1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 June 28, 1996
------------------------------------------------
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
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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 July 31, 1996
- ------------------------------ -----------------------------------------
Common Stock, par value $1.00 6,628,360 shares (excluding 23,895 shares
held in treasury)
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
NASHUA CORPORATION AND SUBSIDIARIES
-----------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands)
June 28, 1996 December 31,
ASSETS: (Unaudited) 1995
- ------- ------------- -----------
Cash and cash equivalents $ 22,978 $ 8,390
Accounts receivable 25,231 29,579
Inventories
Materials and supplies 5,786 10,318
Work in process 2,037 2,835
Finished goods 6,090 8,870
-------- --------
13,913 22,023
Other current assets 22,472 31,785
Net current assets of discontinued operations - 7,415
-------- --------
Total current assets 84,594 99,192
-------- --------
Plant and equipment 122,767 127,658
Accumulated depreciation (61,344) (57,601)
-------- --------
61,423 70,057
Intangible assets 37,513 45,705
Accumulated amortization (9,678) (8,814)
-------- --------
27,835 36,891
Other assets 23,290 18,590
Net non-current assets of discontinued operations - 6,642
-------- --------
Total assets $197,142 $231,372
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
- -------------------------------------
Current maturities of long-term debt $ 2,004 $ 500
Accounts payable 28,339 26,858
Accrued expenses 30,979 33,385
Income taxes payable 12,616 6,662
-------- --------
Total current liabilities 73,938 67,405
Long-term debt 4,739 68,350
Other long-term liabilities 20,099 20,742
Common stock and additional capital 18,693 18,681
Retained earnings 85,682 61,563
Cumulative translation adjustment (5,254) (4,618)
Treasury stock, at cost (755) (751)
Commitments and contingencies
-------- --------
Total liabilities and shareholders' equity $197,142 $231,372
======== ========
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 AND RETAINED EARNINGS
---------------------------------------------------------------------
(UNAUDITED)
-----------
(In thousands, except per share data)
For three months ended For six months ended
------------------------- ----------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
--------- --------- --------- --------
Net sales $103,601 $122,173 $205,098 $231,743
Cost of products sold 72,964 88,909 148,261 171,634
Research, selling, distribution and
administrative expenses 29,992 29,426 58,756 54,890
Unusual charge 7,000 - 7,000 -
Equity in net income of Cerion Technologies (385) - (385) -
Gain on disposition of Cerion Technologies stock (31,962) - (31,962) -
Gain on Cerion Technologies public stock offering (7,353) - (7,353) -
Interest expense 970 1,453 2,509 2,904
Interest income (109) (175) (231) (396)
-------- -------- -------- --------
Income from continuing operations before income taxes 32,484 2,560 28,503 2,711
Income taxes 13,826 1,064 12,085 1,124
-------- -------- -------- --------
Income from continuing operations 18,658 1,496 16,418 1,587
Income from discontinued operation, net of taxes 318 367 524 346
Gain on disposal of discontinued operation, net of taxes 8,434 - 8,434 -
-------- -------- -------- --------
Income before extraordinary loss 27,410 1,863 25,376 1,933
Extraordinary loss on extinguishment of debt, net of tax benefit (1,257) - (1,257) -
-------- -------- -------- --------
Net income 26,153 1,863 24,119 1,933
Retained earnings, beginning of period 59,529 78,662 61,563 79,744
Dividends - (1,151) - (2,303)
-------- -------- -------- --------
Retained earnings, end of period $ 85,682 $ 79,374 $ 85,682 $ 79,374
======== ======== ======== ========
Earnings per common and common equivalent share:
Income from continuing operations $ 2.91 $ .23 $ 2.57 $ .25
-------- -------- -------- --------
Income from discontinued operation:
Income from discontinued operation .05 .06 .08 .05
Gain on disposal of discontinued operation 1.32 - 1.32 -
-------- -------- -------- --------
1.37 .06 1.40 .05
-------- -------- -------- --------
Income before extraordinary loss 4.28 .29 3.97 .30
Extraordinary loss on extinguishment of debt (.20) - (.20) -
-------- -------- -------- --------
Net income $ 4.08 $ .29 $ 3.77 $ .30
======== ======== ======== ========
Dividends per common share $ - $ .18 $ - $ .36
======== ======== ======== ========
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
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(UNAUDITED)
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(In thousands)
Six Months Ended
-----------------------
June 28, June 30,
1996 1995
-------- --------
Cash flows from operating activities of continuing operations:
Net income $ 24,119 $ 1,933
Adjustments to reconcile net income to cash
provided by (used in) continuing operating activities:
Depreciation and amortization 9,130 8,241
Income from discontinued operations (524) (346)
Extraordinary loss on extinguishment of debt 1,257 -
Gain on disposal of discontinued operations (8,434) -
Equity in net income of Cerion Technologies (222) -
Gain on disposition of Cerion Technologies stock (18,410) -
Gain on Cerion Technologies public stock offering (4,235) -
Unusual charge 4,032 -
Net change in working capital and other assets 4,875 1,367
-------- --------
Cash provided by continuing operating activities 11,588 11,195
-------- --------
Cash flows from investing activities of continuing operations:
Investment in plant and equipment (6,723) (5,930)
Acquisition of business - (25,861)
Proceeds from repayment of Cerion Technologies note 11,142 -
Proceeds from sale of Cerion Technologies stock, net 33,080 -
-------- --------
Cash used in investing activities of continuing operations 37,499 (31,791)
-------- --------
Cash flows from financing activities of continuing operations:
Proceeds from borrowings 877 32,800
Repayment of borrowings (62,984) (6,266)
Dividends paid - (2,294)
Proceeds and tax benefits from shares
issued under stock option plans 12 5
Purchase and reissuance of treasury stock (4) 36
Extinguishment of debt (952) -
-------- --------
Cash provided by (applied to)financing activities of continuing operations (63,051) 24,281
-------- --------
Proceeds from the sale of discontinued operation 28,000 -
Cash provided by (applied to) activities of discontinued operations 554 (3,492)
Effect of exchange rate changes on cash (2) 80
-------- --------
Increase in cash and cash equivalents 14,588 273
Cash and cash equivalents at beginning of period 8,390 10,219
-------- --------
Cash and cash equivalents at end of period $ 22,978 $ 10,492
======== ========
Interest paid $ 2,405 $ 4,517
======== ========
Income taxes paid $ 85 $ 6,551
======== ========
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
- ------------
According to the provisions of the Company's debt agreements, a portion of the
proceeds from the Tape Products Division sale, the Cerion Technologies Inc.
(Cerion) stock sale and the notes receivable from Cerion were to be used to
repay a portion of the Company's debt. As a result, during the second quarter,
the Company repaid $63 million of debt. The revised senior notes require
prepayment penalties if any debt is prepaid before the scheduled repayment
dates. Therefore, the Company incurred a $.9 million prepayment penalty during
the second quarter. The prepayment penalty, along with other expenses related
to the debt extinguishment, were charged to operations as an extraordinary loss
item during the second quarter. The prepayment penalty is scheduled to be paid
on December 31, 1997 and bears interest at a rate of 11.85 percent.
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, as applicable, the weighted
average number of common equivalent shares outstanding during the period.
Three Months Ended Six Months Ended
------------------------ ----------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
--------- --------- --------- ---------
Common shares outstanding 6,606,218 6,373,815 6,605,528 6,373,631
Common share equivalents 35,997 4 22,223 250
The increase in the common shares outstanding represents the restricted stock
issued under the 1993 and 1996 Stock Incentive Plans.
Stock Options
- -------------
At June 28, 1996, options for 515,074 shares of common stock were outstanding.
Stock options for an additional 605,815 shares may be awarded under the
Company's 1996 Stock Incentive Plan.
Unusual Charge
- --------------
In the second quarter the Company recorded a $7 million pretax charge associated
with the writedown of goodwill in its Mainland European photofinishing operation
which was acquired in 1995. Increased competition in the market since the
acquisition has resulted in performance below original expectations,
necessitating a reduction in the carrying value of the business. The Company is
currently evaluating alternatives to enhance performance of the operation which
could result in additional charges of up to $3 million in the second half of
1996.
Dispositions
- ------------
On May 20, 1996 the Company completed the sale of its Tape Products Division.
The Company received $28 million for the net assets of the business resulting in
an aftertax gain of $8.4 million.
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On May 24, 1996, the Company and Cerion completed the initial public offering of
common stock of Cerion at a price of $13.00 per share. A total of 4,416,000
shares were sold, of which 1,615,000 were sold by Cerion and 2,801,000 were sold
by the Company. The Company received net proceeds of $33.9 million and recorded
a $32 million pretax gain on its sale of Cerion shares and a $7.3 million pretax
gain from the Company's interest in the shares sold by Cerion. As a result of
the sale, the Company's ownership of Cerion was reduced to 37.1 percent, and
accordingly, the Company now uses the equity method of accounting for its
investment in Cerion common stock.
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, 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 of
the Company as of June 28, 1996, the results of operations for the three and six
month periods ended June 28, 1996 and June 30, 1995, and cash flows for the six
month periods ended June 28, 1996 and June 30, 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Net sales of $103.6 million for the second quarter of 1996 and $205.1 million
for the first six months of 1996 were down 15.2 percent and 11.5 percent,
respectively from the same periods in 1995. The sales decreases were caused by
lower revenues in the Commercial Products and Photofinishing Groups, partially
offset by sales increases in Cerion. The Company recorded income from
continuing operations in the second quarter of 1996 of $18.7 million compared
with $1.5 million in the second quarter of 1995 and $16.4 million for the first
six months of 1996 compared to $1.6 million for the same period in 1995. The
second quarter and first six months of 1996 income from continuing operations
included a $32 million pretax gain on the disposition of the Company's stock in
Cerion, which was completed in May, a $7.3 million pretax gain from the
interest in the shares sold by Cerion and a $7 million pretax charge in the
Company's Mainland European photofinishing operation. The Company also recorded
an $8.4 million aftertax gain in the second quarter on the sale of its Tape
Products Division which was reported as a discontinued operation, and an
extraordinary aftertax charge of $1.3 million associated with extinguishment of
debt.
The Commercial Products Group's second quarter sales decreased 22.5 percent to
$53.1 million compared to the second quarter of 1995 and decreased 22.7 percent
to $105.8 million for the first six months of 1996 compared to the same period
in 1995. The decreases were primarily in the Imaging Supplies and Specialty
Coated divisions. The Imaging Supplies Division's sales decreased due to lower
toner and copier paper volumes. The toner volume decrease was caused primarily
by lower order rates from larger distributors. The decrease in paper sales was
the result of an increase in the supply of paper in the marketplace. The
Specialty Coated sales decreases were across several product
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lines due to lower volumes which were attributed to increased competition and
declining demand for certain product lines. The Commercial Products Group's
operating profit decreased from $1.4 million for the second quarter of 1995 to
an operating loss of $.1 million for the second quarter of 1996 and decreased
from an operating profit of $2.5 million for the first six months of 1995 to an
operating loss of $2.8 million for the first six months of 1996, primarily due
to the lower volumes.
The Photofinishing Group's sales for the second quarter of 1996 decreased 10.4
percent to $43 million compared to the 1995 second quarter sales of $48 million.
Sales for the first six months of 1996 were $80 million, down 5.2 percent
compared to the same period in 1995. The sales for the first six months of 1995
do not include a full six months of sales for the Northern Ireland and Mainland
European operations, as they were acquired by the Company on January 13, 1995.
The sales decreases were due primarily to lower volumes in the UK, Mainland
European and US operations partially offset by an increase in the US operation's
average selling price. The Photofinishing Group recorded an operating loss of
$6.4 million for the second quarter of 1996 versus an operating profit of $2.7
million for the second quarter of 1995 and a $7.5 million operating loss for the
first six months of 1996, compared to an operating profit of $3.4 million for
the same period in 1995. The 1996 operating loss includes a $7 million charge
for the writedown of goodwill in the Mainland European operation. Excluding the
goodwill writedown, the Photofinishing Group's 1996 second quarter and first six
months operating income declined $2.1 million and $3.9 million, respectively,
from the same periods in 1995. The declines were due primarily to the lower
volumes in the UK and Mainland European operations. The US operation's increase
in average selling price was offset by an increase in expenses related to the
increased use of business reply mail for customer orders.
As previously discussed, the Company's interest in Cerion was reduced from 100
percent to 37.1 percent as a result of the sale of Cerion shares to the public
on May 24, 1996. Accordingly, the Company no longer consolidates the results of
Cerion and has accounted for its equity interest since that date. The Company
recorded gains of $32 million on its disposition of Cerion stock and $7.3
million from its interest in the shares sold by Cerion in the second quarter of
1996.
Net sales recorded by the Company in the second quarter of 1996 (through May
23, 1996) related to Cerion were $7.5 million versus $5.7 million for the
second quarter of 1995. Net sales recorded by the Company in the six months
ended June 28, 1996 (through May 23, 1996) related to Cerion were $19.3 million
compared to $10.5 million for the six months ended June 30, 1995. Cerion's
results of operations of $2.4 million and $5.6 million through May 23, 1996 are
included in income from continuing operations for the second quarter and first
six months of 1996, respectively. Cerion's increased sales and operating income
in both 1996 periods as compared to 1995 were the result of higher disk volumes
due to market demands and increased capacity partially offset by higher
administrative expenses in anticipation of becoming a stand-alone public
company.
Research, selling, distribution and administrative expenses for the second
quarter of 1996 increased 2 percent, or $.6 million compared to the same period
in 1995. An increase in administrative expenses of $1.7 million was partially
offset by a $1.1 million decrease in selling and distribution expenses. The
administrative expense increase was primarily the result of higher costs for
Cerion in anticipation of becoming a stand-alone public company, non-recurring
legal expenses recorded in the second quarter of 1996 and an increase in
performance incentives. The selling and distribution expense decrease was due
to the lower sales volumes and the restructuring actions taken during the
second half of 1995 and the first quarter of 1996. Research expense for the
second quarter 1996 was unchanged when compared to the second quarter of 1995.
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Restructuring and other unusual charges of $16.2 million were 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
second quarter of 1996 are as follows:
Balance Current Current Balance
Mar. 29, Period Period June 28,
(In thousands) 1996 Provision Charges 1996
------- --------- ------- -------
Provisions for severance related to
workforce reductions $2,050 $ - $ 630 $1,420
Provisions related to other personnel costs 125 - 125 -
Other 1,850 - 250 1,600
------ --------- ------ -------
Total $4,025 $ - $1,005 $3,020
====== ========= ====== ======
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 June 28,
1996, approximately 86 of the 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 rate of 42.4 percent for the first six
months 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 $21.1 million from December 31, 1995 primarily due to
the Tape Products Division sale, the deconsolidation of Cerion due to the
public stock offering, a $7.8 million reduction in inventory, a $9.3 million
reduction in other assets and a $6.0 million increase in income taxes payable,
partially offset by a $14.6 million increase in cash. The decrease in other
current assets was due to a reduction in tax assets used to offset income tax
liabilities. The inventory reductions were the result of management control
initiatives implemented during the year. A majority of the working capital
generated from the sale of the Tape Products Division and Cerion stock, and the
proceeds from the Cerion notes was used to repay debt.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
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 in the second quarter of
1996. 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 that such damages should be in the range of $120,000 to $400,000.
Ricoh also is seeking treble damages and attorneys' fees for willful
infringement, but the Company believes an award for such damages is unlikely.
The Company is awaiting the Court's decision.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
For matters submitted to a vote of security holders, see the Company's proxy
statement dated May 15, 1996 issued in connection with the Annual Meeting of
Stockholders held on June 14, 1996, which is incorporated herein by reference.
At such Annual Meeting, the stockholders acted as follows:
Proposal 1:
----------
To elect a Board of Directors for the ensuing year.
Number of Votes
Nominees For Withheld
-------- --- --------
Sheldon A Buckler 5,312,006 322,961
Gerald G. Garbacz 5,336,983 297,984
Charles S. Hoppin 5,307,549 327,418
John M. Kucharski 5,307,878 327,089
David C. Miller, Jr. 5,354,549 280,418
James F. Orr III 5,307,542 327,425
The above-named individuals were elected Directors of the corporation.
Proposal 2:
----------
To authorize the Board of Directors to mortgage or pledge all or
substantially all of the corporation's assets upon such terms and
conditions as the Board of Directors deems expedient. The vote required
the affirmative vote of holders of two-thirds of the outstanding shares
of common stock.
Number of Votes
For Against Abstain No Vote
--- ------- ------- -------
3,861,093 976,953 206,508 590,413
The proposal was not approved because the requirement of the
affirmative vote of the holders of two-thirds of the outstanding shares
of common stock was not obtained.
Proposal 3:
----------
To approve the 1996 Stock Incentive Plan.
Number of Votes
For Against Abstain No Vote
--- ------- ------- -------
3,514,894 1,442,417 87,243 590,413
The proposal was adopted.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
10.13 Employment Agreement dated April 28, 1989 between the Company and
Paul Buffum. Exhibit to the Company's Form 10-Q for the period
ended June 28, 1996.
10.14 Employment Agreement dated May 3, 1996 between the Company and
Michael D. Jeans. Exhibit to the Company's Form 10-Q for the
period ended June 28, 1996.
(b) Reports on Form 8-K
On May 15, 1996, the Company filed a report on Form 8-KA regarding the sale
of the Tape Products Division and the initial public offering of Cerion
Technologies common stock.
On June 4, 1996, the Company filed a report on Form 8-K regarding the sale
of the Tape Products Division and the initial public offering of Cerion
Technologies common stock.
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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
---------------------------------
(Registrant)
Date: August 8, 1996 By: /s/ Daniel M. Junius
---------------------- ---------------------------------
Daniel M. Junius
Vice President-Finance,
Chief Financial Officer and Treasurer
(principal financial and duly authorized officer)
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