UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 23, 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 December 23,
1994 was 15,256,759.
<PAGE>
<TABLE>
<CAPTION>
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Data)
<S> <C> <C>
Dec. 23, June 24,
1994 1994
--------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 3,459 $ 3,456
Short term investments 25,397 37,532
Accounts receivable 32,826 27,963
Inventories 8,419 7,740
Direct mail advertising materials 1,618 1,698
Prepaid expenses 2,004 1,439
Deferred income tax benefit 7,439 5,460
-------- --------
Total current assets 81,162 85,288
Property and Equipment
Land and buildings 39,452 38,417
Less: accumulated depreciation 19,555 18,849
-------- --------
Net 19,897 19,568
Equipment 70,456 66,648
Less: accumulated depreciation 51,961 48,525
-------- --------
Net 18,495 18,123
Property and equipment - net 38,392 37,691
Other Assets - net 9,880 8,712
-------- --------
TOTAL ASSETS $129,434 $131,691
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED BALANCE SHEET (Continued)
(In Thousands Except Share Data)
<S> <C> <C>
Dec. 23, June 24,
1994 1994
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 8,003 $ 6,702
Accrued Federal and state income taxes ( 378) 2,519
Accrued profit-sharing distribution 2,031 2,627
Accrued payroll expense 3,860 5,466
Accrued employee benefit expense 7,670 5,637
Accrued restructuring charge 820 1,887
Other accrued expenses 6,270 5,254
-------- --------
Total current liabilities 28,276 30,092
Deferred Grants 326 326
Deferred Income Taxes 1,795 1,794
STOCKHOLDERS' EQUITY
Preferred stock
Common stock 15,593 15,572
Additional paid in capital 9,841 9,480
Cumulative foreign currency translation adjustment ( 2,254) ( 2,152)
Retained earnings 82,016 78,306
-------- --------
Total 105,196 101,206
Less: treasury stock ( 6,159) ( 1,727)
-------- --------
Stockholders' Equity 99,037 99,479
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $129,434 $131,691
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Data)
Three Months Ended Six Months Ended
------------------------- -------------------------
<S> <C> <C> <C> <C>
Dec. 23, Dec. 24, Dec. 23, Dec. 24,
1994 1993 1994 1993
--------- --------- --------- ---------
NET SALES $ 69,479 $ 65,550 $ 131,558 $ 125,370
OPERATING EXPENSES:
Cost of sales 24,490 22,865 46,531 45,916
Selling and advertising 18,233 18,746 34,359 35,627
General and administrative 17,895 15,391 33,891 28,180
Restructuring charge 0 0 0 6,000
--------- --------- --------- ---------
Total operating expenses 60,618 57,002 114,781 115,723
--------- --------- --------- ---------
INCOME FROM OPERATIONS 8,861 8,548 16,777 9,647
OTHER INCOME/(EXPENSE):
Investment income 341 343 664 549
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 9,202 8,891 17,441 10,196
--------- --------- --------- ---------
PROVISION FOR INCOME TAXES:
Federal 2,968 2,984 5,708 3,308
State 885 940 1,665 1,159
--------- --------- --------- ---------
Total 3,853 3,924 7,373 4,467
--------- --------- --------- ---------
NET INCOME BEFORE EQUITY IN LOSSES
OF INVESTMENT 5,349 4,967 10,068 5,729
Equity in losses of investment ( 90) 0 ( 176) 0
--------- --------- --------- ---------
NET INCOME $ 5,259 $ 4,967 $ 9,892 $ 5,729
========= ========= ========= =========
PER SHARE AMOUNTS:
Net Income $ . 34 $ .32 $ .64 $ .37
========= ========= ========= =========
Dividends $ .20 $ .20 $ .40 $ .40
========= ========= ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING 15,415 15,323 15,442 15,310
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Six Months Ended
-------------------------
<S> <C> <C>
Dec. 23, Dec. 24,
1994 1993
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,892 $ 5,729
Adjustments to reconcile net income to cash:
Depreciation and amortization 6,038 6,018
Deferred income taxes ( 1,896) ( 916)
Other non-cash items 1,754 7,350
Changes in assets and liabilities:
Accounts receivable ( 6,395) ( 3,976)
Inventories and advertising material ( 621) ( 677)
Prepaid expenses ( 572) ( 443)
Accounts payable 1,342 459
Income taxes payable ( 2,902) 1,080
Other accrued expenses ( 408) ( 545)
-------- --------
Net cash provided by operating activities 6,232 14,079
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ( 5,996) ( 2,349)
Purchase of investments ( 14,956) ( 27,775)
Proceeds from sale of investments 27,087 13,875
Other assets ( 437) ( 208)
Investment in unconsolidated subsidiary ( 1,800) 0
-------- --------
Net cash provided by (used in) investing activities 3,898 ( 16,457)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt ( 36) ( 30)
Proceeds from issuing common stock 382 955
Issuance (purchase) of treasury stock ( 4,432) 132
Dividends paid ( 6,182) ( 6,122)
-------- --------
Net cash (used in) financing activities ( 10,268) ( 5,065)
-------- --------
EFFECT OF EXCHANGE RATE ON CASH 141 ( 28)
-------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
Six Months Ended
-------------------------
<S> <C> <C>
Dec. 23, Dec. 24,
1994 1993
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3 ( 7,471)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,456 10,061
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,459 $ 2,590
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
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 10-K for the fiscal
year ended June 24, 1994 from the Company's 1994 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 10-K for the fiscal
year ended June 24, 1994 from the Company's 1994 Annual Report to
Shareholders. The Company has consistently followed those policies
in preparing this report.
3. Inventories
-----------
Inventories are carried at the lower of first-in, first-out cost or
market. Inventories at December 23, 1994 and June 24, 1994 consisted
of:
<TABLE>
<S> <C> <C>
Dec. 23, June 24,
1994 1994
----------- -----------
Raw paper $ 651,000 $ 721,000
Business forms and related office products 7,768,000 7,019,000
----------- -----------
Total $ 8,419,000 $ 7,740,000
=========== ===========
</TABLE>
<PAGE>
4. Accounting for Income Taxes
---------------------------
During the first quarter of fiscal year 1995, the Internal Revenue Service
completed an examination of the Company's federal income tax returns for
years 1989 through 1992 and proposed various adjustments to increase
taxable income in these periods. The most significant adjustments involve
disallowances of current deductions in favor of future deductions.
Accordingly, because of the nature of these adjustments, there was no
significant impact on the Company's current year effective tax rate.
5. Investment in Unconsolidated Subsidiary
---------------------------------------
On July 8, 1994, the Company acquired a 19 percent equity interest in GST
Software, plc (GST) for $1,800,000 together with an option to acquire the
balance of GST shares. GST is a privately held company based in the United
Kingdom which develops and markets desktop publishing graphic design
software which the Company will market under an exclusive distribution
agreement in North America. The Company has elected to treat its investment
under the equity method of accounting due to the degree of control it
can exercise over GST's operations. Accordingly, it is recording a share of
GST's losses for the period. The difference between the Company's
underlying equity in net tangible assets of GST and its investment has been
recorded as goodwill.
6. Postemployment Benefits
-----------------------
As of June 25, 1994, the Company adopted SFAS No. 112, entitled
"Employers' Accounting for Postemployment Benefits." The adoption of this
standard did not have a material effect on the accompanying consolidated
financial statements.
7. Investments in Debt and Equity Securities
-----------------------------------------
As of June 25, 1994, the Company adopted SFAS No. 115, entitled
"Accounting for Certain Investments in Debt and Equity Securities."
Adoption of this standard resulted in the Company classifying the
investments held in its portfolio as "available-for-sale securities."
The adoption of this standard did not have a material effect on the
accompanying consolidated financial statements as the market value of
the underlying investments approximated the amount carried on the balance
sheet at September 23, 1994 and December 23, 1994.
8. Other Items
-----------
On October 20, 1994, the Company announced a plan to repurchase up to
$22,000,000 of its common stock in the open market. Unless renewed or
completed earlier, the repurchase will terminate on June 30, 1995. As
of December 23, 1994, the Company has purchased 273,750 shares at a
cumulative cost of approximately $5,154,000.
<PAGE>
8. Other Items (Continued)
-----------------------
On October 20, 1994, the Company announced an amendment to the Company's
Rights Agreement. The material changes in the agreement include the
deletion of the Adverse person provision, the lowering of the threshold
at which an acquiring person will trigger the rights from 20% to 15%, and
the inclusion of a one common share per right exchange feature.
On October 28, 1994, the stockholders approved The NEBS 1994 Key Employee
and Eligible Director Stock Option and Stock Appreciation Rights Plan.
Under the "1994 Plan," options or stock appreciation rights for up to
1,200,000 shares of common stock may be granted.
On October 28, 1994 the stockholders approved the New England
Business Service, Inc. Stock Compensation Plan (the "Plan"). The purpose
of the Plan is to provide for the mandatory or voluntary receipt of shares
of the Company's common stock in lieu of an equivalent amount of cash, in
payment in whole or in part for certain types of regular, bonus or other
special compensation. There are a total of 300,000 shares available for
issuance under the Plan.
On January 9, 1995, the Company announced the decision to integrate the
operations of its Wisconsin based SYCOM subsidiary. The Company will
take a third quarter pretax exit charge of $1,600,000 and expects to
incur additional third and fourth quarter pretax integration expense of
$2,300,000.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities for the six months ended December 23,
1994 was $6.2 million representing a decrease from the $14.1 million provided
in the same period last year. This decrease was due primarily to payments of
additional Federal Income Taxes as a result of the most recent audit, costs
related to the first quarter fiscal year 1994 restructuring charge and an
increase in accounts receivable due to the higher sales and the timing of those
sales within the period.
Working capital at December 23, 1994 amounted to $52.9 million including $28.9
million of cash and short term investments. This compares to working capital
of $48.8 million and cash and short term investment balance of $34.3 million
at the same time last year. At the beginning of this fiscal year working
capital was $55.2 million and cash and short term investments were $41.0
million. The decrease in cash and short term investments is due in part to
the repurchase of $5.1 million of the Company's stock in accordance with a plan
to purchase up to $22.0 million of the Company's stock announced in
October, 1994. In addition the Company acquired a 19 percent equity interest
in GST Software, plc (GST) for $1.8 million together with an option to purchase
the balance of GST shares.
Capital expenditures for the six months of $6.0 million were significantly
higher than the $2.3 million expended in 1993 which were lower due to the cost
containment activities. The Company expects that capital outlays will continue
at about the same pace for the remainder of fiscal year 1995. These outlays
are occurring in order to upgrade existing systems, increase capacity and meet
the needs of strategic initiatives throughout the Company.
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
$10.0 million. At present, there are no outstanding balances against this
line.
Results of Operations
- ---------------------
In the quarter ended December 23, 1994, net sales increased 6.0% to $69.5
million from $65.6 million; an increase of $3.9 million over the same
period last year. This sales increase was composed of volume growth of 3.9%
or $2.5 million and price increases of approximately 2.1% or $1.4 million.
On a year to date basis, net sales increased 4.9% to $131.6 million from
$125.4 million. This increase was the result of increased volume of 3.4% or
$4.2 million and price increases of 1.5% or $2.0 million. For both the
quarter and year to date the primary source of growth was from computer forms
and software. For both periods computer forms and software product lines
accounted for approximately 60% of the Company's growth.
<PAGE>
For the quarter, cost of sales increased to 35.2% of sales from 34.9 % last
year. This increase was caused primarily by product mix. It is expected
that the cost of paper will increase in the foreseeable future, due primarily
to strong demand and limited capacity in the paper industry. The Company has
taken steps to mitigate the impact such as accelerating paper purchases. While
this cost increase will have a little if any impact during the remainder of
fiscal year 1995, the longer term effect should not be significant since the
Company anticipates being able to offset the cost increase with price increases
and cost reduction initiatives.
Year to date cost of sales improved to 35.4% of sales from 36.6%. This
improvement was the result of price increases in several product lines as well
as stable material costs and reduced spoilage.
Selling and advertising expenses decreased as a percentage of net sales from
28.6% to 26.2% in the quarter. On a year to date basis, selling and
advertising expenses decreased from 28.4% to 26.1% of net sales. More
effective promotional programs, better targeted mail to customers and the
impact of last year's restructuring program were responsible for the
improvement in both periods. In January, 1995 the United States Postal Service
increased third class postage rates by approximately 14%. The Company has
reduced the size and weight of some mail pieces and eliminated marginal
mailings to compensate in the short term. The Company anticipates being able
to raise prices to cover the impact in the longer term.
General and administrative expenses increased to 25.6% of sales from 23.5% for
the quarter and to 25.8% from 22.5% year to date. These increases were due to
costs associated with servicing the Company's expanded software product line,
improvements in both the systems and facilities of order processing, and the
impact of decreased profit sharing in the first quarter last year resulting
from the Company's restructuring charge.
During the first quarter of last year the Company recorded a $6.0 million
pretax charge related to a restructuring program. As of December 23, 1994
approximately $.8 million is remaining in the reserve; these amounts will
be expended pursuant to severance and other agreements.
In January, 1995 the Company announced the decision to integrate the operations
of its Wisconsin based SYCOM subsidiary with those of the parent Company. The
Company will take a third quarter pretax exit charge of $1.6 million and
expects to incur additional third and fourth quarter pretax integration
expenses of $2.3 million. The third quarter exit charge includes costs
associated with personnel reduction, equipment write-off, and facility closure.
The additional integration expenses includes systems conversion, personnel and
equipment relocation and related transition expenditures and will be spread
over the remainder of the fiscal year. When completed, the integration is
expected to save the Company about $1.8 million annually.
The provision for income taxes as a percentage of pretax income decreased from
1993 to 1994 due primarily to the completion of a series of tax audits as well
as higher interest yields on tax-free investment income.
In fiscal year 1995, the Company's adoption of Statement of Financial
Accounting Standards (SFAS) No. 112, "Employers' Accounting for Post Employment
Benefits" and SFAS No. 115,
<PAGE>
"Accounting for Certain Investments in Debt and Equity Securities" were not
significant to the financial statements.
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit No. Description
----------- -----------
(11) Statement re computation of per share
earnings.
(27) Article 5 Financial Data Schedule
b. Reports on Form 8-K
None
<PAGE>
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.
NEW ENGLAND BUSINESS SERVICE, INC.
----------------------------------
(Registrant)
February 3, 1995 /s/Russell V. Corsini, Jr.
- ---------------- ----------------------------------
Date Russell V. Corsini, Jr.,
Principal Financial and Accounting
Officer
New England Business Service, Inc.
Statement Re Computation of Per Share Earnings
(In Thousands Except Per Share Data)
Exhibit 11
----------
Three Months Ended Six Months Ended
December 23, 1994 December 23, 1994
------------------ ------------------
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
Shares
- ------
Weighted Average Shares
of Common Stock 15,415 15,415 15,442 15,442
Add:
Common Stock Equivalents
in the form of Stock Options 130 (1) 137 (1) 141 (1) 133 (1)
------- ------- ------- -------
Weighted Average Common Stock
and Common Stock Equivalents 15,545 15,552 15,583 15,575
======= ======= ======= =======
Earnings
- --------
Earnings per Consolidated
Statement of Income $ 5,259 $ 5,259 $ 9,892 $ 9,892
======= ======= ======= =======
Earnings per Share $ .34 $ .34 $ .63 $ .64
======= ======= ======= =======
(1) Amount considered immaterial for inclusion in earnings per share
calculation as defined in Accounting Principles Board Opinion No. 15.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF NEW ENGLAND BUSINESS SERVICE, INC. AND ITS
SUBSIDIARIES AS OF DECEMBER 23, 1994 AND THE RELATED STATEMENTS OF CONSOLIDATED
INCOME AND CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> QTR-2 6-MOS
<FISCAL-YEAR-END> JUN-30-1995 JUN-30-1995
<PERIOD-END> DEC-23-1994 DEC-23-1994
<CASH> 3,459 3,459
<SECURITIES> 25,397 25,397
<RECEIVABLES> 36,042 36,042
<ALLOWANCES> (3,216) (3,216)
<INVENTORY> 8,419 8,419
<CURRENT-ASSETS> 81,162 81,162
<PP&E> 109,908 109,908
<DEPRECIATION> (71,516) (71,516)
<TOTAL-ASSETS> 129,434 129,434
<CURRENT-LIABILITIES> 28,276 28,276
<BONDS> 0 0
<COMMON> 15,593 15,593
0 0
0 0
<OTHER-SE> 83,444 83,444
<TOTAL-LIABILITY-AND-EQUITY> 129,434 129,434
<SALES> 69,479 131,558
<TOTAL-REVENUES> 69,479 131,558
<CGS> 24,490 46,531
<TOTAL-COSTS> 36,128 68,250
<OTHER-EXPENSES> (251) (488)
<LOSS-PROVISION> 785 1,491
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 9,202 17,441
<INCOME-TAX> 3,853 7,373
<INCOME-CONTINUING> 5,259 9,892
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,259 9,892
<EPS-PRIMARY> .34 .63
<EPS-DILUTED> .34 .64
</TABLE>
