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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
OCTOBER 1, 1999
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.)
44 FRANKLIN STREET 03064
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 [ ]
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 3, 1999, THE COMPANY HAD 5,891,949 SHARES OF COMMON STOCK,
EXCLUDING 1,023,818 SHARES IN TREASURY, PAR VALUE $1 PER SHARE, OUTSTANDING.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NASHUA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
October 1, 1999 December 31,
ASSETS: (Unaudited) 1998
- ------- --------------- ------------
Cash and cash equivalents $ 20,800 $ 31,965
Restricted cash 5,000 5,000
Accounts receivable 21,896 18,232
Inventories
Materials and supplies 6,156 6,326
Work in process 3,513 2,503
Finished goods 6,191 5,847
-------- --------
15,860 14,676
Other current assets 16,592 13,474
-------- --------
Total current assets 80,148 83,347
-------- --------
Plant and equipment 75,590 73,057
Accumulated depreciation (36,773) (33,727)
-------- --------
38,817 39,330
-------- --------
Intangible assets 1,182 1,991
Accumulated amortization (800) (1,484)
-------- --------
382 507
-------- --------
Investment in unconsolidated affiliates 226 --
Other assets 9,621 10,155
Net non-current assets of discontinued operations 756 756
-------- --------
Total assets $129,950 $134,095
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
- -------------------------------------
Current maturities of long-term debt $ 511 $ 511
Accounts payable 11,009 9,028
Accrued expenses 25,253 27,934
-------- --------
Total current liabilities 36,773 37,473
-------- --------
Long-term debt 638 1,064
Other long-term liabilities 19,905 20,331
-------- --------
Total long-term liabilities 20,543 21,395
-------- --------
Common stock and additional capital 22,086 21,995
Retained earnings 65,455 64,071
Treasury stock, at cost (14,907) (10,839)
-------- --------
Total shareholders' equity 72,634 75,227
-------- --------
Commitments and contingencies -- --
-------- --------
Total liabilities and shareholders' equity $129,950 $134,095
======== ========
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 Nine Months Ended
------------------------ -------------------------
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
1999 1998 1999 1998
------- -------- -------- --------
Net sales $43,668 $ 42,420 $128,890 $126,987
Cost of products sold 33,330 31,528 97,843 97,145
------- -------- -------- --------
Gross margin 10,338 10,892 31,047 29,842
Research, selling, distribution and
administrative expenses 9,169 9,785 28,958 30,729
Loss from equity investment 53 -- 53 --
Restructuring and unusual charges 138 15,000 138 15,000
Interest expense 197 24 614 246
Interest income (314) (524) (1,041) (1,201)
------- -------- -------- --------
Income (loss) from continuing operations before income
taxes (benefit) 1,095 (13,393) 2,325 (14,932)
Income taxes (benefit) 443 (5,326) 941 (5,899)
------- -------- -------- --------
Income (loss) from continuing operations 652 (8,067) 1,384 (9,033)
Loss from discontinued operation, net of taxes -- (2,261) -- (4,347)
Gain on disposal of discontinued operation, net of taxes -- -- -- 1,052
------- -------- -------- --------
Net income (loss) 652 (10,328) 1,384 (12,328)
Retained earnings, beginning of period 64,803 74,935 64,071 76,935
------- -------- -------- --------
Retained earnings, end of period 65,455 64,607 65,455 64,607
======= ======== ======== ========
Earnings per share:
Income (loss) from continuing operations $ 0.12 $ (1.27) $ 0.24 $ (1.41)
Loss from discontinued operation -- (0.35) -- (0.68)
Gain on disposal of discontinued operation -- -- -- .16
------- -------- -------- --------
Net income (loss) per common share $ 0.12 $ (1.62) $ 0.24 $ (1.93)
======= ======== ======== ========
Average common shares 5,633 6,374 5,744 6,404
======= ======== ======== ========
Income (loss) per common share from
continuing operations assuming dilution $ 0.12 $ (1.27) $ 0.24 $ (1.41)
Loss per common share from discontinued
operations assuming dilution -- (0.35) -- (0.68)
Gain on sale of discontinued operation
per common share assuming dilution -- -- -- 0.16
------- -------- -------- --------
Net income (loss) per common share assuming dilution $ 0.12 $ (1.62) $ 0.24 $ (1.93)
======= ======== ======== ========
Average common and potential common shares 5,635 6,374 5,754 6,404
======= ======== ======== ========
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
-------------------------
Oct. 1, Oct. 2,
1999 1998
-------- --------
Cash flows from operating activities of continuing operations:
Net income (loss) $ 1,384 $(12,328)
Adjustments to reconcile net income (loss) to cash provided by
(used in) continuing operating activities:
Depreciation and amortization 4,414 4,681
Gain on sale of discontinued operation -- (1,052)
Loss from discontinued operations -- 4,347
Loss from equity investment 53 --
Restructuring and unusual charges 138 --
One-time charge related to damages awarded in Ricoh Litigation -- 15,000
Net change in working capital and other assets (5,522) (14,766)
-------- --------
Cash used in continuing operating activities 467 (4,118)
-------- --------
Cash flows from investing activities of continuing operations:
Investment in plant and equipment (4,075) (4,418)
-------- --------
Cash used in investing activities of continuing operations (4,075) (4,418)
-------- --------
Cash flows from financing activities of continuing operations:
Repayment of borrowings (426) (2,340)
Proceeds and tax benefits from shares issued under stock
option plans 91 2,135
Purchase of treasury stock (4,068) (5,283)
-------- --------
Cash used in financing activities of continuing operations (4,403) (5,488)
-------- --------
Proceeds from the sale of discontinued operation -- 49,858
Cash used in activities of discontinued operation (3,154) (1,021)
Effect of exchange rate changes on cash -- 4
-------- --------
Increase (decrease) in cash and cash equivalents (11,165) 34,817
Cash and cash equivalents at beginning of period 31,965 3,736
-------- --------
Cash and cash equivalents at end of period $ 20,800 $ 38,553
======== ========
Interest paid $ 61 $ 189
======== ========
Income taxes paid $ 5,050 $ 6,441
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INDEBTEDNESS
On April 22, 1999, the Company entered into a new secured financing agreement
with Fleet Bank - NH, increasing the Company's revolving line of credit to $15
million from $8 million. This agreement with Fleet - NH replaced the Company's
credit facility, which was scheduled to expire April 30, 1999. The agreement
contains certain financial covenants with respect to consolidated tangible net
worth, capital expenditures and earnings before interest, income taxes,
depreciation and amortization (EBITDA). Borrowings under this facility are
collateralized by a security interest in the Company's accounts receivables and
inventory. Interest on amounts outstanding under the secured line of credit is
payable at the prime rate or at the Company's election, at LIBOR plus a certain
fixed percentage. The maturity of this financing agreement is April 22, 2001.
The agreement does not allow the payment of dividends and restricts, among other
things, the incurrence of additional debt greater than determined amounts,
guarantees or sale of certain assets without prior consent of the lenders.
RECLASSIFICATION
Certain amounts from the prior year have been reclassified to conform to the
current year presentation.
RESTRUCTURING AND UNUSUAL CHARGES
In the third quarter, the Company recorded a $.5 million pretax charge
associated with the Company's decision to cease manufacturing fax papers in the
Specialty Coated and Label Products Segment, which was partially offset by a
gain of $.4 million resulting from the completion of the partial sale of the
Company's Microsharp imaging technology. The Company decided to cease
manufacturing fax paper due to the loss of two significant fax paper customers
attributable to the acquisition of these customers by larger firms and a
consolidation of their fax purchases.
STOCK OPTIONS
At October 1, 1999, options for 496,835 shares of common stock were outstanding.
Stock options for an additional 72,753 shares may be awarded under the Company's
1996 Stock Incentive Plan. In addition, the Company's stockholders approved the
1999 Shareholder Value Plan at their annual meeting held on April 30, 1999.
Stock awards may be made under the 1999 Shareholder Value Plan for up to 600,000
shares of common stock (subject to adjustments for stock splits, stock dividends
or other changes in the Company's capitalization). No options or shares have
been awarded under this plan.
SHAREHOLDER'S EQUITY
On June 24, 1998, the Company's Board of Directors authorized the repurchase
from time to time in the open market of up to one million shares of its common
stock, subject to financial and market conditions, Securities and Exchange
Commission rules and regulations and financial covenant limitations with the
Company's lender. During the first half of 1999, Nashua repurchased 348,060
shares of the Company's
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common stock in open market transactions for $4.0 million. The total shares
repurchased under this program totaled 999,734.
SEGMENT AND RELATED INFORMATION
In the fourth quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information." The tables below present information about reported
segments.
For the Quarter:
- ----------------
(In thousands) Net Sales From Pretax Income (Loss) From
Continuing Operations Continuing Operations
------------------------------ -------------------------------
Three Months Three Months Three Months Three Months
Ended Ended Ended Ended
Oct. 1, 1999 Oct. 2, 1998 Oct. 1, 1999 Oct. 2, 1998
------------ ------------ ------------ ------------
Imaging Supplies $ 15,136 $ 15,032 $ 139 $ 7
Specialty Coated and Label Products 28,507 27,357 2,701 2,677
Reconciling items:
Other 25 31 1 (112)
Unallocated corporate expenses,
Including interest (1,608) (965)
Restructuring and unusual charges (138) (15,000)
-------- -------- ------ --------
Consolidated $ 43,668 $ 42,420 $1,095 $(13,393)
======== ======== ====== ========
For the Nine Months:
- --------------------
(In thousands) Net Sales From Pretax Income (Loss) From
Continuing Operations Continuing Operations
------------------------------ -------------------------------
Nine Months Nine Months Nine Months Nine Months
Ended Ended Ended Ended
Oct. 1, 1999 Oct. 2, 1998 Oct. 1, 1999 Oct. 2, 1998
------------ ------------ ------------ ------------
Imaging Supplies $ 43,650 $ 45,573 $ (407) $ (1,428)
Specialty Coated and Label Products 85,094 81,352 7,411 5,907
Reconciling items:
Other 146 62 (122) (565)
Unallocated corporate expenses,
Including interest (4,419) (3,846)
Restructuring and unusual charges (138) (15,000)
-------- -------- ------ --------
Consolidated $128,890 $126,987 $2,325 $(14,932)
======== ======== ====== ========
Segment pretax income (loss) from continuing operations for the first two
quarters of 1999, included intercompany charges related to certain corporate
expenses that are not included in the primary performance measure used by
management in making decisions about allocating resources to each segment and in
assessing its respective performance. In accordance with Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information," the Company has adjusted its results for the nine months
ended October 1, 1999. The net impact to pretax income (loss) from continuing
operations of the Imaging Supplies and Specialty Coated and Label Products
Segments is $287,000 and $266,000, respectively.
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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, 1998.
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 October 1,
1999, the results of operations for the three and nine month periods ended
October 1, 1999 and October 2, 1998, and cash flows for the nine month periods
ended October 1, 1999 and October 2, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS: FOR THE QUARTER:
Quarterly sales increased to $43.7 million, a 2.9 percent increase over third
quarter 1998 sales of $42.4 million due to improvements in both the Imaging
Supplies and Specialty Coated and Label Products Segments. Gross margin
decreased to 23.7 percent for the quarter compared to 25.7 percent for the third
quarter of 1998, primarily due to volume shortfalls impacting manufacturing
efficiencies in the laser printer cartridge product line in the Imaging Supplies
Segment. Research, selling, distribution and administrative expenses, as a
percent of sales, improved to 21.0 percent from 23.0 percent for the third
quarter of 1998, primarily due to the restructuring of selling channels in the
Imaging Supplies Segment. Net interest income decreased to $.1 million for the
third quarter compared to $.5 million a year ago, primarily a result of the
decreased cash balance due to the share repurchase program discussed further in
the Liquidity, Capital Resources and Financial Condition section of this report
and the accrual of interest expense related to the Ricoh litigation as described
in the Company's 10-K filing. Income before taxes for continuing operations, as
a percent of sales, was 2.5 percent compared to a loss of 31.6 percent last
year.
Net income in the third quarter of 1999 increased to $.7 million, $.12 per
share, compared to a net loss of $10.3 million, $1.62 per share, in the third
quarter of 1998 due to improvements in both the Imaging Supplies and Specialty
Coated and Label Products Segments. Net income in the third quarter of 1999
reflected an unusual charge of $.1 million due to the Company's decision to
discontinue manufacture of fax papers in the Specialty Coated and Label Products
Segment, which more than offset the gain resulting from the completion of the
sale of a portion of the Company's Microsharp imaging technology. Net income in
the third quarter of 1998 reflected an unusual charge of $15.0 million for
damages awarded by the U.S. District Court, District of New Hampshire in a
patent infringement lawsuit brought against the Company by Ricoh Corporation,
Ricoh Electronics, Inc. and Ricoh Company, Ltd. Net income, as a percent of
sales, was 1.5 percent for the third quarter of 1999, as compared to a net loss
of 24.4 percent for the same period last year. Net income from continuing
operations in the third quarter of 1999 totaled $.7 million, $.12 per share,
compared to a net loss from continuing operations of $8.1 million, $1.27 per
share, in the third quarter of 1998.
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RESULTS OF OPERATIONS BY REPORTABLE OPERATING SEGMENT: FOR THE QUARTER:
IMAGING SUPPLIES SEGMENT:
The Imaging Supplies Segment reported a slight increase in sales for the third
quarter of 1999 as compared to the same period last year. The sales improvement
resulted from higher volume in the paper product lines, which more than offset
declines in both the toner and developer and the laser printer cartridge product
lines. Paper sales increased 18.1 percent compared to the third quarter of last
year as a result of higher volume driven by the market's reaction to an
anticipated rise in paper prices. Toner and developer sales declined 3.9 percent
from the same period last year as a result of volume shortfalls of older
products in the value added, dealer-agent and international channels partially
offset by higher volume from new product initiatives in the private label
channel. Laser printer cartridge sales declined 6.8 percent in the third quarter
of 1999 compared to the third quarter of 1998 due to volume shortfalls in the
dealer-agent and private label channels mostly due to the loss of two
significant customers, which more than offset volume improvements in the
international channel.
The Segment's pretax profit in the third quarter of 1999 improved $.1 million
compared to the third quarter of 1998. The pretax improvement over the third
quarter of 1998 was primarily a result of reduced selling and administrative
expenses in the toner and developer product line related to the restructuring of
the dealer-agent selling channel earlier this year and lower distribution
expense mostly due to lower volume in the toner and developer and laser printer
cartridge product lines.
SPECIALTY COATED AND LABEL PRODUCTS SEGMENT:
The Specialty Coated and Label Products Segment reported a 4.2 percent increase
in sales for the third quarter of 1999 compared to the same period last year due
to higher volume in the custom EDP and thermal paper product lines. The custom
EDP converted label sales improvement over the third quarter 1998 is primarily
due to more favorable average selling prices. Thermal paper sales, which are
used primarily for conversion into supermarket labels and ticket and tag
applications, improved over the third quarter 1998 due to customer retention,
new customer initiatives and new product offerings. The Specialty Coated
Products Division of this segment experienced sales declines across three of
five product lines including fax paper, dry gum and heat seal due to lower
volumes which were attributed to declining demand in mature markets. Fax paper
sales have been in decline since last year after two significant customers,
Quill and Viking, were acquired by Staples and Office Depot, respectively, and
decided to consolidate their purchases of fax paper from other suppliers. In
turn, Nashua made the decision to exit the fax paper manufacturing business. Dry
gum and heat seal products sales declined in the third quarter from the same
period last year due to lower volume in a highly competitive, price sensitive
market.
The Segment's pretax income increased slightly compared to the third quarter of
1998, primarily the result of higher volume, lower raw material costs, improved
manufacturing efficiency and a favorable mix of products sold.
RESULTS OF OPERATIONS: FOR NINE MONTHS YEAR-TO-DATE:
Sales for the first nine months of 1999 were up 1.5 percent to $128.9 million
compared to $127.0 million in the corresponding period of 1998 due to higher
sales in the Specialty Coated and Label Products Segment offset by a decline in
sales in the Imaging Supplies Segment. Gross Margin improved to 24.1 percent for
the first nine months from 23.5 percent for the same period last year. The
increase was due
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to manufacturing cost reduction programs, improved manufacturing efficiency,
reduced raw material prices, improved product mix and income related to the
Company's pension plans. Research, selling, distribution and administrative
expenses, as a percent of sales, improved to 22.5 percent from 24.2 percent for
the first nine months of 1998, primarily due to the reduction in commission
expenses attributable to restructuring the dealer-agent channel earlier this
year and income related to the Company's pension plans. Net interest income
decreased to $.4 million for the first nine months compared to $1.0 million a
year ago, primarily a result of the decreased cash balance due to the share
repurchase program completed in the second quarter this year, as well as higher
interest expense accrued in the first nine months of 1999 related to the Ricoh
litigation. Income before taxes for continuing operations, as a percent of
sales, was 1.8 percent compared to a loss of 7.1 percent a year ago.
Net income in the first nine months of 1999 was $1.4 million, $.24 per share,
compared to a net loss of $12.3 million, $1.93 per share, in the same period in
1998. Net income, as a percent of sales, was 1.1 percent for the first nine
months of 1999 and a net loss of 9.7 percent for the same period last year. Net
income from continuing operations in the first nine months of 1999 totaled $1.4
million, $.24 per share, compared to a net loss from continuing operations of
$9.0 million, $1.41 per share, in the first nine months of 1998. Net income in
the first nine months of 1999 included an unusual charge of $.1 million due to
the Company's decision to discontinue manufacture of fax papers in the Specialty
Coated and Label Products Segment which more than offset the gain resulting from
the completion of the sale of a portion of the Company's Microsharp imaging
technology. Net income in the first nine months of 1998 included an unusual
charge of $15.0 million for damages awarded by the U.S. District Court, District
of New Hampshire in a patent infringement lawsuit brought against the Company by
Ricoh Corporation.
RESULTS OF OPERATIONS BY REPORTABLE OPERATING SEGMENT: FOR NINE MONTHS YEAR-TO
DATE:
IMAGING SUPPLIES SEGMENT:
The Imaging Supplies Segment reported a 4.2 percent decrease in sales for the
first nine months of 1999 compared to the same period last year. The sales
decline was a result of a reduction in volume in the toner and developer and
laser printer cartridge product lines, as well as a reduction in selling price
in the toner and developer product line which more than offset volume
improvements in the paper product line. The toner and developer decline was due
to lower volume from international customers. The laser printer cartridge sales
decline was primarily due to the volume decline due to the loss of two
significant customers in the dealer-agent channel.
The Segment's pretax loss in the first nine months of 1999 improved 72 percent
over the same period in 1998. The pretax improvement over the first nine months
of 1998 resulted primarily from lower selling and administrative expenses
related to the restructuring of the dealer-agent selling channel in the toner
and developer product line which was completed earlier this year and income
related to the Company's pension plans.
SPECIALTY COATED AND LABEL PRODUCTS SEGMENT:
The Specialty Coated and Label Products Segment reported a 4.6 percent increase
in sales for the first nine months of 1999 compared to the same period last
year. The increased sales were a result of higher volume in the thermal paper
and converted label products, compared to the same period last year. Customer
retention and new customer initiatives, primarily in the supermarket thermal
product line, were the primary drivers of the first nine months sales
improvement. The Specialty Coated Products Division of this segment had
declining sales in the fax paper, heat seal and dry gum product lines in the
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first nine months of 1999 compared to the same period in 1998. Fax paper sales
have been in decline since last year after two significant customers, Quill and
Viking, were acquired by Staples and Office Depot, respectively, and decided to
consolidate their purchases of fax paper from other suppliers. In turn, Nashua
made the decision to exit the fax paper manufacturing business. Dry gum and heat
seal sales decline is primarily due to lower volume mostly due to technological
changes in the marketplace.
The Segment's pretax income increased 25.5 percent compared to the first nine
months of 1998, primarily a result of higher sales volume and an improvement in
the Segment's gross margin. Lower manufacturing costs, improved manufacturing
efficiency, a favorable mix of products sold and income related to the Company's
pension plans were the primary reasons for the improvement.
RESTRUCTURING AND UNUSUAL CHARGES
The current period provision for restructuring and unusual charges included $.5
million associated with the Company's decision to cease manufacturing fax papers
in the Specialty Coated and Label Products Segment.
Details of the charges related to continuing operations and the activity
recorded during the first nine months of 1999 follows.
Balance Current Current Balance
(In thousands) July 2, Period Period Oct. 1,
1999 Provision Charges 1999
------- --------- ------- -------
Provisions for severance related to workforce reductions $246 $156 $208 $194
Provisions for assets to be sold or discarded -- 266 -- 266
Other 120 130 34 216
---- ---- ---- ----
Total $366 $552 $242 $676
==== ==== ==== ====
All charges, excluding asset write-downs, are principally cash in nature and are
expected to be funded from operations.
The estimated annual effective income tax rate was 40.5 percent for the first
nine months of 1999 and is higher than the U.S. statutory rate principally due
to the impact of state income taxes.
YEAR 2000
The Year 2000 ("Y2K") issue is the result of computer programs being written
for, or microprocessors using two digits (rather than four) to define the
applicable year. Computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000, which
could result in system failures or miscalculations. The Company has established
processes for assessing the risks and associated costs of the Y2K issue.
The Company categorizes its Y2K efforts as follows: hardware, software, embedded
processors, vendors and customers. Progress in assessing and remediating
information technology systems (hardware and software) and non-information
technology systems (embedded processors) is being tracked in phases including
inventory, identification of non-compliant systems, risk assessment, project
plan development, remediation, testing and contingency planning.
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All aspects related to assessing, remediating and testing mission critical
systems have been completed and are Y2K compliant. Mission critical systems are
systems necessary to take customer orders, manufacture and ship product, collect
accounts receivable and report financial information.
The Company is in communication with and has conducted several analyses with
significant vendors and customers to ensure their Y2K compliance. In addition,
the Company continues to evaluate its vulnerability if these companies fail to
remediate their Y2K issues. The Company is in the process of assessing supply
chain risk and building safety stock where feasible by ordering raw materials
and seeking alternative sources in the event of non-compliance. There can be no
guarantee that the systems of other companies will be timely remediated, or that
other companies' failure to remediate Y2K issues would not have a material
adverse effect on the Company.
It is estimated that the aggregate cost of the Company's Y2K efforts will be
approximately $1.1 million, of which, substantially all has been spent to date.
These costs are being funded through operating cash flows and include the costs
of normal system upgrades and replacements for which the timing was accelerated
to address the Y2K issue. These amounts do not include any costs associated with
the implementation of contingency plans, which have been developed and internal
Y2K program costs. The Company does not separately track internal Y2K program
costs. These costs are principally the related payroll costs for the management
information systems group.
The Company has developed contingency plans for dealing with the operational
problems and costs (including loss of revenues) that would be reasonably likely
to result from failure by the Company and certain third parties to achieve Y2K
compliance on a timely basis. These plans will continue to be updated throughout
the remainder of 1999. Activity outlined in the plans will increase in
mid-December to take the recommended precaution prior to January 1, 2000.
The Company presently believes that with remediation, testing and contingency
planning, Y2K risks can be mitigated. However, although the Company is not
currently aware of any material internal operational or financial Y2K related
issues, the Company cannot provide assurances that the computer systems,
products, services or other systems upon which the Company depends will be Y2K
ready on schedule, that the costs of its Y2K program will not become material or
that the Company's contingency plans will be adequate. In addition, the Company
believes the analyses conducted to ensure Y2K compliance of vendors and
customers will lessen the Y2K risk, however, there is no guarantee this will
completely eliminate the potential for disruption. If any such risks (either
with respect to the Company or its vendors or customers) materialize, the
Company could experience serious consequences to its business which could have
material adverse effects on the Company's financial condition, results of
operations and liquidity.
The foregoing assessment of the impact of the Y2K problem on the Company is
based on management's best estimates as of the date of this Form 10Q, which are
based on numerous assumptions as to future events. There can be no assurance
that these estimates will prove accurate, and actual results could differ
materially from those estimated if these assumptions prove inaccurate.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Working capital decreased $2.5 million to $43.4 million from December 31, 1998.
Cash and cash equivalents declined $11.2 million, primarily as a result of
payment of certain year end accrued expenses in the amount of $2.3 million,
payment of Advanced Corporation Tax to the U.K. in the amount of $2.6 million,
payment of certain state taxes in the amount of $2.3 million, and the repurchase
of 348,060
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shares of common stock in open market transactions for $4.0 million pursuant to
the Company's open market stock repurchase program as detailed in the
Shareholder's Equity section of the Notes to the Condensed Consolidated
Financial Statements. Other changes affecting working capital included a $3.7
million increase in accounts receivable, a $1.2 million increase in inventories,
primarily in the Specialty Coated and Label Segment, and a $2.0 million increase
in accounts payable from December 31, 1998.
During April 1999, the Company entered into a new $15 million secured financing
agreement as detailed in the Indebtedness section of the Notes to the Condensed
Consolidated Financial Statements.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
ANNUAL MEETING OF STOCKHOLDERS
The Company's Annual Stockholders' Meeting will be held on April 25, 2000 at the
Crowne Plaza, 2 Somerset Parkway, Nashua, NH, at 10:00 a.m.
MATTERS AFFECTING FUTURE RESULTS
This Form 10Q 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," "to be," "will" 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, risks associated with the failure by the
Company and certain third parties to achieve Year 2000 compliance on a timely
basis, and other risks detailed in the Company's filings with the Securities and
Exchange Commission. The Company assumes no obligation to update the information
contained in this Form 10Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.01 Change of Control and Severance Agreement dated July 19, 1999 between
Nashua Corporation and John J. Ireland.
27.01 Financial Data Schedule for the period ending October 1, 1999.
(b) Reports on Form 8-K
None
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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
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(Registrant)
Date: November 10, 1999 By: /s/ John L. Patenaude
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John L. Patenaude
Vice President-Finance and
Chief Financial Officer
(principal financial and duly authorized officer)
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