be available for the issuance of letters of credit. The revolving
credit portion of the Bank Facility will expire on December 31, 1997.
The terms of the Bank Facility and revised senior note will require certain
mandatory prepayments and, with respect to the Bank Facility, contain provisions
for certain facility commitment reductions, tied to the sale or issuance by the
Company of equity securities or the sale or disposition of assets. According to
the provisions of the term loan portion of the Bank Facility and the revised
senior note, one-half of the amounts outstanding on October 1, 1996, will become
due and payable in four equal quarterly installments commencing in January 1997.
All remaining amounts outstanding will be due on December 31, 1997. Prepayments
also will be required beginning in January 1997, based on Excess Cash Flows, as
defined in the agreements.
All or most of the proceeds to be generated from the sale of the Company's Tape
Products Division and the sale by the Company of certain equity shares in
Cerion Technologies will be used to prepay a portion of the Company's debt.
As a result of the amendments, portions of the Bank Facility and revised
senior note were reclassified as current liabilities as of March 29, 1996. The
components of the current maturities of long-term debt and long-term debt as of
March 29, 1996 are as follows:
Current
Maturities of Long-term
Long-term Debt Debt
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($000's)
Bank Facility - term portion $6,000 $42,000
Bank Facility - revolving credit portion - 5,000
Revised senior note 1,875 13,125
Other 500 350
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Total $8,375 $60,475
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Earnings Per Common and Common Equivalent Share
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Earnings per common and common equivalent share is computed based on the total
of the weighted average number of common shares and, as applicable, the weighted
average number of common equivalent shares outstanding during the period.
Three Months Ended
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March 29, March 31,
1996 1995
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Common shares outstanding 6,558,947 6,372,953
Common share equivalents 7,862 434
The increase in the common shares outstanding represents the restricted stock
issued under the 1993 Stock Incentive Plan.
Stock Options
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At March 29, 1996, options for 510,884 shares of common stock were outstanding.
Stock options for an additional 106,710 shares may be awarded under the
Company's 1987 Stock Option Plan and stock options for an additional 18,000
shares may be awarded under the Company's 1993 Stock Incentive Plan.
Dispositions
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On April 17, 1996, the Company signed an agreement to sell its Tape Products
Division. Additionally, on March 21, 1996, the Company announced that its
subsidiary, Cerion Technologies Inc. had filed a registration statement with
the Securities and Exchange Commission for a proposed initial public offering
of 3,840,000 shares of common stock. Of the total, 1,615,000 shares are being
offered by Cerion and 2,225,000 shares are being offered by Nashua as the
selling stockholder. The Bank Facility and revised senior note agreements
require that the proceeds to Nashua from these transactions be used to repay
the outstanding amounts under these debt agreements.
Other
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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 as amended for the year ended December 31,
1995.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of normal recurring
adjustments and the classification of the Tape Products Division as a
discontinued operation) necessary to present fairly the financial position as
of March 29, 1996, the results of operations for the three month periods ended
March 29, 1996 and March 31, 1995, and cash flows for the three month periods
ended March 29, 1996 and March 31, 1995.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
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Net sales of $101.5 million for the first quarter of 1996 were down 7.4 percent
from the same period in 1995 (restated to reflect the classification of the
Tape Products Division as a discontinued operation). The sales decrease was
caused by lower revenues in the Commercial Products Group, partially offset by
a sales increase in Cerion Technologies. The Company recorded a net loss from
continuing operations of $2.2 million compared with net income of $91,000 in
the first quarter of 1995.
The Commercial Products Group's first quarter sales decreased 23 percent to
$52.7 million compared to the first quarter of 1995. The decrease was
primarily in the Imaging Supplies and Specialty Coated divisions. The Imaging
Supplies Division's sales decreased due to lower toner and paper volumes. The
toner volume decrease was caused primarily by lower order rates from large
distributors. The decrease in paper sales was the result of lower volumes
caused by an increase in the supply of paper in the marketplace. Specialty
Coated sales decreased across all product lines due to lower volumes which were
attributed to increased competition, lack of marketplace presence caused by the
Commercial Products Group's reorganizations and declining demand for certain
product lines. The Commercial Products Group's operating profit decreased from
$1.1 million for the first quarter of 1995 to an operating loss of $2.7 million
primarily due to the lower volumes.
The Photofinishing Group's sales for the first quarter of 1996 increased 1.7
percent to $37 million compared to the 1995 first quarter sales of $36.4
million. The increase was due to the inclusion of the European and Ireland
operations for the full quarter, while 1995 sales are from the purchase date of
January 13, 1995, and higher prices in the U.S. operation. The U.S. operation's
higher average sales price was partially offset by lower volumes. The increased
sales in Europe, Ireland and the U.S. were offset by lower sales in the U.K. and
Canadian operations due to lower volumes. The Photofinishing Group recorded an
operating loss of $1.1 million for the first quarter of 1996 versus an operating
profit of $.7 million for the same period in 1995. The operating loss was
primarily due to lower volumes in the U.K. operation and increased marketing
expenses in the U.S. and European operations. The increase in the U.S. marketing
expenses was due to increased use of prepaid postage and envelope and media
costs. The European marketing expenses increased due to higher deferred
marketing expense amortization resulting from an increased level of promotional
activites during December 1995 versus December 1994.
Cerion Technologies recorded net sales of $11.8 million for the first quarter of
1996 versus $4.9 million for the same period in 1995. The increased sales were
principally the result of higher disk volumes due to market demands and
increased capacity at Cerion. Cerion's operating income for the first quarter of
1996 was $3.2 million versus $.6 million for the same period of 1995.
Research, Selling, Distribution and Administrative expenses for the first
quarter of 1996 increased 13 percent or $3.3 million versus the same period of
1995. Administrative expenses increased $1.4 million with Selling and
Distribution expenses accounting for the remainder of the increase. The
administrative expenses increase was primarily the result of increased spending
by Cerion Technologies in anticipation of becoming a stand-alone entity,
non-recurring legal, professional and environmental expenses recorded in the
first quarter of 1996, and an increase in the performance incentives. Selling
and Distribution expenses increased $1.9 million due to the previously discussed
increase in the Photofinishing Group's U.S. and European marketing expenses.
Research expense for the first quarter 1996 was unchanged when compared to the
first quarter of 1995.
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Restructuring and other unusual charges of $16.2 million recorded in the third
and fourth quarters of 1995 related to the Commercial Products Group's business
unit and functional realignments, product and channel rationalizations,
inventory write-downs related to the remanufactured cartridge operation, cost
reduction initiatives and changes in the Company's executive management during
the year, including severance and other personnel-related costs. Details of the
charges related to continuing operations and the activity recorded during the
first quarter of 1996 are as follows:
Balance Current Current Balance
Dec. 31, Period Period Mar. 29,
(In thousands) 1995 Provision Charges 1996
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Provisions for severance related
to workforce reductions $2,600 $ - $550 $2,050
Provisions related to other
personnel costs 150 - 25 125
Other 2,050 - 200 1,850
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Total $4,800 $ - $775 $4,025
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The provision for workforce reductions recorded in 1995 included amounts for
salary and benefit continuation for approximately 110 employees as part of the
Commercial Products reorganization and product rationalization. At March 29,
1996, approximately 70 employee terminations provided for had occurred, with
the remaining separations scheduled to be completed in 1996. All charges are
principally cash in nature and are expected to be funded from operations.
Management anticipates that all actions will be completed by the end of 1996
and estimates annualized savings in personnel and operating costs of
approximately $5 million.
The estimated annual effective income tax benefit of 43.7 percent for the first
quarter of 1996 is higher than the U.S. statutory rate primarily due to the
unfavorable impact of non-deductible goodwill and state income taxes.
Working capital decreased $5.9 million from December 31, 1995 primarily due to
$7.9 million of long-term debt which became current in the first quarter of
1996 and was reclassified to the current liabilities section of the balance
sheet. During the quarter, inventories were reduced by $6.1 million as the
result of management control initiative implemented during the quarter. The
decrease in working capital caused by the inventory decrease was partially
offset by a $2.7 million increase in cash and a $2.7 million decrease in
accounts payable and accrued liabilities.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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Reference is made to the Company's patent litigation with Ricoh Company, Ltd.
and Ricoh Corporation ("Ricoh") reported in the Company's Annual Report on Form
10-K as amended for the year ended December 31, 1995. The case was tried in the
United States District Court, District of New Hampshire, from April 23, 1996
through May 3, 1996. Trial briefs are due on June 3, 1996 and each party may
request oral argument. Ricoh is seeking injunctive relief and damages. The
Company believes it has substantial defenses but it cannot predict the outcome.
Ricoh alleged that its damages, if Ricoh were successful on the merits, would be
approximately $10 million as of the date of the trial, and Nashua alleged that
even if Ricoh were to prevail, such damages should be in the range of $120,000
to $400,000. Ricoh also is seeking treble damages and attorneys' fees for
wilful infringement, but the Company believes an award for such damages is
unlikely.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits
4.06 Amended and Restated Note Agreement dated April 5, 1996. Exhibit to the
Company's Form 10-Q for the quarterly period ended March 29, 1996.
4.09 Amended and Restated Credit Agreement dated April 5, 1996. Exhibit to
the Company's Form 10-Q for the quarterly period ended March 29, 1996.
(b) Reports on Form 8-K
On April 18, 1996, the Company filed a report on Form 8-K regarding the sale
of the Tape Products Division.
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SIGNATURES
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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
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(Registrant)
Date: May 13, 1996 By: /s/Daniel M. Junius
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Daniel M. Junius
Vice President-Finance,
Chief Financial Officer and Treasurer
(principal financial and duly authorized officer)
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