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 period ended September 27, 1997.
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 1-11427
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)
(978) 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 October 30, 1997
was 13,690,936.
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
- ----------------------------
<TABLE>
NEW ENGLAND BUSINESS SERVICE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In Thousands)
(unaudited)
<CAPTION>
Sept. 27, June 28,
1997 1997
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 5,494 $ 7,365
Short term investments 469 469
Accounts receivable - net 36,997 34,147
Inventories 12,000 11,569
Direct mail advertising and prepaid expenses 8,700 6,976
Deferred income tax benefit 7,900 7,900
-------- --------
Total current assets 71,560 68,426
Property and equipment - net 32,351 32,419
Property held for sale 631 631
Goodwill - net 29,424 31,795
Other Assets - net 9,073 7,925
-------- --------
TOTAL ASSETS $143,039 $141,196
======== ========
LIABILITIES AND STOCKHOLDERS'EQUITY
Current Liabilities
Accounts payable $ 13,698 $ 13,872
Accrued expenses 20,257 19,455
-------- --------
Total current liabilities 33,955 33,327
Revolving Line of Credit 24,000 27,000
Deferred Income Taxes 18 288
STOCKHOLDERS'EQUITY
Common stock 14,663 14,616
Additional paid-in capital 27,506 26,537
Cumulative foreign currency translation adj. (1,775) (1,762)
Retained earnings 61,255 58,024
-------- --------
Total 101,649 97,415
Less: Treasury stock (16,583) (16,834)
-------- --------
Stockholders' Equity 85,066 80,581
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $143,039 $141,196
======== ========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE>
<TABLE>
NEW ENGLAND BUSINESS SERVICE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<CAPTION>
Three Months Ended
Sept. 27, Sept. 28,
1997 1996
--------- ---------
<S> <C> <C>
NET SALES $ 75,615 $ 60,702
OPERATING EXPENSES:
Cost of sales 28,982 21,961
Selling and advertising 24,894 22,369
General and administrative 12,151 10,196
Exit costs - 5,201
-------- --------
Total operating expenses 66,027 59,727
INCOME FROM OPERATIONS 9,588 975
OTHER INCOME/(EXPENSE):
Interest income 65 172
Interest expense (477) -
Gain on pension settlement 556 -
-------- --------
INCOME BEFORE TAXES 9,732 1,147
PROVISION FOR INCOME TAXES 3,771 469
-------- --------
NET INCOME $ 5,961 $ 678
======== ========
PER SHARE AMOUNTS:
Net Income .42 .05
======== ========
Dividends .20 .20
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 14,145 13,828
======== ========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE
<TABLE>
NEW ENGLAND BUSINESS SERVICE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(unaudited)
<CAPTION>
Three Months Ended
Sept. 27, Sept. 28,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,961 $ 678
Adjustments to reconcile net income to cash:
Depreciation and amortization 3,453 2,264
Deferred income taxes (284) (9)
Gain on pension settlement 556 -
Other non-cash items 326 5,605
Changes in assets and liabilities:
Accounts receivable (3,592) (757)
Inventories and prepaid expenses (4,632) (2,090)
Accounts payable (123) 2,512
Accrued expenses 3,623 (433)
--------- ---------
Net cash provided by operating activities 5,288 7,770
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (2,658) (2,488)
Purchase of investments - (3,800)
Proceeds from sale of investments - 10,993
Other assets 418 -
--------- ---------
Net cash used in investing activities (2,240) 4,705
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of debt (5,000) -
Proceeds from credit line 2,000 -
Proceeds from issuing common stock 844 61
Purchase of treasury stock - (10,589)
Dividends paid (2,728) (2,762)
--------- ---------
Net cash used in financing activities (4,884) (13,290)
EFFECT OF EXCHANGE RATE ON CASH (35) 3
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS (1,871) (812)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,365 6,508
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,494 $ 5,696
========= =========
</TABLE>
See Notes to Unaudited 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
Independent Auditors' Report in the Company's Annual Report on Form 10-K
for the fiscal year ended June 28, 1997.
Reference is made to the accounting policies of the Company described in
the notes to consolidated financial statements in the Company's Annual
Report on Form 10-K for the fiscal year ended June 28, 1997. The Company
has consistently followed those policies in preparing this report.
3. Acquisitions
- ----------------
During the quarter the Company made final determinations of the value of
intangible assets acquired during the purchase of substantially all of the
assets and assumption of certain liabilities of Chiswick Trading, Inc. on March
31, 1997. Accordingly, the excess cost over fair value of the net tangible
assets acquired was $34,724,000, of which $6,870,000 was allocated to
Chiswick's customer list, $600,000 to a non-compete agreement, $1,400,000 to
the tradename and the balance of $25,854,000 to goodwill. The goodwill is
being amortized over a period of 40 years.
4. Inventories
- --------------
Inventories are carried at the lower of first-in, first-out cost or market.
Inventories at September 27, 1997 and June 28, 1997 consisted of:
<TABLE>
<CAPTION>
(unaudited)
Sept. 27, June 28,
1997 1997
---------- ----------
<S> <C> <C>
Raw paper $ 568,000 $ 586,000
Business forms, related office products
and shipping, warehouse and packaging
supplies 11,432,000 10,983,000
---------- -----------
Total $12,000,000 $11,569,000
</TABLE>
<PAGE>
5. Exit Costs
- -------------
During the first quarter of fiscal year 1997, the Company reached a joint
decision with Kinko's Corporation to pursue a new strategy for its retail
channel initiative. This decision resulted in the closure of the Company's
75 existing NEBS manned print desks in Kinko's stores, its administrative
offices in Phoenix and its stationery plant in Scottsdale, Arizona. The
accompanying consolidated statements of income include a $5,201,000 pretax
charge for exit costs associated with this plan recognized in the first
quarter ended September 28, 1996.
The $5,201,000 pretax charge for exit costs was subsequently revised during
fiscal year 1997. The pre-tax charge for the year was reduced to $3,803,000
and consisted of estimated costs related to facility closures of $485,000,
estimated equipment write-offs of $1,105,000 and estimated termination benefits
of $2,213,000. Approximately 230 employees have been terminated as a result of
the restructuring plan.
The balance of the reserve for exit costs at September 27, 1997 amounted to
$619,000 and represents specifically identified employee termination
benefits and equipment write-offs. Cash payments related to these costs are
expected to be substantially completed during fiscal year 1998.
6. Pension Plan
- ---------------
During the second quarter of fiscal year 1997, the Company amended its
defined benefit pension plan which provides benefits to the majority of its
domestic employees. The amendment froze plan participation at December 31,
1996 and eliminated further benefit accruals after June 28,1997. The Company
settled the plan obligations during the first quarter of fiscal year 1998 and
recorded a plan settlement gain of $556,000 during the period.
7. Earnings Per Share
- ---------------------
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS")No. 128, "Earnings Per Share".
This new standard requires dual presentation of basic and diluted earnings
per share (EPS) on the face of the earnings statement and requires a
reconciliation of the numerators and denominators of basic and diluted
EPS calculations. This statement will be effective in the second quarter
of the Company's 1998 fiscal year. The Company's current EPS calculation
is not expected to change significantly to conform to SFAS No. 128.
8.New Accounting Pronouncements
- -------------------------------
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information." The Company will adopt these
statements during fiscal year 1999 and does not expect that the adoption of
these statements will have a material impact on the consolidated financial
statements.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
- -------------------------------------------------------------------
and Results of Operations
- ---------------------------------
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities for the three months ended September 27,
1997 was $ 5.3 million and represented a decrease of $2.5 million from the $7.8
million provided in the comparable period last year. The decrease in operating
cash flow was primarily the result of increased investment in non-cash working
capital balances during the first quarter of fiscal year 1998.
Working capital at September 27, 1997 amounted to $37.6 million, including
$6.0 million of cash and short term investments. At June 28, 1997, working
capital amounted to $35.1 million, including cash and short term investments of
$7.8 million. The $2.5 million increase in working capital during the quarter
reflected higher receivable balances associated with delayed billings as a
result of the UPS strike and an increase in inventory to support anticipated
sales of greeting card and calendar products during the second quarter of
fiscal 1998.
Capital expenditures for the three months ended September 27, 1997 were $2.7
million versus the $2.5 million expended during last year's comparable period.
Capital expenditures in the first quarter of fiscal 1997 and fiscal 1998
included significant expenditures for information systems infrastructure. In
addition to increased expenditures related to a plan to upgrade the Company's
information systems, the Company is in the process of constructing a $3.2
million telemarketing facility in Flagstaff, Arizona. The Company anticipates
that total capital outlays will approximate $15.0 million in fiscal year 1998,
an increase of $5.4 million or 57% over the $9.6 million expended during fiscal
year 1997.*
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 a senior, unsecured, revolving line of credit with two
major banks for $60.0 million. At September 27, 1997, $24.0 million was
outstanding against this line, reflecting principal repayments of $3.0 million
during the first quarter of fiscal 1998. The Company anticipates that its
current cash on hand, cash flow from operations and additional availability
under the line of credit will be sufficient to meet the Company's liquidity
requirements for its operations and capital expenditures through the remainder
of the year.* However, the Company may pursue additional acquisitions from
time to time which would likely be funded through cash, issuance of stock, the
obtaining of additional credit or any combination thereof.*
Results of Operations
- ---------------------
Net sales increased $14.9 million or 24.6% to $75.6 million in the first
quarter of fiscal 1998 from $60.7 million in last year's first quarter. The
sales increase was composed of approximately a $2.8 million or 4.6% unit volume
increase, a $1.9 million or 3.3% effective price increase, and a $13.5 million
or 22.2% increase associated with the acquisition of Standard Forms Limited and
Chiswick Trading, Inc. during fiscal year 1997. These increases were offset in
part by a $1.6 million or 2.6% decline attributable to the discontinuation of
Kinko's retail initiative and a $1.7 million or 2.9% decline attributable to
higher promotional discounting.
<PAGE>
For the first quarter of fiscal 1998, cost of sales increased to 38.3% of
sales from 36.2% in last year's comparable period. This increase was due
primarily to increased freight costs in the quarter as a result of the UPS
strike and an increase in revenue generated by lower margin products associated
with recently acquired businesses. Cost of sales as a percent of sales is
anticipated to improve slightly during the year due to the elimination of the
unfavorable impact of the UPS strike in the remaining quarters of fiscal 1998.*
Selling and advertising expense decreased to 32.9% of sales in the first
quarter of fiscal 1998 from 36.9% of sales in last year's comparable quarter.
The decrease was primarily associated with reduced selling expenses related to
the discontinuation of Kinko's retail activities. Selling and advertising
expense as a percent of sales is expected to increase in the second quarter to
support seasonal product selling activities and to decline to a level slightly
below the first quarter results for the remainder of the fiscal year.*
General and administrative expense decreased to 16.1% of sales in the first
quarter of fiscal 1998 from 16.8% in last year's comparable quarter. The
decline was principally the result of a lower ratio of general and
administrative expense to sales associated with the Company's newly acquired
businesses. During the first quarter, the Company continued to increase
spending levels associated with its program to re-engineer financial and
operational information systems. General and administrative expenses as a
percent of sales is expected to remain consistent throughout the remainder of
the fiscal year.*
Investment income decreased from 0.3% of sales in the first quarter of fiscal
year 1996 to 0.1% of sales in the first quarter of fiscal 1997 due to lower
investable cash balances. Interest expense amounting to 0.6% of sales was
recorded in fiscal 1998 due to borrowings associated with the acquisition of
Chiswick Trading, Inc. incurred during the fourth quarter of fiscal 1997.
The provision for income taxes as a percentage of pre-tax income decreased to
38.8% in the first quarter of 1998 from 40.9% in the comparable quarter in
fiscal year 1997 due to changes in effective state tax rates.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share", which
will become effective during the second quarter of the Company's 1998 fiscal
year. SFAS No. 128 will require the Company in that quarter ended December 27,
1997 to restate all previously reported earnings per share information to
conform with the new pronouncement's requirements. The Company's current EPS
calculation is not expected to change significantly to conform to SFAS No.
128.*
_________________________
* This forward-looking statement reflects the Company's current expectations.
There can be no assurance the Company's actual performance will not differ
materially from those projected in such forward-looking statements due to the
important factors described in the section to this Management's Discussion and
Analysis of Financial Condition and Results of Operations titled "Forward-
Looking Information and Risk Factors to Future Performance."
<PAGE>
Forward-Looking Information and Risk Factors to Future Performance
- ------------------------------------------------------------------
From time to time, the Company or its representatives have made or may make
forward-looking statements that reflect the Company's current expectations,
orally or in writing, in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, elsewhere in the quarterly report on Form
10-Q, in other reports filed under the Securities Act of 1934, as amended, in
press releases or in statements made with the approval of an authorized
executive officer. The words or phrases "is expected," "will continue,"
"anticipates," "estimates," or similar expressions in any of these
communications are intended to identify "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A
of the Securities Act of 1933, as enacted by the Private Securities Litigation
Reform Act of 1995.
There can be no assurance the Company's actual performance will not differ
materially from that projected in such forward-looking statements due to the
important factors described below. These factors include increasing
competition, economic cycles, technological change, paper and postal costs,
customer preferences, response rates, prospect lists, governmental regulations,
inherent risks in acquisitions, disruptions to the Company's operating systems
and reliance on vendors, all of which are described in further detail below.
Increasing Competition; Pressure on Price and Margins
The Company operates in a highly competitive marketplace, in which it
competes with a variety of mail order marketers, retailers, dealers,
distributors and local printers in the marketing of business forms, stationery
and supplies to small businesses. Over the course of the past decade, mail
order providers of business forms and stationery have experienced growth in
excess manufacturing capacity. In addition, the Company has faced increasing
competition from low-price, high-volume office supply chain stores.
Improvements in the cost and quality of printing technology have increasingly
allowed dealers, distributors and local printers to gain access to products of
complex design and functionality at competitive prices. The Company currently
anticipates that these trends will continue. No assurance can be given that
competition will not have an adverse effect on the Company's business. In
addition, if any of the Company's mail order competitors were to seek to gain
or retain market share by reducing prices or increasing promotional
discounting, the Company could be compelled to reduce its prices or match the
discounts and thereby reduce its gross margin and profitability.
Economic Cycles; Variability of Performance.
The Company's standardized forms and check business accounts for a large
majority of its sales and profitability. The forms and check industry is
highly competitive and generally characterized by mature products designed
within well-established industry standards. The Company relies, in part, on
net small business formations for growth in demand for its standardized form
and check products. As a result, the Company's growth rate is closely
correlated to the strength of its target small business market. The Company's
revenue trends and operating profitability have been materially adversely
affected by recession-related contractions in the small business economy in the
past. The Company will continue to experience quarterly and annual variations
in net sales and net income as a result of changes in the levels of small
business formations and failures or from other economic events having an impact
on small businesses generally.
<PAGE>
Technological Change; Product Obsolescence and Risks to Competitive Advantage.
The Company's standardized business forms and related products are designed
to provide small businesses with the financial and business records required to
manage a business. Steady technological improvements have provided small
businesses in several market segments with alternative means to enact and
record business transactions. PC-based, point-of-sale, electronic form and
electronic transaction systems have been designed to automate several of the
functions performed by the Company's products. The price and performance
characteristics of personal laser and ink-jet printing equipment have improved
markedly in the recent past, thereby allowing small businesses a cost-
competitive means to print low-quality versions of Company forms on plain
paper. In addition, the Internet has the potential to eliminate the Company's
advantage of scale in direct marketing by providing all competitors with equal
access to customers who purchase products over the Internet. In response, the
Company has focused resources on the acquisition, development and procurement
of new products less susceptible to technological obsolescence and has
aggressively moved to develop a comprehensive electronic catalog of products to
be utilized in retail-based kiosks, PC-based software and over the Internet.
It should be noted that the Company's small business customers have proven to
be relatively slow adapters of new technology which has minimized the adverse
impact of these technological trends. However, the Company can give no
assurance that continued technological change will not have a material adverse
impact on the long-term prospects for the Company's business.
Paper Costs and Postal Rates; Risks to Margins.
The cost of paper used to produce the Company's products, catalogs and
advertising materials constitutes, directly or indirectly, approximately 20% of
consolidated revenues. In addition, the Company is reliant on the U.S. Postal
Service for delivery of most of the Company's promotional materials. Coated
paper costs for promotional materials and postal rates for third class mail
have increased significantly over the past decade. In addition, certain
segments of the paper market have demonstrated considerable price volatility
over the past five years. The Company has been able to counteract the impact
of postal and paper cost increases with cost reduction programs and selected
product price increases. Due to increased competition in the small business
forms, stationery and supplies marketplace, no assurance can be given that the
Company will be able to increase product pricing to compensate for future paper
or postal cost increases. The inability to raise prices in response to paper
or postal cost increases could reduce the Company's operating profitability and
net income.
<PAGE>
Customer Preferences; Investment Requirements & Sales Risk.
The Company's core competency is the direct marketing, manufacturing and
distribution of standardized forms and related products to small businesses.
Newly-formed small business owners are increasingly demanding custom and color-
coordinated products to create an image in addition to enabling the management
of business transactions. The relative prices charged by local printers,
contract printers and dealers for providing these custom and full-color printed
products have been declining due to technological advances in composition
systems and printing equipment. As a direct result, the cost advantage
inherent to the Company's standardized forms and related printed products has
declined. The Company is responding with focused investment in the
infrastructure required to sell, compose, print and distribute custom and full-
color products. This effort will include installation of an integrated and
flexible information system architecture and the re-engineering of many of the
Company's basic business functions. In addition, the Company will continue to
invest in its dealer and technology-based channels that more readily support
the interactive marketing required to sell custom and full-color products.
However, the Company can give no assurance that the rate of decline in demand
for standardized forms and related printed products will not accelerate, that
the interactive marketing investments will prove successful, or that the
information systems re-engineering effort will not result in operating
inefficiencies or unplanned expense. If any of such potential risks
materialize, the Company's future net sales and net income could be materially
adversely affected.
Response Rates and Customer Retention; Sales Risk.
Customer and prospect response rates to the Company's catalogs and
promotional materials have remained relatively stable over time. Continued
stability in prospect response and customer retention is primarily dependent on
the continued relevancy of the range of the Company's products to the small
business marketplace. New product introductions, to date, have generally
offset declines in response rates and retention attributable to product
obsolescence. However, the Company can make no assurances that its new product
introductions will continue to offset the rate of obsolescence of its
standardized forms products in the future. An increase in the rate of product
obsolescence or a decline in new product introductions could negatively impact
response rates and customer retention which, in turn, would have a materially
adverse impact on the Company's long-term financial performance.
<PAGE>
Prospect Lists; Sales Risk.
The Company's direct mail business has been characterized by a consistent
level of average annual sales per customer. As such, net sales growth is
dependent, in part, on an increase in customers served by the Company. Growth
in the total number of direct mail customers served by the Company depends upon
continued access to high-quality lists of newly-formed small businesses. In
the past, the Company's ability to compile proprietary prospect lists was a
distinct competitive advantage. However, the external list compilation
industry has grown more sophisticated and currently markets comprehensive lists
of newly-formed businesses to the Company and its competitors. At present, the
Company relies on the speed of its delivery of promotional materials to
prospective customers to gain advantage over competitors. However, the Company
can make no assurances that its promotional material delivery advantage will be
maintained over time. A deterioration in the Company's delivery advantage
could have a materially adverse impact on the Company's business and financial
performance.
Governmental Regulations; Sales Risk.
Future governmental legislation or regulation including, but not limited to,
the following potential regulatory actions have the potential to have a
material adverse impact on the Company's business prospects: 1) enactment of
privacy laws could constrain the Company's ability to mail promotional
materials or to telemarket to small businesses; 2) modification to U.S. Postal
Service regulations with the effect of increasing postal rates or reducing
postal delivery efficiency could have an adverse impact on the Company's
marketing efforts; and 3) institution of a ''general sales tax'', ''value added
tax'' or similar national tax could reduce demand for the Company's products.
Although the Company has no current knowledge or belief that such adverse
regulation, or similar governmental regulation is pending or imminent, it can
make no assurance that adverse governmental regulation will not have a material
adverse impact on the Company's business in the future.
Acquisitions; Inherent Risk.
From time to time the Company has acquired, or may acquire in the future, a
majority ownership position in a company or substantially all of the assets
related to a specific line of business. During fiscal year 1997, the Company
acquired Standard Forms Limited and the assets of Chiswick Trading, Inc. which,
in the aggregate comprise approximately 20% of the Company's consolidated
revenues. Such acquisitions are undertaken to enhance the Company's
competitive position in the marketplace or to gain access to new markets,
products, competencies or technologies. The Company has performed in the past
and will perform in the future a business, financial and legal due diligence
review in advance of an acquisition to corroborate the assumptions critical to
projected future performance of an acquired entity and to identify the risks
inherent to such projections. However, the Company can make no assurances that
its due diligence review will identify all potential risks associated with the
purchase, integration or operation of any acquired enterprise. If any of such
potential risks materialize, the Company's future net sales and net income
could be materially adversely affected.
<PAGE>
Operating Systems; Disasters and Disruptions.
The Company has become increasingly dependent upon its manufacturing,
administrative and computer processing infrastructure and operations to process
its high volume of small dollar value orders on an efficient, cost competitive
and profitable basis. The Company has implemented commercially reasonable
safeguards to reduce the likelihood of property loss or service disruptions and
has secured property and business interruption insurance to minimize the
adverse financial consequences arising from a select group of risks. However,
the Company can make no assurances that its infrastructure and operations are
not susceptible to loss or disruption, whether caused by (i) intentional or
unintentional acts of Company personnel or third party service providers, or
(ii) natural disasters including, but not limited to, earthquakes, fire or
severe storms. In addition, the Company can make no assurance that its
insurance coverage will adequately respond to all potential causes of property
loss or service disruption. In the event that any such acts or disasters lead
to property loss or operating system disruption for which property and business
interruption insurance coverage is unavailable or insufficient, the Company's
financial performance and long-term prospects could be materially adversely
affected.
Computer Systems; Year 2000 Impact
The Company and its vendors have become increasingly reliant on computer
systems to process transactions and to provide relevant business information.
The majority of computer systems designed prior to the mid-1990s are
susceptible to a well publicized problem associated with an inability to
process date related information beyond the year 2000. Without proactive
modifications to routines and programs, many systems of the Company and its
vendors could be rendered useless as early as June of 1999. The Company has
created a comprehensive plan to address the year 2000 issue with respect to
both internal systems and to systems employed by critical vendors. However,
the Company can make no assurance that all year 2000 risks to Company and
critical vendor systems can be identified and successfully negated through
modification of existing programs prior to June of 1999. In the event that any
year 2000 program deficiencies remain undetected, or in the event that any
programming modifications do not adequately address the year 2000 issues, the
Company or its vendors could experience critical operating system failure. Any
such operating system failure could have a material adverse impact on the
Company's financial performance and long-term prospects.
Raw Materials and Services; Reliance on Certain Vendors
The Company has become increasingly reliant on certain individual third-party
vendors to provide raw materials and services critical to the Company's
operations in order to gain the advantage of volume-related favorable pricing
and, in some instances, favorable contract terms. Such critical vendors and
the nature of the products or services provided include, but are not limited
to, the United States Postal Service for the delivery of marketing materials,
MCI Telecommunications Corporation for the provision of toll-free telephone
services, R.R. Donnelley and Sons, Inc. for printing and processing of
marketing materials, Appleton Papers, Inc. for carbonless paper, and United
Parcel Service of America, Inc. for product delivery services. In the past,
the Company has been adversely affected by disruption in the services provided
or lack of availability of the products produced by its critical vendors
resulting from a variety of factors including labor actions, inclement weather,
disasters, systems failures and market conditions. The Company can make no
assurance that its critical vendors will remain capable of providing the level
<PAGE>
of service or quantity of product required to support the Company's business,
nor that the Company could immediately identify alternative sources for
provision of the product or service on a similar cost basis. Any such service
disruption or product shortage could have a material adverse impact on the
Company's operating performance and net income.
Other Risks; Variability of Performance.
The Company has experienced in the past and will experience in the future
quarterly and annual variations in net sales and net income as a result of many
factors, including, but not limited to, the timing of catalog mailings, catalog
response rates, product mix, the timing and levels of selling, general and
administrative expenses, cost reduction programs, timing of holidays and
inclement weather. The Company's planned operating expenses are based on sales
forecasts. If net sales performance falls below expectations in any given
quarter or year, the Company's operating results could be materially adversely
affected.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
Not applicable
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1. LEGAL PROCEEDINGS
- --------------------------
To the Company's knowledge, no material legal proceedings are pending on
the date hereof to which the Company is a party or to which any property of the
Company is subject.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- --------------------------------------------------
Not applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
a. The Annual Meeting of Stockholders was held on October 24, 1997.
b. See Item 4(c) below.
c. The stockholders fixed the number of Directors to be elected at eight
and elected the following as Directors:
For Authority Withheld
--- ------------------
Robert J. Murray 12,897,142 115,367
Peter A. Brooke 12,938,666 73,843
Robert L. Gable 12,928,666 73,843
Benjamin H. Lacy 12,910,442 102,067
Herbert W. Moller 12,938,466 74,043
Jay R. Rhoads, Jr. 12,909,166 103,343
Richard H. Rhoads 12,911,166 101,343
Brian E. Stern 12,938,666 73,843
The stockholders voted to approve the NEBS 1997 Key Employee and
Eligible Director Stock Option and Stock Appreciation Rights Plan
Broker
For Against Abstain Non-Vote
--- ------- ------- --------
9,749,759 1,414,396 1,211,210 637,144
The stockholders voted to ratify the selection of Deloitte & Touche LLP
as independent auditors of the Company for the fiscal year ending June 27, 1998
For Against Abstain
--- ------- -------
13,005,459 1,383 5,667
d. Not applicable.
Item 5. OTHER INFORMATION
- --------------------------
Not applicable.
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a. Exhibits
Exhibit No. Description
---------- -----------
(2) Not applicable.
(3)(a) Certificate of Incorporation of the Registrant
(Incorporated by reference to the Company's Current
Report on Form 8-K dated October 31, 1986.)
(3)(b) Certificate of Merger of New England Business
Service, Inc. (a Massachusetts corporation) and the
Company, dated October 24, 1986 amending the
Certificate of Incorporation of the Company by adding
Articles 14 and 15 thereto. (Incorporated by
reference to the Company's Current Report on Form 8K
dated October 31, 1986.)
(3)(c) Certificate of Designations, Preferences and Rights of
Series A Participating Preferred Stock of the Company,
dated October 27, 1989. (Incorporated by reference to
the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995, filed September 15,
1995.)
(3)(d) By-Laws of the Registrant, as amended. (Incorporated
by reference to Exhibit 10(a) of the Company's
Quarterly Report on Form 10-Q for the Quarter ended
December 31, 1995, filed February 8, 1996.)
(4)(a) Specimen stock certificate for shares of Common Stock,
par value $1.00 per share. (Incorporated by reference
to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995, filed September 15,
1995.)
(4)(b) Amended and Restated Rights Agreement, dated October
27, 1989 as amended as of October 20, 1994 (the
"Rights Agreement"), between New England Business
Service, Inc. and The First National Bank of Boston,
National Association, as rights agent, including as
Exhibit B the forms of Rights Certificate Election to
Exercise. (Incorporated by reference to Exhibit 4 of
the Company's Current Report on Form 8-K dated October
25, 1994.)
(10) Not applicable
(11) Statement re computation of per share earnings.
(15) Not applicable.
(18) Not applicable.
(19) Not applicable.
<PAGE>
(22) Not applicable.
(23) Not applicable.
(24) Not applicable.
(27) Financial Data Schedule
(99) Not applicable
b. Reports on Form 8-K.
Not applicable
<PAGE>
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)
November 7, 1997 /s/John F. Fairbanks
- ----------------- --------------------
Date John F. Fairbanks
Vice-President-Chief
Financial Officer
(Principal Financial and
Accounting Officer
EXHIBIT 11
NEW ENGLAND BUSINESS SERVICE, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
SEPTEMBER 27, 1997
__________________
FULLY
PRIMARY DILUTED
_______ _______
SHARES
Weighted Average Shares of Common Stock................. 13,646 13,646
Add:
Common Stock Equivalents in the form of Stock
Options.............................................. 499 605
_______ _______
Weighted Average Common Stock and Common Stock
Equivalents............................................ 14,145 14,251
======= =======
EARNINGS
Earnings per Consolidated Statement of Income........... $ 5,961 $ 5,961
======= =======
Earnings per Share...................................... $ .42 $ .42
======= =======
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF NEW ENGLAND BUSINESS SERVICE, INC. AND ITS
SUBSIDIARIES AS OF SEPTEMBER 27, 1997 AMD 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
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> SEP-27-1997
<CASH> 5,494
<SECURITIES> 469
<RECEIVABLES> 40,232
<ALLOWANCES> (3,235)
<INVENTORY> 12,000
<CURRENT-ASSETS> 71,560
<PP&E> 107,471
<DEPRECIATION> 75,120
<TOTAL-ASSETS> 143,039
<CURRENT-LIABILITIES> 33,955
<BONDS> 0
0
0
<COMMON> 14,663
<OTHER-SE> 70,403
<TOTAL-LIABILITY-AND-EQUITY> 143,039
<SALES> 75,615
<TOTAL-REVENUES> 75,615
<CGS> 28,982
<TOTAL-COSTS> 28,982
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 684
<INTEREST-EXPENSE> 477
<INCOME-PRETAX> 9,732
<INCOME-TAX> 3,771
<INCOME-CONTINUING> 5,961
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,961
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
