UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 29549
FORM 10Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 25, 1994.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _______
Commission file number 0-8564
NEW ENGLAND BUSINESS SERVICE, INC.
(Exact name of the registrant as specified in its charter)
Delaware 04-2942374
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
500 Main Street, Groton, Massachusetts 01471
(Address of principal executive offices) (Zip Code)
(508) 448-6111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 and 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__________
The number of common shares of the Registrant outstanding on March 25,
1994 was 15,422,154.
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Data)
March 25 June 25
ASSETS 1994 1993
Current Assets
Cash and cash equivalents $ 4,096 $10,061
Short term investments - at cost 34,846 18,057
Accounts receivable (less allow. for doubtful accounts:
$2,987 at March 1994 and $2,944 at June 1993) 28,310 26,707
Inventories 8,241 8,663
Direct mail advertising materials 2,401 1,391
Prepaid expenses 1,431 1,925
Deferred income tax benefit 4,761 2,162
Total current assets 84,086 68,966
Property and Equipment
Land and buildings 37,886 37,778
Less: accumulated depreciation 18,430 17,144
Net 19,456 20,634
Equipment 67,241 64,621
Less: accumulated depreciation 49,058 44,145
Net 18,183 20,476
Property and equipment - net 37,639 41,110
Other Assets (less accumulated amortization:
$8,509 at March 1994 and $6,719 at June 1993) 9,267 10,548
TOTAL ASSETS $130,992 $120,624
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 7,757 $ 7,039
Accrued Federal and state income taxes 2,191 1,580
Accrued profit-sharing distribution 2,121 2,114
Accrued payroll expense 4,427 5,454
Accrued employee benefit expense 6,936 5,237
Sales tax payable 271 222
Accrued restructuring program costs 3,002 0
Other accrued expenses 4,838 3,647
Total current liabilities 31,543 25,293
Deferred Grants 318 317
Deferred Income Taxes 2,093 346
STOCKHOLDERS' EQUITY
Preferred stock, par value $1 per share;
authorized and unissued 1,000,000 shares
Common stock, par value $1 per share; authorized
40,000,000 shares; issued 15,540,121 shares
at March 1994 and 15,408,979 shares at June 1993 15,540 15,409
Additional paid in capital 9,002 7,090
Cumulative foreign currency translation adjustment ( 2,056) (1,057)
Retained earnings 76,483 75,033
Total 98,969 96,475
Less: treasury stock (at cost, 117,967 shares at
March 1994 and 117,795 at June 1993) ( 1,931) ( 1,807)
Stockholders' Equity (outstanding 15,422,154 shares
at March 1994 and 15,291,184 shares at June 1993) 97,038 94,668
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $130,992 $120,624
See Notes to Consolidated Financial Statements
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Data)
Three Months Ended Nine Months Ended
Mar. 25, Mar. 26, Mar. 25, Mar. 26,
1994 1993 1994 1993
NET SALES $ 63,424$ 59,377 $188,794$176,983
OPERATING EXPENSES:
Cost of sales (inc'l shipping costs) 23,312 23,107 69,228 68,190
Selling and advertising 17,016 16,911 52,643 53,482
General and administrative 14,813 13,835 43,005 39,575
Restructuring charge 0 0 6,000 0
Total operating expenses 55,141 53,853 170,876 161,247
INCOME FROM OPERATIONS 8,283 5,524 17,918 15,736
OTHER INCOME/(EXPENSE):
Investment income 326 336 887 963
INCOME BEFORE INCOME TAXES 8,609 5,860 18,805 16,699
PROVISION FOR INCOME TAXES:
Federal 2,733 1,900 6,041 5,228
State 957 598 2,116 1,571
Total 3,690 2,498 8,157 6,799
NET INCOME $ 4,919$ 3,362 $ 10,648$ 9,900
PER SHARE AMOUNTS:
Net Income $ . 32$ .22 $ .69$ .65
Dividends $ .20$ .20 $ .60$ .60
WEIGHTED AVERAGE SHARES OUTSTANDING 15,393 15,276 15,337 15,263
See Notes to Consolidated Financial Statements
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended
Mar. 25, Mar. 26,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,648 $ 9,900
Adjustments to reconcile net income to cash:
Depreciation and amortization 8,995 7,345
Deferred income taxes ( 910) ( 57)
Provision for losses on accounts receivable 1,813 2,050
Provision for pension cost 207 135
Deferred grants ( 3) ( 74)
Restructuring charge 6,000 0
Changes in assets and liabilities:
Accounts receivable ( 3,972) ( 2,655)
Inventories and advertising material ( 729) ( 202)
Other assets 466 577
Accounts payable 817 3,026
Income taxes payable 607 ( 1,613)
Other accrued expenses ( 1,263) ( 945)
Net cash provided by operating activities 22,676 17,487
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ( 3,760) ( 5,468)
Short term investments ( 17,305) 3,275
Acquisition of product line ( 208) ( 9,750)
Net cash (used in) investing activities ( 21,273) ( 11,943)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt ( 37) ( 99)
Proceeds from issuing common stock 2,045 140
Issuance (purchase) of treasury stock ( 124) 490
Dividends paid ( 9,199) ( 9,159)
Net cash (used in) financing activities ( 7,315) ( 8,628)
EFFECT OF EXCHANGE RATE ON CASH ( 53) ( 172)
NET (DECREASE) IN CASH AND CASH EQUIVALENTS ( 5,965) ( 3,256)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 10,061 10,936
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,096 $ 7,680
See Notes to Consolidated Financial Statements
Form 10Q
New England Business Service, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.Basis of Presentation
The consolidated financial statements contained in this report
are unaudited but reflect all adjustments, consisting only of normal
recurring adjustments, which are, in the opinion of management,
necessary for a fair statement of the results of the interim periods
reflected. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant
to applicable rules and regulations of the Securities and Exchange
Commission. The results of operations for the interim period
reported herein are not necessarily indicative of results to be
expected for the full year.
2.Accounting Policies
The consolidated financial statements included herein should be read
in conjunction with the financial statements and notes thereto, and
the Report of Independent Public Accountants incorporated by
reference in the Company's Annual Report on Form 10K for the fiscal
year ended June 25, 1993 from the Company's 1993 Annual Report to
Shareholders.
Reference is made to the accounting policies of the Company described
in the notes to consolidated financial statements incorporated by
reference in the Company's Annual Report on Form 10K for the fiscal
year ended June 25, 1993 from the Company's Annual Report to
Shareholders. The Company has consistently followed those policies
in preparing this report.
Inventories are carried at the lower of first-in, first-out cost or
market. Inventories at March 25, 1994 and June 25, 1993 consisted
of:
March 25,1994June 25,1993
Raw paper $ 637,000 781,000
Business forms and related office products 7,604,000 7,882,000
Total $ 8,241,00 $ 8,663,000
3. Stock Plans
The increase in outstanding shares reflects the issuance of 29,044
shares pursuant to the employee benefit program under Section 401(k)
of the Internal Revenue Code and 101,926 shares pursuant to the
Company's Key Employee Stock Option and Stock Appreciation Rights
Plan.
4.Net Income Per Share
Net income per common share was based on the weighted average of such
shares outstanding during each period: 15,337,000 for the nine months
ended March 25, 1994 and 15,263,000 for the nine months ended March
26, 1993.
5. Restructuring Program
During the first quarter, the Company recorded a $6 million pretax
charge related to a restructuring program to be implemented over the
ensuing twelve months. This charge primarily includes personnel
costs associated with staff reductions involving 5% of the Company's
2,200 employees.
6. Accounting for Income Taxes
As of June 26, 1993, the Company adopted SFAS No. 109, entitled
"Accounting for Income Taxes." The cumulative effect of adopting
SFAS No. 109 was not significant to the Company's financial
statements. The adoption did result in certain reclassifications of
deferred tax assets and liabilities.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes.
During the first quarter, Federal tax legislation was enacted. A
principal provision of the new tax law was an increase in the overall
tax rate. This had no material effect on the Company's results year
to date.
MANAGEMENT DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
Cash provided by operating activities was $22.7 million in 1994,
representing an increase from the $17.5 million provided in 1993. This
increase was due primarily to improved operating results (excluding the
non-cash portion of the restructuring charge), and changes in the
balances of non-cash assets and liabilities.
Working capital at March 25, 1994 amounted to $52.5 million, including
$38.9 million of cash and short term investments. This compares to
working capital of $43.7 million and cash and short term investment
balances of $28.1 million at the end of the fiscal year. The increase in
working capital is due primarily to an increase in cash generated from
operations, an increase in accounts receivable due to an increase in
sales volume, and partially offset by an increase in current liabilities
attributable to the Company's restructuring program.
As a result of general cost containment activities, capital expenditures
of $3.8 million were less than the $5.5 million expended in 1993. The
Company had no significant commitments for capital projects at quarter
end. The Company expects that the cash savings anticipated from the
restructuring program during fiscal year 1994, will approximate and be
adequate to fund the $5 million cash portion of the total restructuring
charge.
In addition to its present cash and investment balances, the Company has
consistently generated sufficient cash internally to fund its needs for
working capital, dividends and capital expenditures. However, should the
Company need additional funds, it has an unsecured line of credit with a
major bank for $10 million. At present, there are no outstanding
balances against this line.
Results of Operations
In the quarter ended March 25, 1994, net sales increased to $63.4 million
from $59.4 million in the quarter ended March 26, 1993. This increase in
net sales was the result of increases in the volume of incoming orders
which amounted to approximately 5.8% or $3.4 million. Price increases
of approximately $0.6 million or 1.0% account for the remainder of the
sales increase.
On a year to date basis, net sales increased to $188.8 million from
$177.0 million. This increase in net sales was the result of increases
in the volume of incoming orders which amounted to approximately 4.8% or
$8.5 million. Price increases of approximately $3.3 million or 1.9%
account for the remainder of the sales increase. Both on a quarterly and
a year to date basis, most business units and product lines reflected
improving sales performances. In particular, strong growth was recorded
in the computer forms, software, checks and custom forms product lines.
Both on a quarterly and a year to date basis, cost of sales declined to
approximately 37% from approximately 39%. The improvement was driven by
operating efficiencies generated by improving sales volume and stable
material prices.
Selling and advertising expenses decreased as a percentage of net sales
from 28.5% to 26.8% in the quarter. On a year to date basis, selling and
advertising expenses decreased from 30.2% of net sales to 27.9% of net
sales. More effective promotional programs and better targeted mail to
customers as well as the effect of the restructuring program resulted in
the improvement.
On a year to date and a quarterly basis, general and administrative costs
remained the same as a percentage of net sales. Year to date and
quarterly general and administrative costs were at approximately 23% of
net sales.
During the first quarter, the Company recorded a $6 million pretax
charge, or $.23 per share, related to a restructuring program. The
objectives of this program are to increase the Company's competitiveness,
permit investments in new business development and strengthen margins.
The restructuring program includes the realignment of the Company's
marketing and manufacturing organizations. The restructuring charge
consists of approximately $4.7 million of anticipated cash payments
related to employee termination and other postemployment benefits in
conjunction with staff reductions throughout the Company totaling 5% of
the 2,200 employee work force. In addition, approximately $.7 million is
related to the noncash write-down of operating assets, and approximately
$.6 million is related to the anticipated cash outflows for facility
closing and relocation costs associated with the closing of two small
administrative facilities. Approximately $3 million of the total
anticipated cash outflows were made as of the end of the third quarter
with substantially all of the remaining $2.3 million of cash outflows and
$.7 million of noncash charges expected to be made over the next two
quarters. The restructuring program proceeded smoothly in the third
quarter and the Company now expects the program to be substantially
complete in less than twelve months instead of the 18 months originally
planned. When fully implemented, the Company expects the program to
generate annual cost savings of about $7 million. During the third
quarter, the restructuring program generated cost savings of $2.0
million, or $.07 per share, and resulted in cash payments of
approximately $1.5 million. On a year to date basis, cost savings of
approximately $3.7 million, or $.14 per share have been realized and cash
payments of approximately $3.0 million have resulted from the program.
Substantially all of the savings were associated with reduced staffing
levels throughout the Company.
The provision for income taxes as a percentage of pre-tax income
increased from 42.6% to 42.9% in the quarter. On a year to date basis,
the provision for income taxes as a percentage of pre-tax income
increased from 40.7% in 1993 to 43.4% in 1994 due to a smaller proportion
of tax exempt income resulting from lower interest rates, and changes in
Federal tax laws creating a higher corporate tax rate and less favorable
treatment of certain foreign source income.
PART II - OTHER INFORMATION
None
Form 10Q
New England Business Service, Inc.
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.
New England Business Service, Inc.
May 6, 1994 /s/Thomas W. Freeze
Date Treasurer & Secretary
