<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 1995
------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1984
For the transition period from ____________ to ________________________________
Commission file number 1-5492-1
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NASHUA CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 02-0170100
- --------------------------------- --------------------------------------
(State of incorporation) (I.R.S. Employer Identification Number)
44 Franklin Street
P.O. Box 2002
Nashua, New Hampshire 03061-2002
- ---------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (603) 880-2323
---------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 3, 1995
- ----------------------------- ------------------------------------------------
Common Stock, par value $1.00 6,373,950 shares (excluding 23,620 shares held in
treasury)
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
<TABLE>
NASHUA CORPORATION AND SUBSIDIARIES
-----------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
<CAPTION>
(In thousands)
September 29,
1995 December 31,
ASSETS: (Unaudited) 1994
------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 12,242 $ 10,219
Accounts receivable 42,345 40,811
Inventories
Materials and supplies 14,385 15,713
Work in process 3,242 4,942
Finished goods 13,100 13,506
-------- --------
30,727 34,161
Other current assets 23,979 22,971
-------- --------
Total current assets 109,293 108,162
-------- --------
Plant and equipment 147,880 129,590
Accumulated depreciation (69,322) (58,733)
-------- --------
78,558 70,857
Intangible assets 45,044 23,297
Accumulated amortization (8,163) (5,772)
-------- --------
36,881 17,525
Other assets 21,061 31,281
-------- --------
Total assets $245,793 $227,825
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
- ------------------------------------
Notes and loans payable $ 50 $ 200
Current maturities of long-term debt 500 450
Accounts payable 37,329 27,374
Accrued expenses 27,210 22,107
Income taxes payable 2,835 11,242
-------- --------
Total current liabilities 67,924 61,373
Long-term debt 68,600 49,166
Other long-term liabilities 24,590 24,590
Common stock and additional capital 18,681 18,667
Retained earnings 70,953 79,744
Cumulative translation adjustment (4,204) (4,928)
Treasury stock, at cost (751) (787)
Commitments and contingencies -------- --------
Total liabilities and shareholders' equity $245,793 $227,825
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-2-
<PAGE> 3
<TABLE>
NASHUA CORPORATION AND SUBSIDIARIES
-----------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
---------------------------------------------------------------------
(UNAUDITED)
----------
<CAPTION>
(In thousands, except per share data) Three Months Ended Nine Months Ended
------------------------------- -------------------------------
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $136,242 $127,852 $397,624 $363,377
Cost of products sold 100,636 94,537 297,016 272,002
Research, selling, distribution and
administrative expenses 35,164 28,945 94,410 80,645
Restructuring and other unusual charges 8,287 - 8,287 2,600
Interest expense 1,369 668 4,273 1,695
Interest income (129) (218) (525) (316)
-------- -------- -------- --------
Income (loss) from continuing operations
before income taxes (9,085) 3,920 (5,837) 6,751
Income taxes (benefit) (1,811) 1,564 (496) 2,633
-------- -------- -------- --------
Income (loss) from continuing operations (7,274) 2,356 (5,341) 4,118
Loss from discontinued operations - - - (2,295)
-------- -------- -------- --------
Net income (loss) (7,274) 2,356 (5,341) 1,823
Retained earnings, beginning of period 79,374 79,355 79,744 82,166
Dividends (1,147) (1,144) (3,450) (3,422)
-------- -------- -------- --------
Retained earnings, end of period $ 70,953 $ 80,567 $ 70,953 $ 80,567
======== ======== ======== ========
Earnings (loss) per common and common
equivalent share:
Income (loss) from continuing operations $ (1.14) $ .37 $ (.84) $ .65
Loss from discontinued operations - - - (.36)
-------- -------- -------- --------
Net income (loss) $ (1.14) $ .37 $ (.84) $ .29
======== ======== ======== ========
Dividends per common share $ .18 $ .18 $ .54 $ .54
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
-3-
<PAGE> 4
<TABLE>
NASHUA CORPORATION AND SUBSIDIARIES
-----------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
-----------
<CAPTION>
(In thousands)
Nine Months Ended
------------------------------
Sept. 29, Sept. 30,
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities of continuing operations:
Net income (loss) $ (5,341) $ 4,118
Adjustments to reconcile net income (loss) to cash
provided by (used in) continuing operating activities:
Depreciation and amortization 13,966 11,726
Net change in working capital and other assets 17,072 (19,621)
--------- ---------
Cash provided by (used in) continuing operating activities 25,697 (3,777)
--------- ---------
Cash flows from investing activities of continuing operations:
Investment in plant and equipment (11,317) (11,935)
Acquisition of business (27,267) -
--------- ---------
Cash used in investing activities of continuing operations (38,584) (11,935)
--------- ---------
Cash flows from financing activities of continuing operations:
Proceeds from borrowings 32,800 38,400
Repayment of borrowings (13,466) (22,019)
Dividends paid (3,441) (3,422)
Proceeds and tax benefits from shares
issued under stock option plans 5 683
Purchase and reissuance of treasury stock 36 -
--------- ---------
Cash provided by financing activities of continuing operations 15,934 13,642
--------- ---------
Proceeds from sale of discontinued operations 6,950 11,115
Cash applied to activities of discontinued operations (8,052) (3,896)
Effect of exchange rate changes on cash 78 484
--------- ---------
Increase in cash and cash equivalents 2,023 5,633
Cash and cash equivalents at beginning of period 10,219 5,883
--------- ---------
Cash and cash equivalents at end of period $ 12,242 $ 11,516
========= =========
Interest paid $ 6,668 $ 2,038
========= =========
Income taxes paid $ 8,874 $ 2,605
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE> 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
Earnings Per Common and Common Equivalent Share
- -----------------------------------------------
Earnings per common and common equivalent share is computed based on the total
of the weighted average number of common shares and, as applicable, the
weighted average number of common equivalent shares outstanding during the
period.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- ------------------------------
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
1995 1994 1995 1994
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Common shares outstanding 6,373,968 6,348,140 6,373,628 6,334,524
Common share equivalents 4 15,021 175 21,294
</TABLE>
Stock Options
- -------------
At September 29, 1995, options for 485,234 shares of common stock were
outstanding. Stock options for an additional 143,560 shares may be awarded
under the Company's 1987 Stock Option Plan and stock options for an additional
247,000 shares may be awarded under the Company's 1993 Stock Incentive Plan.
Acquisition
- -----------
<TABLE>
On January 13, 1995, the Company acquired certain photofinishing operations
from Nexus Photo Ltd. The acquisition includes mail-order photofinishing
operations in France, Belgium, The Netherlands and Spain, and a wholesale film
processing business in Northern Ireland. The following unaudited pro forma
data summarizes the consolidated results of operations for the periods
indicated as if the operations had been combined at the beginning of the
periods presented, after giving effect to certain pro forma adjustments. The
pro forma data does not purport to be indicative of the results which would
actually have been attained if the combination had been in effect for the
periods indicated or which may be attained in the future.
<CAPTION>
Nine Months Ended
----------------------------------
(In thousands, Sept. 29, Sept. 30,
except per share data) 1995 1994
----------- ----------
<S> <C> <C>
Net sales $399,518 $398,856
Income (loss) from
continuing operations (5,158) 5,561
Net income (loss) (5,158) 3,266
Earnings (loss) per common
and common equivalent share:
Income (loss) from
continuing operations $ (.81) $ .87
Net income (loss) $ (.81) $ .51
</TABLE>
Included in the pro forma net loss for the nine months ended September 30, 1994
was a loss from discontinued operations of $2.3 million, or $.36 per share.
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<PAGE> 6
Restructuring and Other Unusual Charges
- ---------------------------------------
In the third quarter of 1995, the Company recorded restructuring and other
unusual pretax charges of $8.3 million. Included in this amount are charges of
$1.9 million primarily relating to salary and benefit continuation costs
recorded in connection with a workforce reduction effecting the Company's
Commercial Products Group and the realignment of Nashua's management, and costs
associated with cancelling a contractual obligation. The remaining unusual
charges of $6.4 million relate to the write-down of excess inventory, costs
associated with the relocation of remanufactured cartridge operations to Mexico
and certain channel rationalization expenses. The lower operating results and
the recognition of the restructuring and other unusual charges resulted in the
Company providing a $3 million valuation allowance against tax assets based
upon the reduced likelihood of future realization. The Company expects to
record additional restructuring and other unusual pretax charges of $7.5
million in the fourth quarter of 1995, principally relating to functional
realignment within the Company's Commercial Products Group, product
rationalization expenses and cost reduction initiatives.
As part of a 1993 restructuring plan, the Company offered certain of its
employees an early retirement program and due to a higher-than-expected level
of participation in the program, the Company recorded an additional
restructuring charge of $2.6 million in the first quarter of 1994. At
September 29, 1995 these restructuring actions are complete and no
restructuring reserves remain relative to the 1993 restructuring plan or the
additional reserves recorded in 1994.
Indebtedness
- ------------
The Company's revolving credit facility and senior note agreement require
maintenance of certain restrictive financial covenants related to interest and
fixed charge coverage, minimum tangible net worth, leverage and additional
debt. The Company was not in compliance with the interest and fixed charge
coverage portions of these covenants at September 29, 1995 and has obtained
agreements with its lenders that they will not take any action with respect to
the Company's non-compliance during a grace period which ends November 27,
1995. The Company has had preliminary discussions with its lenders regarding
amendments to its debt agreements to modify the financial covenants in a manner
that will allow the Company to remain in compliance and based upon those
discussions, the Company believes that the debt agreements will be amended by
November 27, 1995 and the banks will accommodate borrowing requests to meet
current operating needs during this period. However, the Company's lenders are
not obligated to extend additional loans under the Company's revolving credit
facility until such time as the facility is amended to address the current
non-compliance.
Other
- -----
These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting solely of normal
recurring adjustments) necessary to present fairly the financial position as of
September 29, 1995, the results of operations for the three-month and
nine-month periods ended September 29, 1995 and September 30, 1994, and cash
flows for the nine-month periods ended September 29, 1995 and September 30,
1994.
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<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Net sales for the third quarter of 1995 increased 7 percent to $136.2 million
compared to the third quarter of 1994, and for the first nine months of 1995
increased 9 percent to $397.6 million compared to the same period last year.
The increases were primarily due to the inclusion of the European and Irish
photofinishing operations acquired in January 1995 and sales improvements by
Precision Technologies partially offset by sales declines in Commercial
Products. The Company incurred a pretax operating loss in the third quarter of
1995 of $9.1 million compared to a pretax profit of $3.9 million for the same
period in 1994. For the first nine months of 1995 the Company incurred a
pretax operating loss of $5.8 million compared to an operating profit from
continuing operations of $6.8 million in the same period of 1994. The 1995
results reflect restructuring and other unusual charges of $8.3 million
discussed below. Included in the 1994 year-to-date results from continuing
operations were charges of $.9 million related to a potential acquisition of a
non-U.S. photofinishing business and a restructuring charge of $2.6 million
associated with the Company's early retirement program.
The restructuring and other unusual charges of $8.3 million recorded in the
third quarter of 1995 included approximately $1.9 million for salary and
benefit continuation costs relating to a workforce reduction of approximately
15 production and administrative employees in the Commercial Products Group and
the realignment of management. As of September 29, 1995 the Company has paid
$.2 million of the recorded $1.9 million charge. The remaining unusual charges
of $6.4 million relate to the write-down of excess inventory, costs associated
with the relocating of remanufactured cartridge operations to Mexico and
certain channel rationalization expenses. As a result of lower operating
results and recognition of the aforementioned restructuring and other unusual
charges, the Company also provided a $3 million valuation allowance against tax
assets due to the probability that such assets will not be realized. The
Company expects to record additional restructuring and other unusual pretax
charges of $7.5 million in the fourth quarter of 1995, principally relating to
realignments within the Commercial Products Group including product
rationalization expenses and other cost reduction initiatives.
In the fourth quarter of 1993, the Company recorded a restructuring charge of
$11.8 million related to the integration and streamlining of the operations of
the Commercial Products Group, as well as the consolidation of facilities and
write-down of certain assets. As part of the restructuring plan, the Company
offered certain of its employees an early retirement program and recorded an
additional restructuring charge of $2.6 million in the first quarter of 1994.
At September 29, 1995 these restructuring actions are complete and no
restructuring reserves remain relative to these charges.
The Commercial Products Group's sales for the third quarter of 1995 fell 11
percent to $70.8 million due to lower volumes of facsimile and carbonless
papers, labels and toner. Sales for the first nine months of 1995 were $237.3
million, slightly lower than the comparable 1994 period, as significantly
higher copier paper volume and higher laser printer cartridge and toner volumes
were more than offset by lower volumes of facsimile and carbonless papers and
tape. The group incurred operating losses of $10.3 million and $7.2 million in
the third quarter and year-to-date periods of 1995, respectively, compared to
operating income of $.5 million and $.8 million, respectively, in 1994.
Included in the 1995 operating loss were pretax restructuring and other unusual
charges of $7.0 million related to the write-off of excess inventory,
distribution channel
-7-
<PAGE> 8
rationalization expenses, one-time costs associated with relocating
remanufactured cartridge operations to Mexico, and severance and employment
related costs associated with realigning group management and a reduction in
workforce. Higher raw material costs, only partially offset by higher selling
prices, and the lower volume resulted in operating losses before restructuring
and other unusual charges in the third quarter and current year-to-date versus
operating income in the same periods of 1994.
Sales for the Photofinishing Group for the third quarter and first nine months
of 1995 increased 28 percent and 25 percent, respectively, versus the same 1994
periods due to the inclusion of the European and Irish photofinishing
operations acquired in January 1995. Excluding the acquired businesses,
Photofinishing Group sales declined 4 percent and 5 percent in the three and
nine month periods of 1995, respectively, compared to 1994 due to lower volume
in the U.S. mail- order operation. In the UK mail-order operation, third
quarter and year-to-date decreases in volume were offset by selling price
increases and favorable exchange rates. Operating income for the third quarter
of 1995 fell 36 percent to $3.6 million, and for the year fell 43 percent to
$7.1 million, as higher marketing expenses in the US and UK and lower US volume
more than offset the inclusion of the acquired European and Northern Ireland
operations.
Precision Technologies recorded sales of $7.1 million and $17.6 million,
respectively, in the three and nine month periods of 1995, with corresponding
operating income of $1.5 million and $3.2 million, respectively, significantly
higher than the same periods of 1994. The improvements are due to the
continued strong demand for aluminum disk substrates, improved product mix and
manufacturing efficiencies associated with the increases in volume. Management
anticipates continued strong demand of disk products through at least the end
of this year.
Administrative expenses increased 45 percent and 18 percent, respectively, for
the third quarter and first nine months of 1995 compared to the same periods
last year due primarily to the inclusion of the acquired Photofinishing
businesses. Selling expenses increased as a percentage of sales in both the
third quarter and for the current year compared to 1994 due to the inclusion of
the acquired photofinishing businesses, which generally have a higher ratio of
selling expense to sales than the Company's other businesses and higher
promotional expenses in both the US and UK photofinishing operations. Research
and development spending in 1995 has remained consistent with 1994 spending
levels as the Company maintains the increased focus on new product development
it began last year.
The effective tax benefit for the first nine months of 1995 is 8.5 percent.
The benefit is less than the U.S. statutory rate primarily due to the
establishment of a valuation allowance against long-term tax assets and the
unfavorable impact of non-deductible goodwill amortization.
Working capital decreased $5.4 million to $41.4 million from December 31, 1994,
primarily due to the restructuring and other unusual pretax charge of $8.3
million recorded in the third quarter of 1995 partially offset by the effect of
the acquisition of the European and Irish photofinishing operations acquired in
January 1995. The Company has also received $7.0 million from the repayment of
a note received in connection with the 1994 sale of the Computer Products
Group. The Company has borrowed an additional $33 million of its $75 million
revolving credit facility during 1995, with approximately $25.7 million being
used to acquire the European photofinishing business and the remainder being
used to fund tax payments associated with discontinued operations. At
September 29, 1995, borrowings under the $75 million revolving credit facility
-8-
<PAGE> 9
were $53 million. The Company believes that cash flow from operations and
available borrowing capacity, which may be temporarily restricted as described
in the following paragraph, will be adequate to cover short and long term
liquidity needs, including those arising from restructuring and other unusual
charges in the third and fourth quarters of 1995.
The Company's revolving credit facility and senior note agreement require
maintenance of certain restrictive financial covenants related to interest and
fixed charge coverage, minimum tangible net worth, leverage and additional
debt. The Company was not in compliance with the interest and fixed charge
coverage portions of these covenants at September 29, 1995 and has obtained
agreements with its lenders that they will not take any action with respect to
the Company's non-compliance during a grace period which ends November 27,
1995. The Company has had preliminary discussions with its lenders regarding
amendments to its debt agreements to modify the financial covenants in a manner
that will allow the Company to remain in compliance and based upon those
discussions, the Company believes that the debt agreements will be amended by
November 27, 1995 and the banks will accommodate borrowing requests to meet
current operating needs during this period. However, the Company's lenders are
not obligated to extend additional loans under the Company's revolving credit
facility until such time as the facility is amended to address the current
non-compliance.
On November 6, 1995, the Company announced that due to inconsistent operating
results it has discontinued its quarterly dividend. Nashua's Board of
Directors intends to review this decision at a time when the Company's
financial performance would make such reconsideration appropriate.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
- --------------------------
On September 11, 1995 the Company announced that effective immediately William
Luke had resigned his position as Vice President-Finance and Chief Financial
Officer and that Daniel M. Junius, Treasurer, had assumed the Vice
President-Finance responsibilities. Francis J. Lunger, Nashua's President and
Chief Executive Officer assumed the additional responsibilities of Chief
Financial Officer.
On November 6, 1995 Nashua Corporation announced that Francis J. Lunger had
announced his intention to resign as President, Chief Executive Officer and
Chief Financial Officer, effective November 13, 1995. Joseph A. Baute, Nashua
Corporation's Board of Directors Chairman will serve as President and Chief
Executive Officer while the Board of Directors evaluates candidates to assume
the President and Chief Executive Officer responsibilities. Daniel M. Junius,
Vice President-Finance and Treasurer assumed the additional responsibilities of
Chief Financial Officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
On October 11, 1995, the Company filed a report on Form 8-K regarding the
expected results for the third quarter of 1995.
-9-
<PAGE> 10
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NASHUA CORPORATION
------------------------------------------------
(Registrant)
Date: November 13, 1995 By: /s/Daniel M. Junius
----------------- ------------------------------------------------
Daniel M. Junius
Vice President-Finance,
Chief Financial Officer and Treasurer
(principal financial and duly authorized officer)
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, THE CONSOLIDATED STATEMENTS OF INCOME AND THE
CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-29-1995
<EXCHANGE-RATE> 1
<CASH> 12,242
<SECURITIES> 0
<RECEIVABLES> 42,345
<ALLOWANCES> 0
<INVENTORY> 30,727
<CURRENT-ASSETS> 23,979
<PP&E> 147,880
<DEPRECIATION> 69,322
<TOTAL-ASSETS> 245,793
<CURRENT-LIABILITIES> 67,924
<BONDS> 68,600
<COMMON> 18,681
0
0
<OTHER-SE> 65,998
<TOTAL-LIABILITY-AND-EQUITY> 245,793
<SALES> 397,624
<TOTAL-REVENUES> 397,624
<CGS> 297,016
<TOTAL-COSTS> 102,172
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,273
<INCOME-PRETAX> (5,837)
<INCOME-TAX> (496)
<INCOME-CONTINUING> (5,341)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,341)
<EPS-PRIMARY> (.84)
<EPS-DILUTED> 0
</TABLE>
