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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 28, 1997
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) (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 April 22, 1997
Common Stock, par value $1.00 6,623,215 shares (excluding 24,040 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)
March 28, 1997 December 31,
ASSETS: (Unaudited) 1996
--------- ---------
Cash and cash equivalents $ 14,268 $ 20,018
Accounts receivable 21,079 20,112
Inventories
Materials and supplies 4,487 6,676
Work in process 2,168 2,498
Finished goods 8,864 7,494
--------- ---------
15,519 16,668
Other current assets 16,167 15,367
--------- ---------
Total current assets 67,033 72,165
--------- ---------
Plant and equipment 115,369 118,577
Accumulated depreciation (56,938) (58,459)
--------- ---------
58,431 60,118
--------- ---------
Intangible assets 34,096 35,606
Accumulated amortization (10,606) (10,483)
--------- ---------
23,490 25,123
--------- ---------
Investment in unconsolidated affiliate 7,242 7,218
Other assets 12,052 12,065
--------- ---------
Total assets $ 168,248 $ 176,689
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current maturities of long-term debt $ 806 $ 811
Accounts payable 22,834 22,678
Accrued expenses 22,050 24,880
Income taxes payable 1,381 2,623
--------- ---------
Total current liabilities 47,071 50,992
--------- ---------
Long-term debt 1,912 2,044
Other long-term liabilities 20,119 21,736
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Total long-term liabilities 22,031 23,780
--------- ---------
Common stock and additional capital 18,754 18,754
Retained earnings 84,364 85,757
Cumulative translation adjustment (3,215) (1,837)
Treasury stock, at cost (757) (757)
--------- ---------
Total shareholders' equity 99,146 101,917
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Commitments and contingencies
--------- ---------
Total liabilities and shareholders' equity $ 168,248 $ 176,689
========= =========
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) Three Months Ended
------------------
March 28, March 29,
1997 1996
--------- ---------
Net sales $ 75,176 $ 101,497
Cost of products sold 56,611 77,451
--------- ---------
Gross margin 18,565 24,046
Research, selling, distribution and
administrative expenses 21,146 26,610
Equity in net income of Cerion Technologies (25) --
Interest expense 57 1,539
Interest income (211) (122)
--------- ---------
Loss from continuing operations
before income tax benefit (2,402) (3,981)
Income tax benefit (1,009) (1,741)
--------- ---------
Loss from continuing operations (1,393) (2,240)
Income from discontinued operation -- 206
--------- ---------
Net loss (1,393) (2,034)
Retained earnings, beginning of period 85,757 61,563
--------- ---------
Retained earnings, end of period $ 84,364 $ 59,529
========= =========
Earnings (loss) per common and common equivalent share:
Loss from continuing operations $ (.22) $ (.35)
Income from discontinued operation -- .03
--------- ---------
Net loss $ (.22) $ (.32)
========= =========
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)
Three Months Ended
------------------
March 28, March 29,
1997 1996
-------- --------
Cash flows from operating activities of continuing operations:
Net loss $ (1,393) $ (2,034)
Adjustments to reconcile net loss to cash
provided by (used in) continuing operating activities:
Depreciation and amortization 3,171 4,283
Equity in net income of Cerion Technologies (25) --
Income from discontinued operations -- (206)
Net change in working capital and other assets (5,809) 1,667
-------- --------
Cash provided by (used in) continuing operating activities (4,056) 3,710
-------- --------
Cash flows from investing activities of continuing operations:
Investment in plant and equipment (1,596) (2,263)
Retirement of fixed assets 173 --
-------- --------
Cash used in investing activities of continuing operations (1,423) (2,263)
-------- --------
Cash flows from financing activities of continuing operations:
Repayment of borrowings (137) --
-------- --------
Cash used in financing activities of continuing operations (137) --
-------- --------
Cash provided by activities of discontinued operation -- 1,257
Effect of exchange rate changes on cash (134) (30)
-------- --------
Increase (decrease) in cash and cash equivalents (5,750) 2,674
Cash and cash equivalents at beginning of period 20,018 8,390
-------- --------
Cash and cash equivalents at end of period $ 14,268 $ 11,064
======== ========
Interest paid $ 42 $ 1,269
======== ========
Income taxes paid $ 1,663 $ 37
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Indebtedness
During the first quarter of 1997, the Company established a new $18 million
secured credit facility. The new facility replaces the Company's credit facility
that was established in 1996. The new facility has a total of $18 million of
credit available under a revolving credit facility with up to $5 million of
credit available for letters of credit. Interest on amounts outstanding under
the new facility is payable at the prime rate. The new facility requires an
issuance fee of 1.5 percent on letters of credit. The new facility expires on
April 30, 1999.
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. The
average common and common equivalent shares for the three month periods ended
March 28, 1997 and March 29, 1996 were 6,378,000 shares and 6,374,000 shares,
respectively.
In February 1997, the Financial Accounting Standards Board issued "Statement of
Financial Accounting Standards No. 128 Earnings per Share" ("FAS 128"). This
pronouncement will be effective for the Company's year ended December 31, 1997
financial statements. FAS 128 will supersede the pronouncement of the
Accounting Principles Board No. 15. FAS 128 eliminates the calculation of
primary earnings per share and requires the disclosure of Basic Earnings per
Share and Diluted Earnings per Share (formerly referred to as fully diluted
earnings per share), if applicable. As the Company has recorded net losses for
the three month periods ended March 28, 1997 and March 29, 1996, any common
stock equivalents would be antidilutive; therefore, earnings per common and
common equivalent share as presented on the condensed consolidated statements
of operations and retained earnings is equivalent to Basic Earnings per Share
and Diluted Earnings per Share under FAS 128.
Reclassification
Beginning in the fourth quarter of 1996, postage expenses relating to prepaid
photo mailers, which were treated as selling expenses, have been reclassified to
cost of products sold. The cost of products sold and selling expenses for the
first quarter of 1996 have been adjusted by $2.1 million to reflect the change.
Stock Options
At March 28, 1997, options for 782,180 shares of common stock were outstanding.
Stock options for an additional 277,815 shares may be awarded under the
Company's 1996 Stock Incentive Plan.
Commitments and Contingencies
In respect to patent litigation brought by Ricoh Company, Ltd., the Federal
District Court for New Hampshire decided on March 31, 1997 to enjoin the Company
from manufacturing, using or selling its NT-50 and NT-6750 toner cartridges.
Sales of these products in 1996 amounted to less than one percent of the
Company's total sales. The Court left the subject of damages, if any, to
subsequent proceedings. The Company disagrees with the Court's decision to
enjoin the Company and has filed a notice of appeal.
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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, 1996.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial position as of March 28,
1997, the results of operations for the three month periods ended March 28, 1997
and March 29, 1996, and cash flows for the three month periods ended March 28,
1997 and March 29, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales of $75.2 million for the first quarter of 1997 were down 26 percent
from the same period in 1996. The sales decrease was due to the partial
divestiture of Cerion Technologies Inc. (Cerion) and the sale of the mainland
European photo business. Excluding the results of these units and the liquid
toner and OPC drum product lines, which the Company is exiting, the sales
decreased 9 percent from the first quarter of 1996. The majority of the
remaining sales decrease was caused by lower revenues in the Commercial Products
Group. The Company recorded a net loss from continuing operations of $1.4
million compared with a net loss of $2.2 million in the first quarter of 1996.
The net loss improvement was due to the sale of the mainland European photo
business and improved productivity and lower costs in the Commercial Products
Group, partially offset by the impact of the partial divestiture of Cerion.
The Commercial Products Group's first quarter sales decreased 15.7 percent to
$44.4 million compared to the first quarter of 1996. The decrease was primarily
in the Imaging Supplies division and was due to lower toner and cartridge
volumes and lower paper revenue. The toner volume decrease is due to declining
sales through the dealer agent channel and lower order rates from certain larger
distributors. The cartridge sales decline appears to be due to the residual
effect of quality problems experienced in 1996 and declining sales in the dealer
agent channel. The paper revenue decreased due to a decrease in the sales price
caused by an increase in the supply of paper in the marketplace. The Commercial
Products Group's operating profit increased from an operating loss of $2.7
million for the first quarter of 1996 to an operating profit of $.7 million due
to improved productivity and lower manufacturing costs.
The Photo Group's sales for the first quarter of 1997 decreased 16.9 percent to
$30.7 million compared to the first quarter of 1996 primarily due to the sale of
the mainland European photo business in the fourth quarter of 1996. Excluding
the impact of the mainland European photo business sale, sales for the first
quarter of 1997 decreased $.3 million or 1 percent due to lower volumes and
lower selling prices in the Canadian Photo business. Sales in the U.S., U.K. and
Ireland Photo businesses were unchanged in the first quarter of 1997 compared to
1996. The U.S. Photo processing sales volume increased but was offset by a
decrease in merchandise sales. Volume decreases in the U.K. and Ireland
businesses and lower pricing in the U.K. were offset by the impact of a weaker
dollar compared to the first quarter of 1996. The Photo Group recorded an
operating loss of $1.4 million for the first quarter of 1997 versus an operating
loss of $1.1 million for the same period in 1996. The increased operating loss
was primarily due to lower volumes and pricing in the U.K.
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Research, selling, distribution and administrative expenses for the first
quarter of 1997 decreased 20.5 percent or $5.5 million versus the same period of
1996. The sale of the mainland European photo business in the fourth quarter of
1996 accounted for $3.3 million of the decrease and the partial divestiture of
Cerion in the second quarter of 1996 accounted for another $1.3 million of the
decrease. Research expense decreased $.2 million due to the partial divestiture
of Cerion. Selling and distribution expense decreased $2.8 million primarily due
to the sale of the mainland European photo business and the impact of lower
sales in the Commercial Products Group. Administrative expenses decreased $2.5
million primarily due to the sale of the mainland European photo business and
the partial divestiture of Cerion.
Net restructuring and other unusual charges of $7.2 million were recorded in
1996 related to the sale of the mainland European photo business, the
divestiture of the organic photoconductor ("OPC") drum product line and other
business unit and functional realignments in Corporate and the Photo Group.
Details of the charges related to continuing operations and the activity
recorded during the first quarter of 1997 follows.
Balance Current Current Balance
(In thousands) Dec. 31, Period Period Mar. 28,
1996 Provision Charges 1997
------ -------- ------ ------
Provisions for severance related to
workforce reductions $ 790 $ -- $ 190 $ 600
Provisions for assets to be sold or discarded 3,325 -- 115 3,210
Other 2,265 -- 190 2,075
------ -------- ------ ------
Total $6,380 $ -- $ 495 $5,885
====== ======== ====== ======
The provision for assets to be sold or discarded relates primarily to the net
assets of the OPC drum product line and certain assets of the mainland European
photo business. All charges, excluding asset write-downs, are principally cash
in nature and are expected to be funded from operations. Disposal of the assets
is expected to be completed in 1997.
The estimated annual effective income tax benefit of 42 percent for the first
quarter of 1997 is higher than the U.S. statutory rate primarily due to the
unfavorable impact of non-deductible goodwill and state income taxes.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Working capital decreased $1.2 million from December 31, 1996 primarily due to a
$5.7 million decrease in cash caused by a $2.8 million decrease in accrued
liabilities and a $1.2 million decrease in income taxes payable. The decrease in
accrued liabilities was due to the payment of certain 1996 year end accruals.
During the first quarter of 1997, the Company established a new $18 million
secured credit facility. The new facility replaces the Company's credit facility
that was established in 1996. The new facility has a total of $18 million of
credit available under a revolving credit facility with up to $5 million of
credit available for letters of credit. Interest on amounts outstanding under
the new facility is payable at the prime rate. The new facility requires an
issuance fee of 1.5 percent on letters of credit. The new facility expires on
April 30, 1999.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 8, 1996, an individual plaintiff, Joshua Teitelbaum, initiated a
lawsuit against the Company, Cerion, William Blair & Co. ("Blair") and certain
Cerion directors and officers in the Circuit Court of Cook County, Illinois. On
September 4, 1996, a second individual plaintiff, Philippe Olczyk, initiated a
similar lawsuit against the Company, Cerion, Blair and certain Cerion directors
in the Circuit Court of Cook County, Illinois. Both lawsuits purport to be
brought on behalf of a class consisting of all persons (other than the
defendants) who purchased the common stock of Cerion between May 24, 1996 and
July 9, 1996.
These two cases were consolidated before the same judge. On March 24, 1997,
Teitelbaum and Olczyk, joined by a third plaintiff, Robert K. Pickup, filed a
Consolidated Amended Class Action Complaint ("Consolidated Complaint") against
the Company, Cerion, Blair, and certain Cerion directors and officers.
The Consolidated Complaint supersedes the prior complaints and also purports to
be on behalf of a class consisting of all persons (other than the defendants)
who purchased the common stock of Cerion between May 24, 1996 and July 9, 1996.
The Consolidated Complaint alleges that, in connection with the Cerion initial
public offering, the defendants issued certain materially false and misleading
statements and omitted the disclosure of material facts regarding, in
particular, certain significant customer relationships. The Consolidated
Complaint alleges that the defendants violated sections 11, 12(a)(2), and 15 of
the 1933 Securities Act, section 13 of the Illinois Blue Sky Law, and the
Illinois Consumer Fraud and Deceptive Practices Act. The Consolidated Complaint
seeks a declaration that the case may proceed as a class action; damages;
rescission of the sale of Cerion common stock by Cerion and the Company, to the
extent purchasers still hold Cerion shares, or rescissory damages, if they have
sold their Cerion stock; attorneys fees and costs; and other relief. The Company
believes the Consolidated Complaint to be without merit and intends to defend
vigorously against the consolidated cases.
In respect to patent litigation brought by Ricoh Company, Ltd., the Federal
District Court for New Hampshire decided on March 31, 1997 to enjoin the Company
from manufacturing, using or selling its NT-50 and NT-6750 toner cartridges.
Sales of these products in 1996 amounted to less than one percent of the
Company's total sales. The Court left the subject of damages, if any, to
subsequent proceedings. The Company disagrees with the Court's decision to
enjoin the Company and has filed a notice of appeal.
ITEM 5. OTHER INFORMATION
Factors Which May Affect Future Results
This report may contain forward-looking statements as that term is defined in
the Private Securities Litigation Reform Act of 1995. When used in this report,
the words "believe," "expects" and similar expressions are intended to identify
such forward-looking statements. Any such forward-looking statements and the
Company's future results of operations and financial condition are subject to
risks and uncertainties which could cause actual results to differ materially
from those anticipated and from past results. Such risks and uncertainties
include, but are not limited to, 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 return the Company to profitability,
the possibility of a final award of material damages in the patent litigation
brought against the Company by Ricoh Company, Ltd. and the Cerion securities
litigation and other risks detailed in the Company's filings with the
Securities and Exchange Commission.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.01 Revolving Credit Promissory Note dated as of March 28, 1997.
10.02 Loan and Security Agreement dated as of March 28, 1997.
(b) Reports on Form 8-K
On April 3, 1997, the Company filed a Form 8-K concerning a ruling in the
patent litigation suit brought by Ricoh Company, Ltd.
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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: May 9, 1997 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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