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 December 24, 1993.
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
December 24, 1993 was 15,364,333.
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Data)
Dec. 24,June 25,
ASSETS 1993 1993
Current Assets
Cash & cash equivalents $ 2,590 $10,061
Short term investments - at cost 31,663 18,057
Accounts receivable (less allow. for doubtful accounts:
$2,991 at December 1993 and $2,944 at June 1993) 28,977 26,707
Inventories 8,470 8,663
Direct mail advertising materials 2,161 1,391
Prepaid expense 2,353 1,925
Deferred income tax benefit 4,761 2,162
Total current assets 80,975 68,966
Property and Equipment
Land & buildings 37,798 37,778
Less: accumulated depreciation 17,892 17,144
Net 19,906 20,634
Equipment 66,547 64,621
Less: accumulated depreciation 47,921 44,145
Net 18,626 20,476
Property and equipment - net 38,532 41,110
Other Assets (less accumulated amortization:
$7,896 at Dec. 1993 and $6,719 at June 1993) 9,851 10,548
TOTAL ASSETS $129,358 $120,624
LIABILITIES
Current liabilities
Accounts payable $ 7,455 $ 7,039
Accrued Federal and state income taxes 2,662 1,580
Accrued profit-sharing distribution 1,809 2,114
Accrued payroll expense 4,266 5,454
Accrued employee benefit expense 6,144 5,237
Sales tax payable 282 222
Accrued restructuring program costs 4,544 0
Other accrued expenses 4,991 3,647
Total current liabilities 32,153 25,293
Deferred Grants 318 317
Deferred Income Taxes 2,091 346
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 15,472,799 shares
at Dec. 1993 and 15,408,979 shares at June 1993 15,473 15,409
Additional paid in capital 7,981 7,090
Cumulative foreign currency translation adjustment (1,623) (1,057)
Retained earnings 74,640 75,033
Total 96,471 96,475
Less: treasury stock (at cost, 108,466 shares at
Dec. 1993 and 117,795 at June 1993) ( 1,675) (1,807)
Stockholders' Equity (outstanding 15,364,333 shares at
Dec. 1993 and 15,291,184 shares at June 1993) 94,796 94,668
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $129,358 $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 Six Months Ended
Dec. 24, Dec. 25, Dec. 24, Dec. 25,
1993 1992 1993 1992
NET SALES $ 65,550 $ 60,284 $125,370 $117,606
COSTS AND EXPENSES:
Cost of Sales
(inc'l shipping costs) 22,865 23,360 45,916 45,083
Selling and Advertising 18,746 18,285 35,627 36,571
General and Administrative 15,391 13,354 28,180 25,740
Restructuring Charge 0 0 6,000 0
Total operating expenses 57,002 54,999 115,723 107,394
INCOME FROM OPERATIONS 8,548 5,285 9,647 10,212
OTHER INCOME/EXPENSES:
Investment income 343 261 549 627
INCOME BEFORE TAXES 8,891 5,546 10,196 10,839
PROVISION FOR INCOME TAXES:
Federal 2,984 1,717 3,308 3,328
State 940 497 1,159 973
Total 3,924 2,214 4,467 4,301
NET INCOME $ 4,967 $ 3,332 $ 5,729 $ 6,538
PER SHARE AMOUNTS:
Net Income $ . 32 $ .22 $ .37 $ .43
Dividends $ .20 $ .20 $ .40 $ .40
WEIGHTED AVERAGE SHARES OUTSTANDING 15,323 15,264 15,310 15,257
See Notes to Consolidated Financial Statement
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands)
Six Months Ended
Dec. 24, Dec. 25,
1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,729 $ 6,538
Adjustments to reconcile net income to cash:
Depreciation and amortization 6,018 4,789
Deferred income taxes ( 916) 0
Provision for losses on accounts receivable 1,215 1,329
Provision for pension cost 138 90
Deferred grants ( 3) 9
Restructuring charge 6,000 0
Changes in assets and liabilities:
Accounts receivable ( 3,976) ( 2,309)
Inventories and advertising material ( 677) 318
Other assets ( 443) 627
Accounts payable 459 ( 1,312)
Income taxes payable 1,080 ( 2,315)
Other accrued expenses ( 545) ( 2,126)
Net cash provided by operating activities 14,079 5,638
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ( 2,557) ( 3,976)
Short term investments ( 13,900) ( 2,195)
Net cash (used in) investing activities ( 16,457) ( 6,171)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt ( 30) ( 70)
Proceeds from issuing common stock 955 96
Sale of treasury stock 132 394
Dividends paid ( 6,122) ( 6,102)
Net cash (used in) financing activities ( 5,065) ( 5,682)
EFFECT OF EXCHANGE RATE ON CASH ( 28) ( 175)
NET (DECREASE) IN CASH AND CASH EQUIVALENTS ( 7,471) ( 6,390)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,061 10,936
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,590 $ 4,546
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 accruals, 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 December 24, 1993 and June 25, 1993
consisted of:
Dec. 24, 1993 June 25, 1993
Raw paper $ 775,000 $ 81,000
Business forms and related office prods. 7,695,000 7,882,000
Total $ 8,470,000 $8,663,000
3. Stock Plans
The increase in outstanding shares reflects the issuance of
15,126 shares pursuant to the employee benefit program under
Section 401(k) of the Internal Revenue Code and 58,023 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: 15,310,000 for the
six months ended December 24, 1993 and 15,257,000 for the six
months ended December 25, 1992.
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 12 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 $14.1 million in 1993,
representing an increase from the $5.6 million provided in 1992. 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 December 24, 1993 amounted to $48.8 million,
including $34.3 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 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 $2.6 million were less than the $4.0 million expended
in 1992. 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
The following discussion is reflective of both quarter and year to
date amounts as presented in the Consolidated Statements of Income.
Net sales increased from $117.6 million in 1992 to $125.4 million in
1993 or 6.6%. This increase in net sales was the result of increases
in the volume of incoming orders which amounted to approximately
4.3% or $4.6 million. Price increases of approximately 2.3% or $3.2
million accounted for the remainder of the sales increase. 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.
Cost of sales decreased from 38.3% in 1992 to 36.6% of net sales in
1993. Imprinting costs were lower due to the operating efficiencies
achieved on stronger than expected order volume, while material costs
remained stable.
Selling and advertising expenses decreased as a percentage of sales
from 31.1% in 1992 to 28.4% in 1993. More effective promotional
programs and better targeted mail to customers as well as the effect
of the restructuring program resulted in reduced selling and
advertising expenses.
General and administrative costs increased as a percent of net sales
from 21.9% in 1992 to 22.5% in 1993. The increase was due primarily
to increased costs associated with technical support for the Company's
software products.
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, staff reductions throughout the Company totaling 5% of
the 2,200 employee work force, and plans to close a small
administrative facility. The restructuring program proceeded smoothly
in the second quarter and the Company now expects the program to be
completed in less than twelve months instead of the 18 months
originally planned. When the program is fully implemented the Company
expects it to generate cost savings of about $7 million annually. The
restructuring program generated cost savings of $1.7 million in the
second quarter. 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 39.7% in 1992 to 43.8% in 1993 due to a lower
percentage 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
Item 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
a. Annual Meeting of Stockholders October 22, 1993.
b. The stockholders fixed the number of Directors to be
elected at nine and elected the following as directors:
Peter A. Brooke Frank L. Randall, Jr.
Bartley H. Calder Jay R. Rhoads, Jr.
Benjamin H. Lacy Richard H. Rhoads
William C. Lowe Robert Ripp
Robert J. Murray
c. To ratify the selection of Deloitte & Touche as
independent auditors of the Company for the fiscal
year ending June 24, 1994:
Affirmative Votes Negative Votes
14,497,320 30,093
Item 6. REPORTS ON FORM 8-K
On October 15, 1993 the Company filed a Form 8-K to report
a restructuring program.
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.
February 4, 1994 /s/Thomas W. Freeze
Date Secretary & Treasurer
