<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1 to
Form 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission File Number 1-5492-1
NASHUA CORPORATION
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(Exact name of registrant as specified in its Charter)
Delaware 02-0170100
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(State of incorporation) (I.R.S. Employer Identification Number)
44 Franklin Street
P.O. Box 2002
Nashua, New Hampshire 03061-2002
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (603) 880-2323
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par value $1.00 New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.(X)
Continued
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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
--- ---
The aggregate market value of voting stock held by non-affiliates of
the registrant as of March 15, 1996 was approximately $68,464,003. The number of
shares outstanding of the registrant's Common Stock as of March 15, 1996 was
6,598,940 (excluding 23,630 shares held in treasury).
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> 3
PART I
Explanatory Note: This Amendment No. 1 amends only those items in the annual
report on Form 10-K of Nashua Corporation filed with the
Securities and Exchange Commission on April 1, 1996 set
forth below.
ITEM 1. BUSINESS
GENERAL
Nashua Corporation conducts business in three segments: Commercial
Products, Photofinishing and Cerion Technologies (formerly Precision
Technologies). The consolidated sales for 1995 were $452.2 million. Foreign
sales and export sales from the United States totaled $138.8 million and
represented 30.7 percent of the Company's total sales in fiscal 1995.
Nashua was incorporated in Massachusetts in 1904 and changed its state
of incorporation to Delaware in 1957. The Company has its principal executive
offices at 44 Franklin Street, P.O. Box 2002, Nashua, New Hampshire 03061-2002
(Telephone: (603) 880-2323). References to the "Company" or to "Nashua" refer to
Nashua Corporation and its consolidated subsidiaries, unless the context
otherwise requires.
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 total purchase price
was approximately $27.6 million. Approximately $20.7 million of the purchase
price was provided under the $75 million revolving credit agreement dated
January 5, 1995.
The Company recorded restructuring and other unusual charges of $16.2
million in 1995, which included $14.3 million related to the Commercial Products
Group, primarily for business unit and functional realignments, product and
channel rationalizations, inventory write-downs related to the remanufactured
cartridge operation, and cost reduction initiatives. The remainder of the 1995
charges resulted primarily from changes in the Company's executive management
during the year, including severance and other personnel related costs. The 1995
restructuring and other unusual charges include charges of $8.2 million and $8
million in the third and fourth quarters, respectively.
On March 21, 1996, Cerion Technologies filed a registration
statement on Form S-1 with the Securities and Exchange Commission for a
proposed initial public offering of 3,840,000 shares of common stock. Of the
total, 1,615,000 shares are being offered by Cerion and 2,225,000 shares are
being offered by Nashua as the selling stockholder. If the offering is
completed as presently structured, it is estimated that the Company will
continue to own 45 percent of Cerion's outstanding stock (37 percent if the
underwriters of the offering exercise their over-allotment option in full). In
that event, Nashua will account for its investment in Cerion under the equity
method.
Cerion Technologies, based in Champaign, Illinois, is an independent
supplier of aluminum substrates for the computer disk drive industry. All or
most of the proceeds anticipated to be generated from the sale of shares
offered by Nashua will be used to prepay a portion of the Company's debt.
The Company's revolving credit facility and senior note agreement
require maintenance of certain restrictive financial covenants related to
interest and fixed charge coverage, tangible net worth, leverage and additional
debt. Since September 29, 1995, the Company has not been in compliance with the
interest and fixed charge coverage portions of these agreements. Since the
initial date of technical default, the lenders have provided the Company with a
forbearance during which time the parties have been negotiating amendments to
the lending agreements in order to allow the Company to remain in compliance. As
part of the interim agreement with its lenders, interest payable on amounts
outstanding under the Revolving Credit Agreement were adjusted to the agent
bank's prime rate (Reference Rate) plus .5 percent.
On March 27, 1996, the Company reached agreement with its lenders on
the terms of amendments to existing lending agreements which will supersede the
terms and conditions of the existing $75 million revolving credit facility and
the Company's senior note agreement. Under the provisions agreed to with
lenders, the revolving credit facility will be replaced with a bank facility
(the "Bank Facility"). Advances under the Bank Facility will be made pursuant to
both a term loan arrangement and a revolving credit facility with an initial
aggregate credit availability of up to $66 million.
<PAGE> 4
Of the total revolving credit balance outstanding on the facility
closing date, $48 million will initially be designated as outstanding under the
term loan portion of the Bank Facility with the remainder designated as
outstanding under the revolving credit facility.
The revolving credit portion of the Bank Facility will provide for
initial credit availability equal to the lesser of $18 million or a defined
percentage of eligible accounts receivable and inventory. The agreement also
will provide for up to $5 million of the revolving credit facility to be
available for the issuance of letters of credit. The revolving credit portion of
the Bank Facility will expire on December 31, 1997.
The terms of the Bank Facility and revised senior note will require
certain mandatory prepayments and, with respect to the Bank Facility, contain
provisions for certain facility commitment reductions, tied to the sale or
issuance by the Company of equity securities or the sale or disposition of
assets. According to the provisions of the term loan and senior note
agreements, one-half of the amount outstanding on October 1, 1996 and December
31, 1996, respectively, will become due and payable in four equal quarterly
installments commencing in January 1997. All remaining amounts outstanding are
due on December 31, 1997. Prepayments will also be required beginning in
January 1997, based on Excess Cash Flows, as defined in the agreement.
During December 1995, the Company announced its intention to sell its
Tape Products Division, due to the continuing realignment of its Commercial
Products Group. The Tape Products Division manufactures a variety of masking and
duct tapes, and has substantially different customers, markets, distribution
channels and cost structure than the remaining Commercial Products businesses.
The proceeds to be generated from the sale will be used to prepay a portion of
the Company's debt.
The Note entitled "Information About Operations" to the Company's
Consolidated Financial Statements, which appears on page 38 of this Form 10-K,
contains financial information concerning Nashua's business segments.
COMMERCIAL PRODUCTS GROUP
In the fourth quarter of 1995, the Company announced the realignment of
the Commercial Products Group into three distinct divisions: Imaging Supplies,
Specialty Coated Products and Label Products. The realignment was designed to
better focus Nashua's businesses around traditional core markets and become more
responsive to the needs of its customers. The Commercial Products Group
manufactures and sells office and industrial imaging supplies.
IMAGING SUPPLIES The Imaging Supplies Division manufactures and sells a
variety of consumable products used in the process of reproducing and
transferring readable images. Nashua's imaging supplies are comprised of toners,
developers, remanufactured laser printer cartridges, facsimile paper and copy
paper. The Imaging Supplies Division sales were approximately $137 million for
1995, $143 million for 1994 and $153 million for 1993.
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The Division markets its toners, developers, facsimile paper, copy
paper and remanufactured laser printer cartridges to its national and
government accounts through a network of approximately 150 dealers located
throughout the United States. These dealers also purchase Nashua's imaging
supplies for resale directly to end-users. The Company also sells certain of
these products through its own sales force to office supply distributors, and
to original equipment manufacturers and private label distributors.
The Division's competitors for toners and developers include Xerox
Corporation, Canon, Inc., Ricoh Corporation and Eastman Kodak Company, which
sell supplies for use in machines manufactured by them. The Company also
competes with other smaller independent manufacturers of toner and developer
products. This market segment is competitive, with more sophisticated toner
formulas and shorter copier machine life cycles requiring timely product
development and marketing.
The Division's primary competitor for its remanufactured laser printer
cartridges is Canon, Inc. which manufactures both new and remanufactured laser
printer cartridges principally for sale to large original equipment
manufacturers, including Hewlett Packard Company, for resale under their brand
names. In addition, there are several thousand small laser printer cartridge
rechargers who provide low volumes to small customers. In 1995, in order to
reduce manufacturing costs and maintain competitive pricing, the Company
relocated its remanufactured laser printer cartridge production from Exeter,
New Hampshire to Nogales, Mexico.
SPECIALTY COATED PRODUCTS The Specialty Coated Products Division
manufactures and sells thermal and non-thermal, thermosensitive label,
Davac[RegisteredTrademark] dry-gummed label and carbonless papers. Specialty
Coated Products Division sales were approximately $54 million for 1995, $62
million for 1994 and $60 million for 1993.
Thermal papers develop an image upon contact with either a heated
stylus or a thermal print head. A major application for these papers is for use
in thermal facsimile machines. This application is expected to be adversely
affected in the future by the increased use of plain paper facsimile machines.
Thermal papers are also used in point of sale printers, airline and package
identification systems, gaming and ticketing systems, medical and industrial
recording charts and for conversion to labels. The Division's competitors
include major integrated companies such as Appleton Papers, Inc., Kanzaki Paper
Mfg. Co., Ltd., Jujo Paper Co., Ltd. and Ricoh Corporation, as well as several
other manufacturers in Japan and Europe.
The Division's thermosensitive label papers are coated with an adhesive
that is activated when heat is applied. These products are usually sold through
fine paper merchants who, in turn, resell these products to printers who convert
the papers into labels for use primarily in the pharmaceutical industry. The
Division's thermosensitive label papers are also used in the bakery industry and
the meat packaging industry.
Davac[RegisteredTrademark] dry-gummed label paper is a paper which is
coated with a moisture-activated adhesive. Davac[RegisteredTrademark]
dry-gummed label paper is sold primarily to fine paper merchants and business
forms manufacturers. It is ultimately converted into various types of labels
and stamps.
Competitors in the thermosensitive and dry-gummed label industries
include Brown-Bridge Company (a division of Spinnaker Industries, Inc.) and
Ivex Corporation.
Carbonless paper is a coated paper used in the production of multi-part
business forms which produce multiple copies without carbon paper. The product
is sold in sheet form through fine paper merchants and
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in roll form directly to the printing industry, where it is converted into
multi-part business forms. Within the carbonless paper market, Nashua generally
competes with large integrated manufacturers including Appleton Papers, Inc.,
The Mead Corporation and 3M.
LABEL PRODUCTS The Label Division sells pressure sensitive labels
through distributors and directly to end-users. Significant uses of labels
include grocery scale marking, inventory control and address labels. The Label
Division is a major supplier of labels to the supermarket industry and labels
for use in the distribution and manufacture of products. The label industry is
price sensitive and competitive, and includes competitors such as Moore,
Rittenhouse, Hobart, Avery Dennison Corporation and Uarco, Inc. plus numerous
small regional converters. A majority of the pressure-sensitive, thermal and
non-thermal roll stock used by the Label Division is manufactured by Nashua's
Specialty Coated Products Division. Label Division sales were approximately $54
million for 1995, $54 million for 1994 and $52 million for 1993.
DEVELOPMENT OF NEW PRODUCTS Success of the Commercial Products Group
depends in part on its continued ability to develop and market new products.
There can be no assurance that the Company will be able to develop and introduce
new products in a timely manner or that such products, if developed, will
achieve market acceptance. In addition, the Group's growth is dependent on its
ability to penetrate new markets and sell through alternative channels of
distribution. There can be no assurance that the markets being served by the
Commercial Products Group will continue to grow; that existing and new products
will meet the requirements of such markets; that the Group's products will
achieve customer acceptance in such markets; that competitors will not force
prices to an unacceptably low level or take market share from the Commercial
Products Group; or that the Group can achieve or maintain profits in these
markets.
SUPPLIES AND MATERIALS The Commercial Products Group depends on outside
suppliers for most of the raw materials used to produce toners and developers,
labels and label papers, carbonless papers and thermal papers, including paper
to be converted and chemicals to be used in producing the various coatings
Nashua applies. The Group purchases these materials from several suppliers and
believes that adequate supplies are available. Products purchased in finished
form (including certain toners, developers and papers) are readily available
from a variety of sources. There are no assurances that the Group's operating
results will not be adversely affected, however, by future increases in cost of
raw materials or sourced products.
MANUFACTURING OPERATIONS The Commercial Products Group operates
manufacturing facilities in Nashua, New Hampshire; Merrimack, New Hampshire;
Omaha, Nebraska; and Nogales, Mexico. All of these sites are union-based, except
for the Nogales, Mexico plant. There can be no assurance that future operating
results will not be adversely affected by labor, political and regulatory risks
in Mexico, or changes in labor wage rates or productivity.
PHOTOFINISHING
Nashua traditionally has provided mail-order photofinishing services to
amateur photographers under the tradenames York Photo Labs in the United States,
Truprint and York Photo Labs in the United Kingdom and Scot Foto and York Photo
in Canada. Nashua develops and prints films received by mail at its processing
facilities in the United States, the United Kingdom and Canada, and also sells
film, cameras and associated products to its base of customers. Nashua is the
market leader in the mail-order photofinishing business in all three countries.
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The January 1995 acquisition of certain Continental European and
Northern Ireland photofinishing operations has allowed the Company to leverage
its existing marketing, processing and system capabilities to expand into the
mail-order photofinishing markets in France, Belgium, the Netherlands and Spain,
and the wholesale market in Northern Ireland and the Irish Republic. Nashua
continues to operate the businesses under the tradenames Maxicolor and Trifica
in France, Belgium and the Netherlands, Labopost in Spain and Belmont in
Northern Ireland and the Irish Republic.
In both the mail-order and wholesale businesses, demand is generally
strongest during the third quarter due to increased picture taking by amateur
photographers during the summer months.
COMPETITORS The Company's major mail-order photofinishing competitors
include District Photo, Inc., Mystic Color Labs Inc. and Seattle Film Works,
Inc. in the United States, Grunwick Processing Laboratories Limited in the
United Kingdom, Chas. Abel Photo Services, Ltd. in Canada, Spector Photo Group
N.V. and Fotolabo S.A. in France and Colorado in the Netherlands, as well as
numerous other national, regional and local processors in countries in which
the Company operates. The proliferation of mini-labs, discount stores and mass
merchandisers offering reduced price processing could adversely impact the
mail-order segment of the photofinishing market, as well as increasing
competitiveness within the mail-order segment which has typically relied on its
lower prices as a competitive advantage over retail services.
REGULATION The Company's direct mail operations are subject to
regulation by the national and local government agencies with jurisdiction over
the areas in which they operate. In general, these regulations govern the manner
in which orders may be solicited, the form and content of advertisements,
information which must be provided to prospective customers, the time within
which orders must be filled, obligations to customers if orders are not shipped
within a specified period of time and the time within which refunds must be paid
if the ordered merchandise is unavailable or if it is returned. From time to
time the Photofinishing businesses have modified their methods of doing business
and marketing operations in response to inquiries and requests from regulatory
authorities. To date, such changes have not had an adverse effect on the
businesses. However, there can be no assurance that future regulatory
requirements or actions will not have an adverse effect on the Photofinishing
businesses' marketing programs or operations.
TECHNOLOGICAL ADVANCEMENT Although the Photofinishing businesses are
continually developing new marketing programs and developing new production
techniques, there can be no assurance that the businesses will be able to
anticipate technological advances within the photography industry. For example,
the newly announced Advanced Photo System and digital imaging systems are
currently being developed within the industry. To the extent the industry was
to move toward these new technologies and the Photofinishing business was unable
to adapt to these changes, the Photofinishing businesses' results of operations
and financial condition could be materially adversely affected.
MATERIALS AND SUPPLIERS The principal supplies and materials used by
Nashua's Photofinishing business include color print paper, photo developing
chemicals and color print films, all of which are available from several
manufacturers. Sales of the Photofinishing businesses' products and services on
a direct-to-consumer mail-order basis are largely dependent on national postal
services for receipt of orders and delivery of processed film or other products.
Any significant changes in the operations or rates of these postal services or
extended interruptions in postal deliveries could have an adverse effect on the
Photofinishing operations.
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CERION TECHNOLOGIES (FORMERLY PRECISION TECHNOLOGIES)
Cerion Technologies, based in Champaign, Illinois, manufactures and
markets precision-machined aluminum disk substrates that are used in the
production of magnetic thin-film disks for hard disk drives of portable and
desktop computers. Cerion Technologies depends on a small number of customers.
Cerion Technologies' 1995 aluminum disk substrate sales were to four customers
of which two represented approximately 47 percent and 42 percent of its sales.
Cerion does not have any long-term purchase commitments from those customers.
Cerion Technologies also produces organic photoconductor drum substrates for
laser printer cartridges and photocopiers.
On March 21, 1996, Cerion Technologies filed a registration statement
on Form S-1 with the Securities and Exchange Commission for a proposed initial
public offering of 3,840,000 shares of common stock. Of the total, 1,615,000
shares are being offered by Cerion and 2,225,000 shares are being offered by
Nashua as the selling stockholder. If the offering is completed as presently
structured, it is estimated that the Company will continue to own 45 percent of
Cerion's outstanding stock (37 percent if the underwriters of the offering
exercise their over-allotment option in full). In that event, Nashua will
account for its investment in Cerion under the equity method. All or most of
the proceeds anticipated to be generated from the sale of shares offered by
Nashua will be used to repay a portion of the Company's debt.
COMPETITION Cerion's primary competitor is Kobe Precision, Inc., a
division of Kobe Steel, Ltd. Also, several of the hard disk drive manufacturers
currently produce aluminum disk substrates internally for their own use, and
Cerion believes that a majority of its market currently is supplied by such
vertically integrated manufacturers. Moreover, these companies could make their
products available for distribution into the market as direct competitors of
Cerion. Any of these changes would reduce the already small number of current
and potential customers for Cerion's products and increase competition for the
remaining market. There can be no assurance that Cerion will be able to continue
to compete successfully with existing or new competitors.
SUPPLIERS Cerion relies on Alcoa Memory Products, Inc., a subsidiary of
Aluminum Company of America, Incorporated ("Alcoa"), as its sole supplier of the
aluminum blanks used by it for producing aluminum disk substrates. It also
relies on a sole supplier for the aluminum drum blanks used for its OPC drum
substrates, and on a limited number of suppliers for certain materials used in
its aluminum disk and OPC drum substrate manufacturing processes, including
etching chemicals and coolants. Cerion does not have any long-term supply
contracts with Alcoa or any of its other major suppliers. Changing suppliers for
certain materials would be expensive and require long lead times. For certain
materials, a change in supplier could result in Cerion being required to
re-qualify its products with certain of its customers. Any significant
limitations on the supply of raw materials could disrupt, limit or halt Cerion's
production of aluminum disk substrates or OPC drum substrates and could have a
material adverse effect on Cerion's business, operating results and financial
condition.
TECHNOLOGICAL ADVANCEMENT Although Cerion is continually developing new
products and production techniques, there can be no assurance that Cerion will
be able to anticipate technological advances or shifts and compete effectively
against competitors' new products. For example, certain glass and ceramic
substrates currently are being sold in the 65mm thin-film disk market. If these
materials were to become more prevalent, and Cerion were unable to produce glass
and ceramic substrates, Cerion's business, results of operations and financial
condition could be materially adversely affected.
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RESEARCH AND DEVELOPMENT
Nashua's research and development efforts have been instrumental in the
development of many of the products it markets. Nashua's research and
development expenditures were $9.2 million in 1995, $9.1 million in 1994 and
$7.0 million in 1993.
ENVIRONMENTAL MATTERS
The Company (and its competitors) are subject to various environmental
laws and regulations. These include the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act ("CERCLA"), the Resource Conservation and Recovery Act
("RCRA"), the Clean Water Act and other state and local counterparts of these
statutes. The Company believes that its operations have been and continue to be
operating in compliance in all material respects with the applicable
environmental laws and regulations. (Violation of these laws and regulations
could result in substantial fines and penalties.) Nevertheless, in the past and
potentially in the future, the Company has and could receive notices of alleged
environmental violations. The Company has endeavored to promptly remedy any such
violations upon notification.
For the past three years, the Company has spent approximately $1
million per year for compliance with pertinent environmental laws and
regulations. In addition, for those sites which the Company has received
notification of the need to remediate, the Company has assessed its liability
and has established a reserve for estimated costs associated therewith. At
December 31, 1995 the reserve for potential environmental liabilities was $1.5
million. Liability of "potentially responsible parties" (PRP) under CERCLA and
RCRA, however, is joint and several, and actual remediation expenses at sites
where the Company is a PRP may exceed current estimates. The Company believes
that based on the facts currently known, and the environmental reserve
recorded, its remediation expense with respect to those sites and on-going
costs of compliance are not likely to have a material adverse effect on its
liquidity, consolidated financial position or results of operations.
EMPLOYEES
Nashua and its subsidiaries had approximately 3,234 full-time employees
at March 1, 1996. Approximately 550 employees of Nashua's Commercial Products
segment are members of one of several unions, principally the United
Paperworkers International Union. There are two agreements with the United
Paperworkers International Union covering a majority of the Commercial Products
hourly employees. These agreements generally have a duration of two years and
expiration dates in the first quarter of the year.
FOREIGN OPERATIONS
During 1995, Nashua had Photofinishing subsidiaries in Canada, the
United Kingdom, Ireland, France and the Netherlands. Nashua had export sales of
approximately $36.4 million in 1995, $33.1 million in 1994 and $38.6 million in
1993.
Nashua includes revenues and other financial data from its foreign
operations in its business segment reporting according to the nature of the
product sold. The Note to the Company's Consolidated Financial Statements
entitled "Information About Operations," which appears on page 38 of this Form
10-K, contains
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additional information regarding Nashua's foreign operations during the last
three years, including identifiable assets, net sales and income (loss) from
continuing operations by geographic area.
Nashua's international sales are subject to risks that generally do not
affect businesses operating wholly within a single country. These include
political risks associated with doing business in foreign countries, exchange
control and import limitations which may impede the free movement of goods and
funds from one country to another and currency exchange rate risks. Nashua's
foreign businesses generally are adversely affected as the United States dollar
strengthens against the foreign currencies of the countries in which it does
business. From time-to-time Nashua enters into various foreign exchange
contracts to mitigate the risk of foreign currency fluctuations with respect to
foreign currency denominated transactions.
EXECUTIVE OFFICERS OF NASHUA
The information regarding the Executive Officers of Nashua is
incorporated herein by reference to Item 10 under the heading "Executive
Officers of the Registrant."
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS - 1995 COMPARED TO 1994
Net sales of $452.2 million increased 8 percent from 1994, primarily the result
of the Company's acquisition of photofinishing businesses in Europe and Ireland
in the first quarter of 1995 and increased volume in Cerion Technologies,
partially offset by a decline in sales in the Commercial Products Group. The
Company recorded a net loss from continuing operations of $15.5 million,
including restructuring and other unusual pretax charges of $16.2 million and a
valuation allowance of $3.3 million against tax assets due to the probability
that such assets will not be realized. This compared to net income from
continuing operations of $2.2 million in 1994, including pretax restructuring
and other unusual charges of $2.6 million. The Company's pretax results before
restructuring and other unusual charges decreased from income of $6.6 million in
1994 to a loss of $3.9 million in 1995 due to lower operating income in the
Photofinishing Group, increased operating losses in the Commercial Products
Group, increased spending in Microsharp, and increased interest expense,
partially offset by an increase in operating income in Cerion Technologies.
During December 1995, the Company announced its intention to sell the Tape
Products Division due to the continuing realignment of the Company's Commercial
Products Group. The Tape Products Division manufactures a variety of masking and
duct tapes, and has substantially different customers, markets, distribution
channels and cost structure than the remaining Commercial Products businesses.
The results of the Tape Products Division are reported as discontinued
operations.
<TABLE>
The total restructuring and other unusual charges of $16.2 million in 1995
included $14.3 million related to the Commercial Products Group, primarily for
business unit and functional realignments, product and channel rationalizations,
inventory write-downs related to the remanufactured cartridge operation, and
cost reduction initiatives. The remainder of the 1995 charges resulted primarily
from changes in the Company's executive management during the year, including
severance and other personnel related costs. The 1995 restructuring and other
unusual charges include charges of $8.2 million and $8 million in the third and
fourth quarters, respectively. Details of the charges related to continuing
operations and the activity recorded during 1995 are as follows:
<CAPTION>
Balance Balance
Dec. 31, Current Year Current Year Dec. 31,
(In thousands) 1994 Provision Charges 1995
-------- ------------ ------------ --------
<S> <C> <C> <C> <C>
Provisions for severance related
to workforce reductions $1,550 $ 3,000 $ 1,950 $2,600
Provisions related to other
personnel costs 150 850 850 150
Provisions for assets to be sold
or discarded 1,250 8,800 10,050 --
Other -- 3,550 1,500 2,050
------ ------- ------- ------
Total $2,950 $16,200 $14,350 $4,800
====== ======= ======= ======
</TABLE>
The current year provision for workforce reductions includes amounts for salary
and benefit continuation for approximately 110 employees as part of the
Commercial Products reorganization and product rationalization. The current year
provision for assets to be sold or discarded includes approximately $5.6 million
related to cartridge inventory write-downs, as well as other asset write-downs
resulting from product and channel
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rationalization within Commercial Products. The cartridge inventory charges
relate primarily to excess empty cartridges received in 1995 under rebate
programs and contractual obligations, most of which have been terminated. At
December 31, 1995, approximately 30 employee terminations provided for had
occurred, with the remaining separations scheduled to be completed in 1996. All
charges, excluding asset write-downs, are principally cash in nature and are
expected to be funded from operations. All restructuring activities provided for
in the balance at December 31, 1994 were completed in 1995. Amounts incurred did
not change materially from the reserve balance of $3 million. Management
anticipates all 1995 actions will be completed by the end of 1996 and estimates
annualized savings in personnel and operating costs of approximately $5 million.
Net sales for the Commercial Products Group decreased $14 million, or 5 percent,
driven by lower volumes across several product lines, somewhat offset by higher
selling prices. Volume declines were experienced in facsimile, carbonless and
copy papers, label rollstock, toner, diskettes and office catalog supplies.
Volumes increased in remanufactured laser printer cartridges and converted label
products. Selling price increases across most of the paper-based product lines
reduced the unfavorable impact of volume declines. The operating loss before
restructuring and other unusual charges increased $4.7 million compared to 1994,
primarily due to the lower volumes, partially offset by lower selling and
administrative expenses. Selling price increases were offset by higher raw
material costs.
During the last half of 1995, the Company initiated a number of actions to
reverse the sales and operating income declines experienced in the Commercial
Products Group in 1995, including changes in executive management, establishing
market-oriented business units and streamlining the workforce. Management
intends to continue to focus on the tasks of implementing these actions in 1996.
Net sales in the Photofinishing Group increased $33.8 million, or 23 percent,
from the prior year due to the acquisition of European and Irish photofinishing
operations in the first quarter of 1995. To a lesser extent, sales increased
from higher selling prices in the U.S. and U.K. as well as from the impact of a
weaker U.S. dollar. These favorable impacts were offset by lower volumes in the
U.S., U.K. and Canada resulting from continued competitive pressure. Operating
income declined $9.2 million from the prior year, resulting from lower volume in
the U.S. and Canada, as well as higher marketing costs in the U.S. and U.K.
Higher marketing costs in the U.S. resulted from increased postal rates, higher
mailer costs and increased circulation volumes. U.K. marketing costs increased
due to investments in new and redesigned brand launches as well as an increase
in the cost of mailers.
Sales for Cerion Technologies increased $13.5 million to $27.5 million in
1995, and operating income increased to $6 million in 1995 from a loss of $.2
million in 1994. The improvements are due to continued strong demand for
aluminum substrates, improved product mix and manufacturing efficiencies
associated with the increases in volume.
Administrative expenses increased 23 percent as the result of the photofinishing
businesses acquired in 1995, partially offset by efficiencies resulting from the
restructuring actions taken in 1994. Selling and distribution expenses as a
percent of sales increased 13 percent due to the 1995 photofinishing
acquisition. Research and development expenses were substantially unchanged year
to year.
The effective tax rate for continuing operations was a benefit of 23.2 percent
in 1995 compared to a charge of 45.2 percent in 1994. The tax benefit was 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.
-14-
<PAGE> 13
On March 21, 1996, Cerion Technologies filed a registration statement on Form
S-1 with the Securities and Exchange Commission for a proposed initial public
offering of 3,840,000 shares of common stock. Of the total, 1,615,000 shares
are being offered by Cerion and 2,225,000 shares are being offered by Nashua as
the selling stockholder. If the offering is completed as presently structured,
it is estimated that the Company will continue to own 45 percent of Cerion's
outstanding stock (37 percent if the underwriters of the offering exercise
their over-allotment option in full). In that event, Nashua will account for
its investment in Cerion under the equity method.
As of March 1, 1996, Cerion distributed a dividend to Nashua in the form of a
Promissory Note (the "Note") payable to Nashua in the principal sum of $10
million. The Note bears interest at the rate of 7.32 percent per annum from
March 1, 1996 to September 30, 1996. Thereafter, until February 28, 1998, when
the full amount of the Note becomes due, interest will accrue at a rate equal to
prime plus 2.5 percent per annum. If the Note is paid in full on or before May
31, 1996, the lesser of $.2 million or all interest accrued as of the date of
payment will be forgiven. Thereafter, the amount of prepayment discount on the
Note will decline each month through August 31, 1996. Any prepayment made by
Cerion will be without penalty but, after August 31, 1996, will not have the
benefit of any prepayment discount. Until such time as Cerion is no longer a
wholly-owned subsidiary of Nashua Corporation, the intercompany note will be
eliminated in the Company's consolidated financial statements.
Cerion Technologies, based in Champaign, Illinois, is an independent supplier
of aluminum substrates for the computer disk drive industry. All or most of the
proceeds anticipated to be generated from the sale of shares offered by Nashua
will be used to prepay a portion of the Company's debt.
RESULTS OF CONTINUING OPERATIONS - 1994 COMPARED TO 1993
Net sales of $418.9 million declined slightly from 1993. The Company generated
after-tax income from continuing operations of $2.2 million which included
pretax restructuring and other unusual charges of $2.6 million. This compared to
after-tax income from continuing operations of $.3 million in 1993 which
included pretax restructuring and other unusual charges of $11.8 million. Net
sales for the year decreased in the Commercial Products Group and in the
Photofinishing Group, and were substantially unchanged for Cerion Technologies.
Pretax income from continuing operations, excluding restructuring charges, was
$6.6 million compared to $12.4 million in 1993, primarily due to the decline in
operating income in the Commercial Products Group and expenses related to the
development of the new Microsharp business.
In 1994, the Company created the Commercial Products Group by combining the
former Office Supplies and Coated Products Groups. The objective of this
reorganization was to improve service levels, leverage selling capabilities and
reduce costs by offering the full breadth of Nashua products to all customers.
In connection with these changes, the Company's office supplies catalog business
was merged with existing sales and marketing operations of the new Commercial
Products Group. In addition, the Company spent approximately $1 million in 1994
on professional fees associated with the development of customer interface
systems.
Net sales for the Commercial Products Group decreased $5.3 million, or 2
percent, to $259.5 million, due to reduced diskette and remanufactured laser
printer cartridge volume partially offset by volume gains for thermal labels,
heat seal and copy paper. Operating income before restructuring and other
unusual charges compared unfavorably to 1993 by $3.3 million, primarily due to
extremely competitive toner pricing, a shift to lower margin toners, lower
remanufactured laser printer cartridge volume, and significantly higher raw
material prices across many product lines. Selling price increases only
partially offset the impact of higher raw material costs.
Net sales in the Photofinishing Group decreased $3.3 million, approximately 2
percent, to $145.4 million. Continued competitive pressure resulted in lower
volume in the U.S. compared to the prior year, partially offset by higher volume
in the U.K. operation. In addition, U.S. sales in 1994 were depressed by lower
prices in the first quarter compared to the comparable period of the prior year,
partially offset by improvements in price throughout the year, especially the
fourth quarter. While volume and pricing pressures adversely impacted gross
margin, operating income, excluding restructuring charges, was substantially
unchanged year over year due to lower administrative costs.
Cerion Technologies transitioned in 1994 from a captive supplier of
substrates to an independent supplier. Net sales were substantially unchanged
year to year at $14 million. Operating income declined $.8 million to a loss of
$.2 million, primarily due to manufacturing changeover costs and market
introduction costs associated with new products being offered to an expanded
customer base.
Administrative expenses decreased approximately 8 percent, primarily as a result
of efficiencies resulting from the restructuring actions taken in 1994. Selling
and distribution expenses as a percentage of sales were essentially unchanged.
Research and development expenses increased $2.1 million to $9.1 million as a
result of the Company's investment in Microsharp display technology and new
product development for the Commercial Products Group.
-15-
<PAGE> 14
In the fourth quarter of 1993, the Company recorded restructuring and other
unusual charges totaling $48.5 million. Approximately $36.7 million of this
amount related to management's decision to sell or otherwise liquidate the
thin-film disk, oxide disk and diskette manufacturing operations of the Computer
Products Group. The 1993 charge also included approximately $11.8 million
related to the integration and streamlining of the operations of the Commercial
Products Group, including workforce reductions, as well as consolidation of
facilities and the 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 pretax charge in the first quarter of 1994 of $5.7
million, of which $2.6 million related to the Company's continuing operations
and $3.1 million related to discontinued operations.
During the second quarter of 1994, the Company sold substantially all of its
Computer Products businesses for total cash proceeds of $11.1 million,
subordinated notes of $4.9 million and future royalty payments based on sales of
the oxide disk and head-disk-assembly operations. In addition, the Company
received cash proceeds of approximately $2 million based on the 1994 operating
results of the thin-film disk operation. The amounts received were not
materially different from the estimates included in the 1993 charge. As a result
of the sale of these businesses, the related results of operations were
reclassified as discontinued operations.
<TABLE>
The details of the Company's 1993 restructuring and other unusual charges
related to continuing operations and the activity recorded during 1994 are as
follows:
<CAPTION>
Balance Balance
Dec. 31, 1994 1994 Dec. 31,
(In thousands) 1993 Provision Charges 1994
-------- --------- ------- --------
<S> <C> <C> <C> <C>
Provisions related to workforce reductions:
Severance costs $ 3,850 $ 700 $ 3,000 $1,550
Pension and OPEB costs 900 2,600 3,500 --
Provisions related to other personnel costs 1,100 -- 950 150
Provisions for assets to be sold or discarded 5,100 (1,100) 2,750 1,250
Other 850 400 1,250 --
------- ------- ------- ------
Total $11,800 $ 2,600 $11,450 $2,950
======= ======= ======= ======
</TABLE>
The 1993 restructuring and other unusual charges included provisions for salary
and benefit continuation costs for approximately 170 employees. The 1994
provision represented a revision in the Company's original estimate of severance
costs primarily as a result of approximately 20 additional employee terminations
from the Company's Commercial Products Group rather than from discontinued
operations. As of December 31, 1994, substantially all planned employee
reductions had taken place, and the remaining accrual represented payments made
to these former employees in the first half of 1995. Pension and OPEB costs
recorded in 1993 relate to curtailment charges recognized in connection with the
planned workforce reductions. The provision recognized in 1994 was recorded in
connection with the Company's early retirement program based upon the actual
number of employee acceptances. Provisions for other personnel costs relate
primarily to relocation costs.
The provisions for assets to be sold or discarded included a charge of
approximately $1.8 million to write-down certain corporate and manufacturing
facilities to their estimated net realizable value, as well as the costs
associated with holding certain vacated portions of these facilities during the
period until the property can be sold or otherwise disposed. During 1994, the
Company commissioned an appraisal of its corporate and manufacturing facilities,
and as a result of the appraisal, revised upward its estimate of proceeds to be
realized upon disposal. Other than as described above, there were no material
changes during the year to the Company's original estimate of the costs
associated with the restructuring actions.
-16-
<PAGE> 15
The effective tax rate for continuing operations was 45.2 percent compared to 56
percent in 1993. The effective tax rate is higher than the U.S. statutory rate
in 1994 primarily due to the impact of non-deductible goodwill.
EFFECT OF INFLATION AND CHANGING PRICES
The Company believes that results of operations as reported in its historical
cost financial statements reasonably match current costs, except for
depreciation, with revenues generated in the period. Depreciation expense based
on the current costs of plant and equipment would be significantly higher than
depreciation expense reported in the historical financial statements; however,
such expense would not affect cash provided by operating activities.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Working capital decreased approximately $15 million in 1995, primarily due to
increases in accrued restructuring and other unusual charges, decreased
inventories and receivables in the Commercial Products Group and tax payments
related to discontinued operations, offset by increased receivables in Cerion
Technologies. At year-end, the ratio of total debt to equity increased to 92
percent from 54 percent at December 31, 1994. The Company suspended its
quarterly dividend in the fourth quarter and intends to review the decision when
the Company's financial performance would make such reconsideration appropriate.
The Company relies primarily on cash provided by operating activities to fund
its normal additions to plant and equipment. Investments in plant and equipment
in 1995 were approximately $13 million.
In January 1995, the Company replaced its existing $40 million revolving credit
facility with a similar $75 million facility. This new agreement provided $20.7
million of the $27.6 million purchase price for the photofinishing businesses
acquired on January 13, 1995. Borrowings of $53 million were outstanding under
this facility at December 31, 1995, compared with $33 million outstanding under
the previous facility at December 31, 1994. In addition, the Company has $15
million outstanding at December 31, 1995 under a senior note agreement with an
insurance company.
The Company's revolving credit facility and senior note agreement require
maintenance of certain restrictive financial covenants related to interest and
fixed charge coverage, tangible net worth, leverage and additional debt. Since
September 29, 1995, the Company has not been in compliance with the interest and
fixed charge coverage portions of these agreements. Since the initial date of
technical default, the lenders have provided the Company with a forbearance
during which time the parties have been negotiating amendments to the lending
agreements in order to allow the Company to remain in compliance. As part of the
interim agreement with its lenders, interest payable on amounts outstanding
under the revolving credit facility were adjusted to the agent bank's prime rate
(Reference Rate) plus .5 percent. The weighted average rate in effect at
December 31, 1995 for borrowings under the revolving credit facility was 8
percent per annum. See additional discussion in the Subsequent Events note.
On March 27, 1996, the Company reached agreement with its lenders on the terms
of amendments to existing lending agreements which will supersede the terms and
conditions of the $75 million revolving credit facility and the Company's senior
note agreement. Under the provisions agreed to with the lenders, the revolving
credit facility will be replaced with a bank facility (the "Bank Facility").
Advances under the Bank Facility will be made pursuant to both a term loan
arrangement and a revolving credit facility with an initial aggregate credit
availability of up to $66 million. Interest on amounts outstanding under both
the term loan and
-17-
<PAGE> 16
revolving credit portion of the agreement will be payable at the Reference Rate
plus .5 percent. The revised senior note will be at a rate of 11.85 percent per
annum.
Of the total revolving credit balance outstanding on the facility closing date,
$48 million initially will be designated as outstanding under the term loan
portion of the Bank Facility with the remainder designated as outstanding under
the revolving credit facility.
The revolving credit portion of the Bank Facility will provide for initial
credit availability equal to the lesser of $18 million or a defined percentage
of eligible accounts receivable and inventory. The agreement will also provide
for up to $5 million of the revolving credit facility to be available for the
issuance of letters of credit. The revolving credit portion of the Bank Facility
will expire on December 31, 1997.
The terms of the Bank Facility and revised senior note will require certain
mandatory prepayments and, with respect to the Bank Facility, contain
provisions for certain facility commitment reductions, tied to the sale or
issuance by the Company of equity securities or the sale or disposition of
assets. According to the provisions of the term loan and the senior note,
one-half of the amounts outstanding on October 1, 1996 and December 31, 1996,
respectively, will become due and payable in four equal quarterly installments
commencing in January 1997. All remaining amounts outstanding will be due on
December 31, 1997. Prepayments also will be required beginning in January 1997,
based on Excess Cash Flows, as defined in the agreement.
All or most of the proceeds to be generated from the sale of the Company's Tape
Products Division and the sale of certain equity shares in Cerion Technologies
will be used to prepay a portion of the Company's debt.
The Bank Facility will require a commitment fee of .5 percent per annum on
unused amounts, as well as a 2 percent per annum fee on letters of credit
issued under the facility. In addition, the Bank Facility and revised senior
note agreement will provide for contingent fees to be paid if the actual level
of prepayments made in 1996 are below certain specified levels.
Borrowings under the Bank Facility and revised senior note will be
collateralized by a security interest in the Company's receivables and
inventory, assets of the domestic and certain foreign subsidiaries and the
stock of certain foreign subsidiaries. Subject to shareholder approval and
certain circumstances, additional collateral may be required. The agreements
will contain certain financial covenants with respect to tangible net worth,
capital expenditures, cash flows and the ratio of cash flows to fixed charges.
In addition, the agreements will not allow the payment of dividends and will
restrict, among other things, the incurrence of additional debt, guarantees,
lease arrangements or sale of certain assets.
The Company had $36.5 million of deferred tax assets, net of a valuation
allowance of $3.3 million, and $5.3 million of deferred tax liabilities at
December 31, 1995. The deferred tax assets include $21.5 million of loss and tax
credit carryforward benefits which expire as follows: $2.8 million in 1996; $.2
million in 1997; $.1 million in 1998; $.5 million in 1999; $3 million in 2000;
and $14.9 million thereafter. These carryforwards relate primarily to the U.S.
and will require a minimum of approximately $60 million in cumulative U.S.
taxable income prior to the carryforwards' expiration in order to be fully
utilized. The remainder of the deferred tax assets pertain to net deductible
temporary differences between financial and taxable bases of assets and
liabilities such as accruals not yet paid or reserves not yet deductible for tax
purposes. In the past, taxable income has generally been higher than income for
financial reporting purposes. The Company expects this relationship to continue
in the future. The Company had $4.2 million of tax receivables at December 31,
1995, generated primarily from the carryback of the 1994 tax loss of
approximately $29.5 million.
-18-
<PAGE> 17
In April 1994, Ricoh Company, Ltd. and Ricoh Corporation ("Ricoh")
filed a Complaint with the United States District Court, District of New
Hampshire, alleging Nashua's infringement of U.S. patents 4,611,730 and
4,878,603 relating to certain toner cartridges for Ricoh copiers. The Complaint
seeks damages and injunctive relief. The products involved constitute an
insignificant amount of Nashua's sales. The Company believes it has substantial
defenses and intends to defend the action vigorously.
During 1994, the Internal Revenue Service (IRS) completed an examination of the
Company's corporate income tax returns for the years 1988 through 1991. As a
result of the IRS' findings, the Company agreed to and paid additional taxes and
interest of $7.8 million in January 1995 in connection with adjustments related
mainly to the tax treatment of certain items associated with the 1990 sale of
the International Office Systems business. On January 13, 1995, the IRS issued a
Notice of Deficiency in the amount of $8.7 million in connection with the tax
years 1990 and 1991. The tax deficiency relates to the tax treatment of income
recognized in connection with the 1990 sale of the International Office Systems
business. The major issues relate to foreign tax credits, foreign earnings and
profits computation, and the treatment of the disposition of preferred stock of
a foreign subsidiary. The Company disagrees with the position taken by the IRS
and filed a formal protest of the deficiency on February 9, 1995. In
management's opinion, the ultimate disposition of this matter will not have a
material adverse effect on the financial position or results of operations of
the Company.
The Company (and its competitors) are subject to various environmental laws and
regulations. These include the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act (CERCLA), the Resource Conservation and Recovery Act (RCRA),
the Clean Water Act and other state and local counterparts of these statutes.
The Company believes that its operations have been and continue to be operating
in compliance in all material respects with the applicable environmental laws
and regulations. (Violation of these laws and regulations could result in
substantial fines and penalties.) Nevertheless, in the past and potentially in
the future, the Company has received and could receive notices of alleged
environmental violations. The Company has endeavored to promptly remedy any such
violations upon notification.
For the past three years, the Company has spent approximately $1 million per
year in order to keep its operations in compliance with pertinent environmental
laws and regulations. In addition, for those sites which the Company has
received notification of the need to remediate, the Company has assessed its
liability and accrued what it considers to be the most likely amount within the
estimated range of remediation costs. At December 31, 1995, the accrual for
potential environmental liability was $1.5 million. Liability of "potentially
responsible parties" (PRP) under CERCLA and RCRA, however, is joint and several,
and actual remediation expenses at sites where the Company is a PRP may exceed
current estimates. The Company believes that, based on the facts currently known
and the environmental accrual recorded, its remediation expense with respect to
those sites and on-going costs of compliance are not likely to have a material
adverse effect on its liquidity, consolidated financial position or results of
operations.
Based upon projected future cash flows from operating activities, the sale of
certain assets, as well as credit availability under the revised lending
agreements, the Company believes that it has the liquidity and capital resources
needed to meet its future financial commitments.
-19-
<PAGE> 18
<TABLE>
ITEM 8. CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<CAPTION>
Year Ended December 31,
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
(In thousands, except per share data)
Net sales $ 452,196 $ 418,903 $ 427,601
--------- --------- ---------
Cost of products sold 336,037 314,559 318,278
Selling, distribution and administrative expenses 105,977 86,719 88,101
Research and development expense 9,238 9,128 6,992
Restructuring and other unusual charges 16,247 2,600 11,800
Interest expense 5,532 2,451 2,179
Interest income (686) (585) (314)
--------- --------- ---------
Total costs and expenses 472,345 414,872 427,036
Income (loss) from continuing operations before
income taxes (20,149) 4,031 565
Income taxes (benefit) (4,679) 1,821 315
--------- --------- ---------
Income (loss) from continuing operations (15,470) 2,210 250
--------- --------- ---------
Income (loss) from discontinued operations, net of tax 739 (63) (19,419)
--------- --------- ---------
Net income (loss) (14,731) 2,147 (19,169)
--------- --------- ---------
Retained earnings, beginning of year 79,744 82,166 105,880
Dividends (3,450) (4,569) (4,545)
--------- --------- ---------
Retained earnings, end of year $ 61,563 $ 79,744 $ 82,166
========= ========= =========
Earnings (loss) per common and common equivalent share:
Income (loss) from continuing operations $ (2.43) $ .35 $ .04
Income (loss) from discontinued operations .12 (.01) (3.06)
--------- --------- ---------
Net income (loss) $ (2.31) $ .34 $ (3.02)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-20-
<PAGE> 19
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
December 31,
(In thousands, except share data) 1995 1994
--------- ---------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 8,390 $ 10,219
Accounts receivable 29,579 40,811
Inventories
Materials and supplies 10,318 15,713
Work in process 2,835 4,942
Finished goods 8,870 13,506
--------- ---------
22,023 34,161
Other current assets 31,785 22,971
Net current assets of discontinued operations 7,415 --
--------- ---------
99,192 108,162
Plant and Equipment
Land 1,377 1,441
Buildings and improvements 37,739 36,638
Machinery and equipment 85,305 84,827
Construction in progress 3,237 6,684
--------- ---------
127,658 129,590
Accumulated depreciation (57,601) (58,733)
--------- ---------
70,057 70,857
Other Assets 55,481 48,806
Net Non-Current Assets of Discontinued Operations 6,642 --
--------- ---------
Total Assets $ 231,372 $ 227,825
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes and loans payable $ -- $ 200
Current maturities of long-term debt 500 450
Accounts payable 26,858 27,374
Accrued expenses 33,385 22,107
Income taxes payable 6,662 11,242
--------- ---------
67,405 61,373
Long-Term Debt
Borrowings under revolving credit agreement 53,000 33,000
Senior notes 15,000 15,000
Other long-term debt 350 1,166
--------- ---------
68,350 49,166
Other Long-Term Liabilities 20,742 24,590
--------- ---------
Shareholders' Equity
Preferred stock, par value $1.00: 2,000,000 shares authorized and unissued -- --
Common stock, par value $1.00: Authorized 40,000,000 shares
Issued 6,502,570 shares in 1995 and 6,396,570 shares in 1994 6,503 6,397
Additional capital 12,178 12,270
Retained earnings 61,563 79,744
Cumulative translation adjustment (4,618) (4,928)
Treasury stock, at cost (751) (787)
--------- ---------
74,875 92,696
Commitments and Contingencies
Total Liabilities and Shareholders' Equity $ 231,372 $ 227,825
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-21-
<PAGE> 20
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Year Ended December 31,
(In thousands) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS:
Net income (loss) $(14,731) $ 2,147 $(19,169)
Adjustments to reconcile net income (loss) to cash provided by (used in)
continuing operating activities:
Depreciation and amortization 17,400 14,146 14,061
Deferred income taxes (6,387) (1,497) (3,790)
Write-down of fixed assets to net realizable value 1,629 -- 2,000
(Income) loss from discontinued operations (739) 63 19,419
Change in operating assets and liabilities, net of effects from acquisition
and disposal of businesses:
Accounts receivable 9,345 (5,957) 3,769
Inventories 9,602 (5,760) 869
Other assets 5,900 (3,957) 6,192
Accounts payable (3,257) 59 (1,345)
Accrued expenses 7,856 (13,446) 11,020
Other long-term liabilities (3,848) 2,144 (1,289)
Income taxes payable 1,738 9,029 (149)
-------- -------- --------
Cash provided by (used in) operating activities 24,508 (3,029) 31,588
CASH FLOWS FROM INVESTING ACTIVITIES OF CONTINUING OPERATIONS
Investment in plant and equipment (13,163) (15,937) (14,489)
Acquisition of business (27,596) -- (4,286)
-------- -------- --------
Cash used in investing activities (40,759) (15,937) (18,775)
CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Proceeds from borrowings 32,800 52,900 9,900
Repayment of borrowings (13,766) (28,826) (15,223)
Dividends paid (3,450) (4,569) (4,545)
Proceeds and tax benefits from shares issued under stock option plans 14 1,081 122
Purchase and reissuance of treasury stock 36 (2) 14
-------- -------- --------
Cash provided by (used in) financing activities 15,634 20,584 (9,732)
Proceeds from sale of discontinued operations 6,950 11,115 --
Cash applied to activities of discontinued operations (8,173) (8,612) (9,345)
Effect of exchange rate changes on cash 11 215 (65)
-------- -------- --------
Increase (decrease) in cash and cash equivalents (1,829) 4,336 (6,329)
Cash and cash equivalents at beginning of year 10,219 5,883 12,212
-------- -------- --------
Cash and cash equivalents at end of year $ 8,390 $ 10,219 $ 5,883
======== ======== ========
Interest paid $ 7,565 $ 2,457 $ 2,051
======== ======== ========
Income taxes paid $ 9,054 $ 1,171 $ 5,355
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-22-
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies
BASIS OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of Nashua Corporation and its subsidiaries (the Company),
all of which are wholly-owned.
REVENUE RECOGNITION: Sales are recognized at the time the goods are shipped or
when title passes.
USE OF ESTIMATES: The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in
these financial statements and accompanying notes. The more significant areas
requiring the use of management estimates relate to allowances for obsolete
inventory and uncollectible receivables, environmental obligations,
post-employment, post-retirement and other employee benefits, valuation
allowances for deferred tax assets, future cash flows associated with assets,
and useful lives for depreciation and amortization. Actual results could differ
from those estimates.
CASH EQUIVALENTS: The Company considers all highly liquid investment instruments
purchased with a maturity of three months or less to be cash equivalents. At
December 31, 1995 and 1994, the Company held $4.3 million and $5.9 million,
respectively, of various money market instruments carried at cost, which
approximated market.
ACCOUNTS RECEIVABLE: The consolidated balance is net of allowance for doubtful
accounts of $2.4 million at December 31, 1995 and $2.6 million at December 31,
1994, respectively.
INVENTORIES: Inventories are carried at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method for approximately 77 percent
and 80 percent of the inventories at December 31, 1995 and 1994, respectively,
and by the last-in, first-out (LIFO) method for the balance. Had the FIFO method
been used to cost all inventories, the inventory balances would have been
approximately $3.4 million and $2.7 million higher at December 31, 1995 and
1994, respectively.
ADVERTISING COSTS: The Company defers certain costs related to direct-response
advertising of its products. Such costs are amortized over periods that
correspond to the estimated revenue stream of the individual advertising program
which is generally less than one year. Total deferred costs at December 31, 1995
and 1994 were $6.4 million and $4.9 million, respectively. The total amounts
charged to expense for 1995, 1994 and 1993 were $41.3 million, $25 million and
$25.9 million, respectively.
RESEARCH AND DEVELOPMENT: Research and development costs are expensed as
incurred.
PLANT AND EQUIPMENT: Plant and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to operations as incurred, while additions,
renewals and betterments of plant and equipment are capitalized. Items which are
fully depreciated, sold, retired, or otherwise disposed of, together with the
related accumulated depreciation, are removed from the accounts and, where
applicable, the related gain or loss is recognized.
<TABLE>
For financial reporting purposes, depreciation is computed using the
straight-line method over the following estimated useful lives of the assets:
<S> <C>
Buildings and improvements 5-40 years
Machinery and equipment 3-20 years
</TABLE>
-23-
<PAGE> 22
During 1993, the Company recorded charges of $21.2 million related to the
write-down of fixed assets in connection with discontinued operations. See the
Business Changes note.
GOODWILL: Included in "Other Assets" is the excess of cost over the fair value
of identifiable net assets acquired (goodwill), which is being amortized on a
straight-line basis over periods ranging from 5 to 20 years. Goodwill amounted
to $32.6 million and $14.5 million at December 31, 1995 and 1994, respectively,
which is net of accumulated amortization of $7.9 million and $5.2 million,
respectively. See the Business Changes note.
The Company periodically reviews the value of its goodwill to determine if an
impairment has occurred. The Company measures the potential impairment of
recorded goodwill by comparing the undiscounted value of expected future
operating cash flows to the related net capital investment. Based on its review,
the Company does not believe that an impairment of its goodwill has occurred.
INCOME TAXES: Prepaid or deferred income taxes result principally from the use
of different methods of depreciation and amortization for income tax and
financial reporting purposes, the recognition of expenses for financial
reporting purposes in years different from those in which the expenses are
deductible for income tax purposes and the recognition of the tax benefit of net
operating losses.
FOREIGN CURRENCY TRANSLATION: The functional currency of the Company's foreign
subsidiaries is the local currency. Accordingly, assets and liabilities of these
subsidiaries have been translated using exchange rates prevailing at the
appropriate balance sheet date, and income statement items have been translated
using average monthly exchange rates.
FINANCIAL INSTRUMENTS: The Company enters into foreign exchange contracts as
hedges against exposure to fluctuations in exchange rates associated with
certain transactions denominated in foreign currencies. Market value gains or
losses on these contracts are included in the results of operations and
generally offset gains or losses on the related transactions. The Company also
utilizes forward sales contracts to hedge market price exposure on anticipated
sales of silver alloy, a by-product of its photofinishing process. The terms of
the Company's forward contracts are generally less than one year. Gains and
losses on these contracts are deferred and recognized as adjustments of carrying
amounts when the hedged transaction occurs. Deferred gains or losses at December
31, 1995 are not significant.
The Company may selectively enter into interest rate swap agreements to reduce
the impact of interest rate changes on its floating rate debt. The notional
amounts of such agreements are used to measure carrying value (interest to be
paid or received) and do not represent the amount of exposure to loss.
In 1995, the Company entered into a three-year $10 million interest rate swap
whereby the Company pays interest at a fixed rate of 5.68 percent and receives
interest at the three-month LIBOR rate which was 5.94 percent at December 31,
1995. Net interest payable or receivable is determined on a quarterly basis, and
the net interest amounts during 1995 were insignificant. The fair value of the
interest rate swap agreement, which was not significant, approximated its
carrying value at December 31, 1995.
The Company does not hold or issue derivative financial instruments for trading
purposes.
CONCENTRATIONS OF CREDIT RISK: Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash
equivalents, short-term investments, trade receivables and financial instruments
used in hedging activities.
-24-
<PAGE> 23
The Company places its temporary cash investments with high credit quality
financial institutions and, by policy, limits the amount of credit exposure with
any one financial institution. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of geographically diverse
customers make up the Company's customer base, thus spreading the trade credit
risk. The Company performs on-going credit evaluations of its customers'
financial condition and maintains allowances for potential credit losses. The
Company generally does not require collateral or other security to support
customer receivables.
The counterparties to the agreements relating to the Company's foreign exchange
and interest rate instruments consist of a number of high credit quality
financial institutions. The Company does not believe that there is significant
risk of nonperformance by these counterparties.
ENVIRONMENTAL EXPENDITURES: Environmental expenditures relating to on-going
operations are expensed when incurred unless the expenditures extend the life,
increase the capacity or improve the safety or efficiency of the property;
mitigate or prevent environmental contamination that has yet to occur and
improve the property compared with its original condition; or are incurred for
property held for sale.
Expenditures relating to site assessment, remediation and monitoring are accrued
and expensed when the costs are both probable and the amount can be reasonably
estimated. Estimates are based on in-house or third-party studies considering
current technologies, remediation alternatives and current environmental
standards. In addition, if there are other participants and the liability is
joint and several, the financial stability of the other participants is
considered in determining the Company's accrual. Insurance and other recoveries
relating to these expenditures are recorded separately once recovery is
probable.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: Earnings per common and common
equivalent share are computed based on the total of the weighted average number
of common shares and, when applicable, the weighted average number of common
equivalent shares outstanding during the period presented.
OTHER RECENT PRONOUNCEMENTS: In March 1995, the Financial Accounting Standards
Board ("FASB") issued SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." In October 1995, the FASB
issued SFAS 123, "Accounting for Stock-Based Compensation." SFAS 121 and 123 are
effective for fiscal years beginning after December 15, 1995. The Company will
implement these statements as required. The future adoption of SFAS 121 is not
expected to have a material effect on the Company's consolidated financial
position or results of operations. The Company anticipates adopting SFAS 123
using the pro forma disclosure method described in the pronouncement.
BUSINESS CHANGES
Acquisitions
On January 13, 1995, the Company acquired certain photofinishing operations from
Nexus Photo Ltd. The acquisition included mail-order photofinishing operations
in France, Belgium, the Netherlands and Spain, and a wholesale film-processing
business in Northern Ireland. The total purchase price was $27.6 million. The
acquisition was accounted for as a purchase business combination and resulted in
the recording of approximately $22 million of related intangible assets. The
operating results of this business subsequent to the date of acquisition are
included in the Company's Consolidated Statement of Operations.
-25-
<PAGE> 24
<TABLE>
The unaudited combined condensed pro forma results listed below reflect purchase
price accounting adjustments assuming the acquisition occurred at the beginning
of 1994.
<CAPTION>
Year Ended
Dec. 31,
(In thousands, except per share data) 1994
--------
<S> <C>
Net sales $462,101
========
Income from continuing operations $ 3,090
========
Earnings per common and common equivalent share $ .49
========
</TABLE>
DISCONTINUED OPERATIONS
During December 1995, the Company announced its intention to sell the Tape
Products Division due to the continuing realignment of the Company's Commercial
Products Group. The Tape Products Division manufactures a variety of masking and
duct tapes, and has substantially different customers, markets, distribution
channels and cost structure than the remaining Commercial Products businesses.
The results of the Tape Products Division are reported as discontinued
operations in the accompanying Consolidated Statements of Operations. The
Company does not expect to incur a loss on the disposal of this division.
In the fourth quarter of 1993, the Company recorded restructuring and other
unusual charges totaling $48.5 million. Approximately $36.7 million of this
amount related to management's decision to sell or otherwise liquidate the
thin-film, oxide and diskette manufacturing operations of the Computer Products
Group.
During the second quarter of 1994, the Company sold substantially all of its
Computer Products businesses for total cash proceeds of $11.1 million,
subordinated notes of $4.9 million and future royalty payments based on sales of
the oxide disk and head-disk-assembly operations. In addition, the Company
received cash proceeds of $2 million based on the 1994 operating results of the
thin-film disk operation. The amounts received were not materially different
from the estimates included in the 1993 charge. As a result of the sale of these
businesses, the related results of operations are reported as discontinued
operations in the accompanying Consolidated Statements of Operations.
During the first quarter of 1994, the Company offered its employees an early
retirement program, and recorded an additional pretax charge of $3.1 million to
discontinued operations related to the program in the accompanying Consolidated
Statements of Operations.
<TABLE>
The results of operations of the thin-film disk, oxide disk and
head-disk-assembly operations, as well as the Tape Products Division are
summarized as follows:
<CAPTION>
Year Ended
---------------------------------------
Dec. 31, Dec. 31, Dec. 31,
(In thousands) 1995 1994 1993
------- -------- ---------
<S> <C> <C> <C>
Net sales $58,444 $ 78,911 $ 140,941
Income (loss) before income taxes 1,239 157 (31,966)
Income tax expense (benefit) 500 220 (10,035)
------- -------- ---------
Income (loss) from discontinued operations $ 739 $ (63) $ (21,931)
======= ======== =========
</TABLE>
-26-
<PAGE> 25
In April 1990, the Company sold the international portion of its Office Systems
and Supplies Group to Gestetner Holdings PLC (Gestetner). Under the terms of the
Purchase Agreement, Gestetner raised certain objections to the purchase price
totaling $15.3 million, excluding interest, which were submitted to arbitration.
In January 1994, the arbitrator issued a final ruling which resulted in a total
payment by Nashua of $1.8 million, including interest, to Gestetner. Resolution
of the purchase price allowed the Company to recognize an after-tax gain from
discontinued operations of $2.5 million in 1993.
RESTRUCTURING AND OTHER UNUSUAL CHARGES
<TABLE>
The total restructuring and other unusual charges of $16.2 million in 1995
included $14.3 million related to the Commercial Products Group, primarily for
business unit and functional realignments, product and channel rationalizations,
inventory write-downs related to the remanufactured cartridge operation, and
cost reduction initiatives. The remainder of the 1995 charges resulted primarily
from changes in the Company's executive management during the year, including
severance and other personnel related costs. The 1995 restructuring and other
unusual charges include charges of $8.2 million and $8 million in the third and
fourth quarters, respectively. Details of the charges related to continuing
operations and the activity recorded during 1995 are as follows:
<CAPTION>
Balance Balance
Dec. 31, Current Year Current Year Dec. 31,
(In thousands) 1994 Provision Charges 1995
-------- ------------ ------------ --------
<S> <C> <C> <C> <C>
1995 Activity
Provisions for severance related
to workforce reductions $1,550 $ 3,000 $ 1,950 $2,600
Provisions related to other
personnel costs 150 850 850 150
Provisions for assets to be sold
or discarded 1,250 8,800 10,050 --
Other -- 3,550 1,500 2,050
------ ------- ------- ------
Total $2,950 $16,200 $14,350 $4,800
====== ======= ======= ======
</TABLE>
The provision for workforce reductions includes amounts for salary and benefit
continuation for approximately 110 employees as part of the Commercial Products
reorganization and product rationalization. The provision for assets to be sold
or discarded includes approximately $5.6 million related to cartridge inventory
write-downs, as well as other asset write-downs resulting from product and
channel rationalization within Commercial Products. The cartridge inventory
charges relate primarily to excess empty cartridges received in 1995 under
rebate programs and contractual obligations, most of which have been terminated.
At December 31, 1995, approximately 30 employee terminations provided for had
occurred, with the remaining separations scheduled to be completed in 1996. All
charges, excluding asset write-downs, are principally cash in nature and are
expected to be funded from operations. All restructuring activities provided for
in the balance at December 31, 1994 were completed in 1995. Amounts incurred did
not change materially from the reserve balance of $3 million. Management
anticipates all 1995 actions will be completed by the end of 1996 and result in
annualized savings in personnel and operating costs of approximately $5 million.
-27-
<PAGE> 26
<TABLE>
During the fourth quarter of 1993, the Company recorded a charge of
approximately $11.8 million related to the integration and streamlining of the
operations of the Commercial Products Group, including workforce reductions,
consolidation of facilities and the write-down of certain assets. The details of
the Company's charge related to continuing operations and the activity recorded
in 1994 are as follows:
<CAPTION>
Balance Balance
Dec. 31, Current Year Current Year Dec. 31,
(In thousands) 1993 Provision Charges 1994
------- ------------ ------------ --------
<S> <C> <C> <C> <C>
1994 Activity
Provisions related to workforce
reductions:
Severance $ 3,850 $ 700 $ 3,000 $1,550
Pension and OPEB costs 900 2,600 3,500 --
Provisions related to other
personnel costs 1,100 -- 950 150
Provisions for assets to be sold
or discarded 5,100 (1,100) 2,750 1,250
Other 850 400 1,250 --
------- ------- ------- ------
Total $11,800 $ 2,600 $11,450 $2,950
======= ======= ======= ======
</TABLE>
The 1993 restructuring and other unusual charges included provisions for salary
and benefit continuation costs for approximately 170 employees. The 1994
provision represented a revision in the Company's original estimate of severance
costs primarily as a result of approximately 20 additional terminations from the
Company's Commercial Products Group rather than from discontinued operations. As
of December 31, 1995, all employee reductions related to these actions had been
completed. Pension and OPEB reserves at December 31, 1993 relate to curtailment
charges recognized in connection with the planned workforce reductions. The
provision recognized in 1994 was recorded in connection with the Company's early
retirement program based upon the actual number of employee acceptances.
Provisions for other personnel costs relate primarily to relocation costs.
The provision for assets to be sold or discarded included a charge of $1.8
million to write-down certain corporate and manufacturing facilities to their
estimated net realizable value, as well as the costs associated with holding
certain vacated portions of these facilities during the period until the
property can be sold, or otherwise disposed. During 1994, the Company
commissioned an appraisal of its corporate and manufacturing facilities, and as
a result of the appraisal revised upward its estimate of proceeds to be realized
upon disposal. Other than as described above, there were no material changes to
the Company's original estimate of the costs associated with the restructuring
actions.
INDEBTEDNESS
On January 5, 1995, the Company replaced its existing $40 million revolving
credit facility with a similar $75 million revolving credit facility. The
facility is scheduled to expire on December 31, 1997, unless otherwise extended.
Interest on amounts outstanding is payable at either LIBOR plus .75 percent to
1.125 percent, based on amounts outstanding, or at the Reference Rate at the
Company's election, or, if amounts outstanding are borrowed under competitive
bid, interest is payable at the quoted rate. The agreement requires the Company
to pay an annual commitment fee of .3125 percent on the unused portion of the
facility and .25 percent on any loans advanced under competitive bids.
Borrowings of $53 million were outstanding under this facility at December 31,
1995, compared with $33 million outstanding under the previous facility at
December 31, 1994.
-28-
<PAGE> 27
On September 13, 1991, the Company entered into a senior note agreement, as
amended, with an insurance company under which the Company borrowed $20 million
at a fixed rate of 9.17 percent. In connection with the Company's renegotiation
of its revolving credit facility, the interest rate applicable to the senior
notes was increased to 9.67 percent as of January 1, 1995. Mandatory payments of
$2.5 million were made in 1993 and 1994. The remaining balance of the notes will
become due beginning in 1997 with the final payment due in 2001.
The Company's revolving credit facility and senior note agreement require
maintenance of certain restrictive financial covenants related to interest and
fixed charge coverage, tangible net worth, leverage and additional debt. Since
September 29, 1995, the Company has not been in compliance with the interest and
fixed charge coverage portions of these agreements. Since the initial date of
technical default, the lenders have provided the Company with a forbearance
during which time the parties have been negotiating amendments to the lending
agreements in order to allow the Company to remain in compliance. As part of the
interim agreement with its lenders, interest payable on amounts outstanding were
adjusted to the Reference Rate plus .5 percent. The weighted average rate in
effect at December 31, 1995 for borrowings under the revolving credit facility
was 8 percent per annum. See additional discussion in the Subsequent Events
note.
The fair value of the Company's total debt approximated its recorded amount at
December 31, 1995 and 1994, respectively. The fair value is based on
management's estimate of current rates available to the Company for similar debt
with the same remaining maturity.
The combined aggregate amount of minimum principal payments due subsequent to
December 31, 1995 for all long-term indebtedness is $.5 million in 1996 and
$68.4 million in 1997. These minimum principal payments have been adjusted to
reflect the terms of the Company's revised lending agreements. See the
Subsequent Events note.
INCOME TAXES
<TABLE>
The domestic and foreign components of income (loss) from continuing operations
before income taxes and cumulative effect of accounting principle changes are as
follows:
<CAPTION>
(In thousands) 1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Domestic $(22,766) $(1,775) $(6,015)
Foreign 2,617 5,806 6,580
-------- ------- -------
Consolidated $(20,149) $ 4,031 $ 565
======== ======= =======
</TABLE>
<TABLE>
Income tax expense (benefit) charged to continuing operations consists of the
following:
<CAPTION>
(In thousands) 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Current:
United States $ -- $ -- $ 1,608
Foreign 1,708 3,303 2,640
State and local -- 15 82
------- ------- -------
Total current 1,708 3,318 4,330
Deferred:
United States (6,703) (612) (3,873)
Foreign 316 (885) 83
------- ------- -------
Total deferred (6,387) (1,497) (3,790)
------- ------- -------
Changes in statutory rates -- -- (225)
Income tax expense $(4,679) $ 1,821 $ 315
======= ======= =======
</TABLE>
-29-
<PAGE> 28
<TABLE>
Deferred tax liabilities (assets) are comprised of the following:
<CAPTION>
December 31,
(In thousands) 1995 1994
-------- --------
<S> <C> <C>
Depreciation $ 3,859 $ 4,393
Other 1,478 --
-------- --------
Gross deferred tax liabilities 5,337 4,393
-------- --------
Restructuring (1,886) (1,033)
Pension and postretirement benefits (9,386) (11,505)
Loss and credit carryforwards (21,478) (10,675)
Workers compensation accrual (1,343) (1,372)
Inventory reserve (2,673) (875)
Bad debt reserve (1,086) (1,261)
Other (1,997) (1,460)
-------- --------
Gross deferred tax assets (39,849) (28,181)
Deferred tax assets valuation allowance 3,300 --
-------- --------
$(31,212) $(23,788)
======== ========
</TABLE>
<TABLE>
Reconciliations between income taxes from continuing operations computed using
the United States statutory income tax rate and the Company's effective tax rate
are as follows:
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
United States statutory rate (benefit) (35.0)% 35.0% 35.0%
Goodwill 1.5 8.2 88.2
Dividend income -- -- 41.2
State and local income taxes, net of
federal tax benefit (5.6) .2 (41.4)
Tax asset valuation reserve 16.4 -- --
Foreign tax credits (1.6) -- --
Rate revaluation -- -- (52.4)
Rate difference-foreign subsidiaries (.3) (3.1) (20.7)
Other, net 1.4 4.9 6.1
----- ----- -----
Effective tax rate (benefit) (23.2)% 45.2% 56.0%
===== ===== =====
</TABLE>
At December 31, 1995, $19.3 million and $11.9 million of net tax assets were
included in "Other Current Assets" and "Other Assets," respectively. At December
31, 1994, $6.3 million and $17.5 million of tax assets were included in "Other
Current Assets" and "Other Assets," respectively.
At December 31, 1995, the Company had $14.8 million and $6.7 million of net
operating loss carryforward benefits and tax credit carryforwards, respectively,
which are primarily limited to offset certain future domestic taxable earnings.
The net operating loss carryforward benefits expire as follows: $.5 million in
1999; $2.6 million in 2000; and $11.7 million thereafter. The tax credit
carryforwards expire as follows: $2.8 million in 1996; $.2 million in 1997; $.1
million in 1998; $.4 million in 2000; and $3.2 million thereafter. These amounts
are reflected gross of a tax asset valuation reserve in the amount of $3.3
million due to the probability that certain of these assets will not be
realized.
-30-
<PAGE> 29
During 1994, the Internal Revenue Service (IRS) completed an examination of the
Company's corporate income tax returns for the years 1988 through 1991. As a
result of the IRS' findings, the Company agreed to and paid additional taxes and
interest of $7.8 million in January 1995 in connection with adjustments related
mainly to the tax treatment of certain items associated with the 1990 sale of
the International Office Systems business. On January 13, 1995, the IRS issued a
Notice of Deficiency in the amount of $8.7 million in connection with the tax
years 1990 and 1991. The tax deficiency relates to the tax treatment of income
recognized in connection with the 1990 sale of the International Office Systems
business. The major issues relate to foreign tax credits, foreign earnings and
profits computation, and the treatment of the disposition of preferred stock of
a foreign subsidiary. The Company disagrees with the position taken by the IRS
and filed a formal protest of the deficiency on February 9, 1995. In
management's opinion, the ultimate disposition of this matter will not have a
material adverse effect on the financial position or results of operations of
the Company.
It is management's intention to reinvest undistributed earnings of foreign
subsidiaries which aggregate approximately $25 million, based on exchange rates
at December 31, 1995. These earnings could become subject to additional tax if
they were remitted as dividends, if foreign earnings were lent to the Company or
if the Company should sell its stock in the subsidiaries. It is not practicable
to estimate the amount of additional tax that might be payable on undistributed
foreign earnings.
SHAREHOLDERS' EQUITY
The Company is authorized to issue up to 200,000 shares of Series A
Participating Preferred Stock in connection with its Rights Agreement under
which holders of the Company's common stock received a dividend of one preferred
stock purchase right for each outstanding share of common stock. Each Right
entitles the registered holder to purchase from the Company one one-hundredth
share of the Company's Series A Participating Preferred Stock, at a price of
$90.00. The Rights do not detach or become exercisable until the tenth business
day following the public announcement that a person has acquired, or obtained
the right to acquire, 10 percent or more of the outstanding common stock of the
Company, or the commencement of a tender or exchange offer which would result in
the acquisition of beneficial ownership of 10 percent or more of the Company's
common stock. The Rights Agreement provides that if any person or group were to
acquire 10 percent or more of the Company's common stock, then shareholders
other than the acquiring person would be entitled to purchase, at the Rights'
then-current exercise price, a number of additional Company shares having a
market value of twice the Rights' exercise price, unless the acquiring person
purchases at least 85 percent of Nashua's common stock in a cash tender offer
for all shares. The Company's Board of Directors may, at their option, exchange
one Company share of common stock for each Right (other than the Rights held by
the acquiring person) if the acquiring person has acquired more than 10 percent
but less than 50 percent of the Company's common stock. The Rights Agreement
further provides that, upon the occurrence of certain events including
transactions in which the Company is acquired and certain self-dealing
transactions with the Company by an acquirer, each Right entitles the holder
thereof (other than the acquirer) to purchase shares of capital stock of either
the Company or of the acquirer having a value equal to twice the then-current
exercise price of the Rights. At any time prior to a person's acquiring
beneficial ownership of 10 percent or more of the Company's common stock, the
Continuing Directors, by a two-thirds vote, may authorize the Company to redeem
the Rights at any time at a redemption price of five cents per Right. The Rights
will expire on September 2, 1996, unless earlier redeemed by the Company. In
addition to the Rights attaching to the common stock outstanding, Rights will be
issued with each common share that is issued prior to the time the Rights become
exercisable or expire.
-31-
<PAGE> 30
In 1989, the Board of Directors authorized the Company to repurchase up to
1,000,000 shares of its common stock. As of December 31, 1995, the Company had
purchased approximately 435,000 shares under this program.
<TABLE>
The following summarizes the changes in selected shareholders' equity accounts
for each of the three years in the period ended December 31, 1995:
<CAPTION>
Common Stock Cumulative
Par Additional Translation Treasury Stock
Shares Value Capital Adjustment Shares Cost
--------- ------ ---------- ----------- ------ ----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 6,333,690 $6,334 $ 11,130 $(5,393) (25,000) $(799)
Stock options exercised and
related tax benefit 6,740 6 116 -- -- --
Translation adjustments and
gains and losses from certain
inter-company balances -- -- -- (451) -- --
Purchase of treasury shares -- -- -- -- (120) (3)
Reissuance of treasury shares -- -- -- -- 530 17
--------- ------ -------- ------- ------- -----
BALANCE, DECEMBER 31, 1993 6,340,430 6,340 11,246 (5,844) (24,590) (785)
Stock options exercised and
related tax benefit 56,140 57 1,024 -- -- --
Translation adjustments and
gains and losses from certain
inter-company balances -- -- -- 916 -- --
Purchase of treasury shares -- -- -- -- (60) (2)
--------- ------ -------- ------- ------- -----
BALANCE, DECEMBER 31, 1994 6,396,570 6,397 12,270 (4,928) (24,650) (787)
Stock options exercised and
related tax benefit 1,000 1 13 -- -- --
Translation adjustments and
gains and losses from certain
inter-company balances -- -- -- (310) -- --
Restricted stock issuances 105,000 105 1,299 -- -- --
Deferred compensation -- -- (1,404) -- -- --
Reissuance of treasury shares -- -- -- -- 240 36
--------- ------ -------- ------- ------- -----
BALANCE, DECEMBER 31, 1995 6,502,570 $6,503 $ 12,178 $(4,618) (24,410) $(751)
========= ====== ======== ======= ======= =====
</TABLE>
STOCK OPTION AND STOCK AWARD PLANS
The Company has three stock compensation plans at December 31, 1995: the 1980
Stock Award Plan (1980 plan), the 1987 Stock Option Plan (1987 plan) and the
1993 Stock Incentive Plan (1993 plan). Awards can no longer be granted under the
1980 plan. Awards under the 1987 plan and the 1993 plan are made at the
discretion of the Executive Salary Committee of the Board of Directors. Stock
options awarded under the 1980 plan which are outstanding at December 31, 1995,
are currently exercisable and expire on the tenth anniversary of the date of
grant.
-32-
<PAGE> 31
Under the 1987 plan, nonqualified stock options and incentive stock options may
be awarded. Stock options under the 1987 plan become exercisable either (a) 50
percent on the first anniversary of grant, and the remainder on the second
anniversary of grant, (b) 100 percent at six months from the date of grant, (c)
100 percent at one year from the date of grant, or (d) otherwise as determined
by the Executive Salary Committee of the Board of Directors. Nonqualified stock
options expire 10 years and one day from the date of grant, and incentive stock
options expire 10 years from the date of grant.
Under the 1993 plan, non-statutory stock options, incentive stock options and
shares of restricted stock may be awarded. Stock options under the 1993 plan
become exercisable either (a) 50 percent on the first anniversary of grant and
the remainder on the second anniversary of grant, (b) 100 percent at one year
from the date of grant, or (c) otherwise as determined by the Executive Salary
Committee of the Board of Directors. Non-statutory stock options expire 10 years
and one day from the date of grant, and incentive stock options expire 10 years
from the date of grant. Restricted stock awards under the 1993 plan are granted
to certain key executives and are earned only if the closing price of the
Company's common stock meets specific target prices for certain defined periods
of time. During 1995, the Company granted 105,000 shares of restricted stock.
Restrictions on such shares lapse in equal amounts when the average closing
price of Nashua's common stock reaches $20, $25 and $30, respectively, for a
consecutive 30 trading day period. Shares issued under the plan are initially
recorded at their fair market value on the date of grant with a corresponding
charge to additional paid in capital representing the unearned portion of the
award. Shares of restricted stock are forfeited if the specified average closing
prices of the Company's common stock are not met within five years of grant.
In the event of a change of control, as defined in the 1987 plan and the 1993
plan, the option holder may, with respect to stock option agreements which so
provide, have a limited right with respect to options under the plans to elect
to surrender the options and receive cash or shares equal in value to the
difference between the option price and the larger of either the highest
reported price per share on the New York Stock Exchange during the sixty-day
period before the change in control or, if the change in control is the result
of certain defined transactions, the highest price per share paid in such
defined transactions.
Because the exercise price of all stock options awarded under these plans has
been equal to the quoted market price of the Company's common stock at date of
grant, or because the conditions upon which restrictions on stock awards would
lapse have not been met, no compensation expense has been recorded.
-33-
<PAGE> 32
<TABLE>
A summary of the status of the Company's stock options, under incentive plans
follows:
<CAPTION>
Outstanding Option Price Exercisable
Options Per Share Options
----------- ------------ -----------
<S> <C> <C> <C>
December 31, 1992 395,390 $11.81-38.38 357,990
Options granted 113,800 25.75-30.25 --
Options that became exercisable -- 25.50-34.63 25,350
Options exercised (6,740) 11.81-25.50 (6,740)
Options lapsed and cancelled (6,380) 25.75-34.63 (2,900)
-------- ------------- --------
December 31, 1993 496,070 $11.81-38.38 373,700
Options granted 103,950 22.63-29.50 --
Options that became exercisable -- 25.75-28.13 62,406
Options exercised (56,140) 11.81-28.13 (56,140)
Options lapsed and cancelled (158,046) 25.75-38.38 (151,981)
-------- ------------- --------
December 31, 1994 385,834 $13.75-34.63 227,985
Options granted 298,500 12.75-19.75 --
Options that became exercisable -- 22.63-30.25 101,124
Options exercised (1,000) 13.75 (1,000)
Options lapsed and cancelled (177,425) 12.75-34.63 (88,650)
-------- ------------- --------
December 31, 1995 505,909 $12.75-34.63 239,459
======== ============= ========
</TABLE>
COMMITMENTS AND CONTINGENCIES
Rent expense for office equipment, facilities and vehicles was $2.5 million,
$2.1 million and $1.8 million for 1995, 1994 and 1993, respectively. At December
31, 1995, the Company was committed, under non-cancelable operating leases, to
minimum annual rentals as follows: 1996 - $2.1 million; 1997 - $1.8 million;
1998 - $1.1 million; 1999 - $1.1 million; 2000 - $1.0 million; thereafter - $8.5
million.
At December 31, 1995, the Company was obligated under approximately $5.6 million
in standby letters of credit.
In April 1994, Ricoh Company, Ltd. and Ricoh Corporation ("Ricoh")
filed a Complaint with the United States District Court, District of New
Hampshire, alleging Nashua's infringement of U.S. patents 4,611,730 and
4,878,603 relating to certain toner cartridges for Ricoh copiers. The Complaint
seeks damages and injunctive relief. The products involved constitute an
insignificant amount of Nashua's sales. The Company believes it has substantial
defenses and intends to defend the action vigorously.
The Company is involved in certain environmental matters and has been designated
by the Environmental Protection Agency (EPA) as a "potentially responsible
party" (PRP) for certain hazardous waste sites. In addition, the Company has
been notified by certain state environmental agencies that some of the Company
sites not addressed by the EPA require remedial action. These sites are in
various stages of investigation and remediation. Due to the unique physical
characteristics of each site, the technology employed, the extended timeframes
of each remediation, the interpretation of applicable laws and regulations and
the financial viability of other potential participants, the ultimate cost to
the Company of remediation for each site is difficult to determine. At December
31, 1995, based on the facts currently known and the Company's prior experience
with these matters, the Company has concluded that there is at least a
reasonable possibility that site assessment, remediation and monitoring costs
will be incurred by the Company with respect to those sites which can be
reasonably estimated in the aggregate range of $1.5 million to $1.7 million.
This range is based, in part, on an allocation of certain sites' costs which,
due to the joint and several nature of the liability, could increase if the
other PRP's are unable to bear their allocated share. At December 31, 1995, the
Company has accrued $1.5 million which represents, in management's view, the
most likely amount within the range stated above. Based on information currently
available to the Company, management believes that it is probable that the major
responsible parties will fully pay the costs apportioned to them. Management
believes that, based on its financial position and the estimated environmental
accrual recorded, its remediation expense with respect to those sites is not
likely to have a material adverse effect on its consolidated financial position
or results of operations.
-34-
<PAGE> 33
POSTRETIREMENT BENEFITS
Pension Plans: The Company and its subsidiaries have several pension plans which
cover substantially all of its regular full-time employees. Benefits under these
plans are generally based on years of service and the levels of compensation
during those years. The Company's policy is to fund amounts deductible for
income tax purposes. Assets of the plans are invested in interest-bearing cash
equivalent instruments, fixed-income securities and common stocks.
<TABLE>
Net periodic pension cost from continuing operations for the plans, exclusive of
enhanced early retirement and curtailment pension costs, includes the following
components:
<CAPTION>
(In thousands) 1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 2,490 $ 2,771 $ 2,884
Interest cost on projected benefit obligation 8,581 7,916 7,196
Actual return on plan assets (23,622) 1,826 (17,554)
Net amortization and deferral 15,281 (9,491) 10,839
-------- ------- --------
Net periodic pension cost $ 2,730 $ 3,022 $ 3,365
======== ======= ========
</TABLE>
In February 1994, the Company offered certain of its United States employee
groups an enhanced early retirement pension benefit. The cost of the enhanced
pension benefit was $4.2 million, $2.2 million of which was attributable to
discontinued operations. In 1993, the Company recognized a curtailment expense
of $1.2 million, approximately $.6 million of which related to discontinued
operations.
<TABLE>
The following sets forth the funded status of the plans and the amounts
recognized in the Company's consolidated balance sheet at December 31, 1995:
<CAPTION>
Accumulated
Benefit Obligation
----------------------
Less Than Exceeds
(In thousands) Assets Assets
--------- --------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 49,661 $ 68,399
-------- --------
Accumulated benefit obligation $ 49,855 $ 68,557
-------- --------
Projected benefit obligation $ 50,284 $ 70,696
-------- --------
Market value of plan assets $ 54,511 $ 62,583
-------- --------
Plan assets in excess of (less than) projected benefit obligation $ 4,227 $ (8,113)
Unrecognized transition (asset) obligation (1,929) 2,025
Unrecognized prior service costs 1,322 4,297
Unrecognized net gain (2,140) (7,368)
Additional liability -- (617)
-------- --------
Prepaid (accrued) pension cost $ 1,480 $ (9,776)
======== ========
</TABLE>
-35-
<PAGE> 34
<TABLE>
The following sets forth the funded status of the plans and the amounts
recognized in the Company's consolidated balance sheet at December 31, 1994:
<CAPTION>
Accumulated
Benefit Obligation
(In thousands) Less Than Exceeds
Assets Assets
--------- --------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $41,052 $58,035
------- -------
Accumulated benefit obligation $41,863 $58,158
------- -------
Projected benefit obligation $42,189 $62,046
------- -------
Market value of plan assets $47,117 $53,137
------- -------
Plan assets in excess of (less than) projected benefit obligation $ 4,928 $(8,909)
Unrecognized transition (asset) obligation (2,196) 2,363
Unrecognized prior service costs 1,452 5,568
Unrecognized net gain (1,390) (7,731)
Additional liability -- (143)
------- -------
Prepaid (accrued) pension cost $ 2,794 $(8,852)
======= =======
</TABLE>
During 1994, the Company updated the definition of average annual compensation,
the effect of which increased the unrecognized prior service liability by $1.8
million. Approximately $4.2 million and $7.5 million of the accrued pension cost
for 1995 and 1994, respectively, are included in "Other Long-Term Liabilities"
in the accompanying consolidated balance sheet.
<TABLE>
The significant actuarial assumptions used for the plans' valuations were:
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Weighted-average discount rate 7.4% 8.2%
Expected long-term rate of return on plan assets 9.7% 9.7%
Rate of increase in future compensation levels 5.1% 5.0%
</TABLE>
RETIREE HEALTH CARE AND OTHER BENEFITS: The Company provides certain health care
and other benefits to eligible retired employees and spouses. Salaried
participants generally become eligible for retiree health care benefits after
reaching age 60 with ten years of service. Benefits, eligibility and
cost-sharing provisions for hourly employees vary by location or bargaining
unit. Generally, the medical plans pay a stated percentage of most medical
expenses, reduced for any deductibles and payments made by government programs
and other group coverage. In 1993, the postretirement benefit plan was changed
to share the cost of benefits with all retirees, resulting in an unrecognized
benefit which is being amortized over the future service period of the active
employees.
-36-
<PAGE> 35
<TABLE>
The following table sets forth the funded status of the plans, reconciled to the
accrued postretirement benefit cost recognized in the Company's balance sheet:
<CAPTION>
(In thousands) 1995 1994
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 7,143 $ 7,264
Fully eligible active plan participants 1,483 1,668
Other active participants 1,815 2,453
-------- --------
Market value of plan assets -- --
Accumulated postretirement benefit obligation
in excess of plan assets (10,441) (11,385)
Unrecognized prior service benefit (4,589) (5,221)
Unrecognized net (gain) loss (2,208) (1,232)
-------- --------
Accrued postretirement benefit cost $(17,238) $(17,838)
======== ========
</TABLE>
Approximately $16.5 million and $17.1 million of accrued postretirement benefits
for 1995 and 1994, respectively, are included in "Other Long-Term Liabilities"
in the accompanying consolidated balance sheet.
<TABLE>
Net periodic postretirement benefit cost of continuing operations, exclusive of
enhanced early retirement and curtailment costs, included the following
components:
<CAPTION>
(In thousands) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Service cost of benefits earned $ 85 $ 133 $ 162
Interest cost on accumulated postretirement
benefit obligation 768 942 791
Amortization of prior service benefit (724) (554) (554)
----- ----- -----
Net periodic postretirement benefit cost $ 129 $ 521 $ 399
===== ===== =====
</TABLE>
As part of the 1994 early retirement program, the Company offered certain of its
United States employee groups an enhanced early retirement health care benefit.
The cost of the enhanced health care benefit was $1.5 million, $.9 million of
which was attributable to discontinued operations. At December 31, 1994, the
postretirement benefit plans were amended to transfer the cost of health
supplemental benefit payments to the Company's pension plan. In 1993, the
Company recognized a curtailment expense of $.8 million, approximately half of
which related to discontinued operations, in connection with its decision to
dispose of certain operations and reduce personnel in the remaining businesses.
For measurement purposes, a 6 percent annual rate of increase in the per capita
claims cost of medical benefits was assumed for the various plans in 1995. This
rate was assumed to decrease gradually to 5 percent in 1999 and remain at that
level thereafter. The discount rate used in determining the accumulated
postretirement benefit obligation was 7.25 percent.
If the future health care cost trend rate were increased 1 percent, the
accumulated postretirement benefit obligation as of December 31, 1995 would have
increased by 2 percent. The effect of this assumed change on the aggregate of
service and interest cost for 1995 would have been an increase of 3 percent.
-37-
<PAGE> 36
INFORMATION ABOUT OPERATIONS
<TABLE>
The Company conducts business in three segments: Commercial Products,
Photofinishing and Cerion Technologies. In 1994, the Company combined its
Coated Products and Office Supplies business segments to form Commercial
Products. Commercial Products produces and sells facsimile and thermal papers,
pressure-sensitive labels, specialty papers, and copier and laser printer
supplies primarily to domestic resellers, original equipment manufacturers and
private label distributors. Photofinishing provides photofinishing services to
amateur photographers through mail-order in North America and Western Europe, as
well as through retail establishments in Ireland. Cerion Technologies
manufactures precision metallic parts primarily for the domestic computer
industry. Net sales, operating income and identifiable assets of the Company's
three business segments and the geographic areas in which they operate are set
forth below:
<CAPTION>
Net Sales From Income (loss) From
Continuing Operations Continuing Operations Identifiable Assets
(In millions) 1995 1994 1993 1995(a) 1994(b) 1993(c) 1995 1994 1993
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BY BUSINESS
Commercial Products $245.5 $259.5 $264.8 $(20.4) $ (4.0) $ (1.6) $ 84.3 $105.2 $ 91.3
Photofinishing 179.2 145.4 148.7 7.2 16.4 15.9 83.5 58.1 47.6
Cerion Technologies 27.5 14.0 14.1 6.0 (.2) .6 12.4 7.4 4.3
Corporate expenses,
including interest and assets -- -- -- (12.9) (8.2) (14.3) 37.1 40.8 33.4
Discontinued Operations -- -- -- -- -- -- 14.1 16.3 42.5
------ ------ ------ ------ ------ ------ ------ ------ ------
Consolidated $452.2 $418.9 $427.6 $(20.1) $ 4.0 $ .6 $231.4 $227.8 $219.1
====== ====== ====== ====== ====== ====== ====== ====== ======
BY GEOGRAPHIC AREA
United States $349.8 $357.5 $366.3 $(11.2) $ 6.3 $ 4.4 $112.6 $133.8 $110.5
Europe 95.5 53.6 52.3 3.0 5.0 8.6 62.5 33.3 26.7
Other 6.9 7.8 9.0 1.0 .9 1.9 5.1 3.6 6.0
Eliminations, corporate
expenses, including interest
and assets -- -- -- (12.9) (8.2) (14.3) 37.1 40.8 33.4
Discontinued Operations -- -- -- -- -- -- 14.1 16.3 42.5
------ ------ ------ ------ ------ ------ ------ ------ ------
Consolidated $452.2 $418.9 $427.6 $(20.1) $ 4.0 $ .6 $231.4 $227.8 $219.1
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Sales between business segments are insignificant. Intrasegment sales between
geographic areas are generally priced at the lowest price offered to
unaffiliated customers.
(a) Includes restructuring and other unusual charges of $14.3 million and $1.9
million for Commercial Products and Corporate, respectively.
(b) Includes restructuring and other unusual charges of $2.6 million for
Commercial Products Group.
(c) Includes restructuring and other unusual charges of $3.5 million, $.8
million and $7.5 million for Commercial Products, Photofinishing and
Corporate, respectively.
<TABLE>
Capital expenditures and depreciation and amortization by business segment are
set forth below:
<CAPTION>
Depreciation and
Capital Expenditures Amortization
1995 1994 1993 1995 1994 1993
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Commercial Products $ 8.6 $11.1 $ 9.8 $ 8.3 $ 7.9 $ 7.5
Photofinishing 2.5 3.8 2.9 8.3 5.4 5.9
Cerion Technologies 2.1 1.0 1.8 .8 .8 .7
----- ----- ----- ----- ----- -----
Consolidated $13.2 $15.9 $14.5 $17.4 $14.1 $14.1
===== ===== ===== ===== ===== =====
</TABLE>
-38-
<PAGE> 37
SUBSEQUENT EVENTS
On March 21, 1996, Cerion Technologies filed a registration statement on Form
S-1 with the Securities and Exchange Commission for a proposed initial public
offering of 3,840,000 shares of common stock. Of the total, 1,615,000 shares
are being offered by Cerion and 2,225,000 shares are being offered by Nashua as
the selling stockholder. If the offering is completed as presently structured,
it is estimated that the Company will continue to own 45 percent of Cerion's
outstanding stock (37 percent if the underwriters of the offering exercise
their over-allotment option in full). In that event, Nashua will account for
its investment in Cerion under the equity method.
As of March 1, 1996, Cerion distributed a dividend to Nashua in the form of a
Promissory Note (the "Note") payable to Nashua in the principal sum of $10
million. The Note bears interest at the rate of 7.32 percent per annum from
March 1, 1996 to September 30, 1996. Thereafter, until February 28, 1998, when
the full amount of the Note becomes due, interest will accrue at a rate equal to
prime plus 2.5 percent per annum. If the Note is paid in full on or before May
31, 1996, the lesser of $.2 million or all interest accrued as of the date of
payment will be forgiven. Thereafter, the amount of prepayment discount on the
Note will decline each month through August 31, 1996. Any prepayment made by
Cerion will be without penalty but, after August 31, 1996, will not have the
benefit of any prepayment discount. Until such time as Cerion is no longer a
wholly-owned subsidiary of Nashua Corporation, the intercompany note will be
eliminated in the Company's consolidated financial statements.
Cerion Technologies, based in Champaign, Illinois, is an independent supplier
of aluminum substrates for the computer disk drive industry. All or most of the
proceeds anticipated to be generated from the sale of shares offered by Nashua
will be used to prepay a portion of the Company's debt.
On March 27, 1996, the Company reached agreement with its lenders on the terms
of amendments to existing lending agreements which will supersede the terms and
conditions of the $75 million revolving credit facility and the Company's senior
note agreement. Under the provisions agreed to with the lenders, the revolving
credit facility will be replaced with a bank facility (the "Bank Facility").
Advances under the Bank Facility will be made pursuant to both a term loan
arrangement and a revolving credit facility with an initial aggregate credit
availability of up to $66 million. Interest on amounts outstanding under both
the term loan and revolving credit portion of the agreement will be payable at
the prime rate plus .5 percent. The revised senior note will be at a rate of
11.85 percent per annum.
Of the total revolving credit balance outstanding on the facility closing date,
$48 million initially will be designated as outstanding under the term loan
portion of the Bank Facility with the remainder designated as outstanding under
the revolving credit facility.
The revolving credit portion of the Bank Facility will provide for initial
credit availability equal to the lesser of $18 million or a defined percentage
of eligible accounts receivable and inventory. The agreement also will provide
for up to $5 million of the revolving credit facility to be available for the
issuance of letters of credit. The revolving credit portion of the Bank Facility
will expire on December 31, 1997.
The terms of the Bank Facility and revised senior note will require certain
mandatory prepayments and, with respect to the Bank Facility, contain
provisions for certain facility commitment reductions, tied to the sale or
issuance by the Company of equity securities or the sale or disposition of
assets. According to the provisions of the term loan and the senior note,
one-half of the amount outstanding on October 1, 1996 and December 31, 1996,
respectively, will become due and payable in four equal quarterly installments
commencing in January 1997. All remaining amounts outstanding will be due on
December 31, 1997. Prepayments also will be required beginning in January 1997,
based on Excess Cash Flows, as defined in the agreement.
The Bank Facility will require a commitment fee of .5 percent per annum on
unused amounts, as well as a 2 percent per annum fee on letters of credit
issued under the facility. In addition, the Bank Facility and revised senior
note agreement will provide for contingent fees to be paid if the actual level
of prepayments made in 1996 are below certain specified levels.
Borrowings under the Bank Facility and revised senior note will be
collateralized by a security interest in the Company's receivables and
inventory, assets of the domestic and certain foreign subsidiaries and the
stock of certain foreign subsidiaries. Subject to shareholder approval and
certain circumstances, additional collateral may be required. The agreements
will contain certain financial covenants with respect to tangible net worth,
capital expenditures, cash flows and the ratio of cash flows to fixed charges.
In addition, the agreements will not allow the payment of dividends and will
restrict, among other things, the incurrence of additional debt, guarantees,
lease arrangements or sale of certain assets.
-39-
<PAGE> 38
<TABLE>
QUARTERLY OPERATING RESULTS AND COMMON STOCK INFORMATION (UNAUDITED)
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE DATA) 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
1995
Net sales $ 109.6 $ 122.2 $ 121.7 $ 98.7 $ 452.2
Gross profit 26.9 33.3 33.3 22.7 116.2
Income (loss) from continuing operations(1) .1 1.5 (7.3) (9.7) (15.4)
Income from discontinued operations -- .4 -- .3 .7
Net income (loss)(1) .1 1.9 (7.3) (9.4) (14.7)
Earnings (loss) per common and common
equivalent share:
Continuing operations(1) .01 .23 (1.14) (1.53) (2.43)
Discontinued operations -- .06 -- .06 .12
Net income (loss)(1) .01 .29 (1.14) (1.47) (2.31)
Dividends .18 .18 .18 -- .54
Market price:
High 21 20 19-1/4 16-7/8 21
Low 18-1/2 18-5/8 14-3/4 12-1/4 12-1/4
1994
Net sales $ 98.0 $ 107.0 $ 113.3 $ 100.6 $ 418.9
Gross profit 22.8 28.5 30.5 22.5 104.3
Income (loss) from continuing operations(2) (1.8) 2.1 1.9 -- 2.2
Income (loss) from discontinued operations (1.7) .8 .5 .3 (.1)
Net income (loss)(2) (3.5) 2.9 2.4 .3 2.1
Earnings (loss) per common and common
equivalent share:
Continuing operations(2) (.27) .34 .29 (.01) .35
Discontinued operations (.27) .12 .08 .06 (.01)
Net income (loss)(2) (.54) .46 .37 .05 .34
Dividends .18 .18 .18 .18 .72
Market price:
High 30 3/4 27 3/8 29 1/4 23 1/8 30 3/4
Low 26 1/4 24 3/8 22 7/8 19 3/4 19 3/4
<FN>
(1) The third quarter includes restructuring and other unusual charges of $8.2
million and a valuation allowance of $3.3 million against tax assets due to
the probability that such assets will not be realized. The fourth quarter
includes restructuring and other unusual charges of $8 million.
(2) The first quarter includes restructuring and other unusual charges of $2.6
million.
</TABLE>
The Company's stock is traded on the New York Stock Exchange. At December 31,
1995, there were 1,542 record holders of Nashua's common stock.
-40-
<PAGE> 39
Report of Independent Accountants
To the Board of Directors and Shareholders of Nashua Corporation
In our opinion, the accompanying financial statements listed in the index
appearing under Item 14 (a) (1) present fairly, in all material respects, the
financial position of Nashua Corporation and its subsidiaries at December 31,
1995 and 1994 and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
February 5, 1996, except as to the Subsequent Events note, which is as of March
27, 1996
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
DIRECTORS OF THE REGISTRANT The directors are elected annually by the
stockholders and hold office until successors are elected and qualified or until
death, resignation or removal. The business experience for each director of
Nashua for the last five years and the year he first became a director of Nashua
and their ages are as follows:
<CAPTION>
DIRECTOR
NAME AGE SINCE BUSINESS EXPERIENCE
---- --- ----- -------------------
<S> <C> <C> <C>
Joseph A. Baute 68 1984 Mr. Baute has been the Chairman of Nashua Corporation since April 28, 1995
and was President and Chief Executive Officer from November 10, 1995 to
January 2, 1996. He was Chairman and Chief Executive Officer of Markem
Corporation (information application systems) from prior to 1991 until his
retirement in 1993. He is also a Director of Houghton-Mifflin Company, State
Street Bank & Trust Company and Infosoft International.
Sheldon A. Buckler(a)(c) 64 1994 Dr. Buckler has been Chairman of the Board of Commonwealth Energy
System since May 1995. He was Vice Chairman of the Board of Polaroid
Corporation from prior to 1991 until his retirement in 1994. He is also a
Director of ASECO Corporation, PARLEX Corporation and Spectrum
Information Technologies, Inc.
Richard E. Carter(b) 67 1978 Private investor.
Thomas W. Eagar(d) 46 1993 Professor Eagar has been Professor of Materials Engineering at the
Massachusetts Institute of Technology (MIT) since prior to 1991 and POSCO
Professor of Materials Engineering since 1993. He has also been Head of the
Department of Materials Science and Engineering at MIT since January 1995.
Gerald G. Garbacz 59 1996 Mr. Garbacz has been President and Chief Executive Officer of Nashua
Corporation since January 2, 1996. He was a private investor from 1994
through 1995. He was Chairman and Chief Executive Officer of Baker &
Taylor Inc. (information distribution) from 1992 to 1994 and Executive Vice
President of W.R. Grace & Co. from prior to 1991 to 1992. He is also a
Director of Handy & Harman Inc.
Charles S. Hoppin(a)(c)(d) 64 l979 Mr. Hoppin has been a partner in the law firm of Davis Polk & Wardwell
since prior to l991.
John M. Kucharski(a)(b) 60 1988 Mr. Kucharski has been the Chairman, Chief Executive Officer and President
of EG&G, Inc. (technical and scientific products and services) since prior to
l991. He is also a Director of New England Electric System, Eagle Industry
Co., Ltd. and State Street Boston Corporation.
James F. Orr III (b)(d) 53 l989 Mr. Orr has been the Chairman, Chief Executive Officer and President of UNUM
Corporation (insurance) since prior to l991.
</TABLE>
-41-
<PAGE> 40
- -------------------
(a) Member of the Audit Committee of Nashua's Board of Directors.
(b) Member of the Executive Salary Committee of Nashua's Board of
Directors.
(c) Member of the Nominating Committee of Nashua's Board of Directors.
(d) Member of the Pension Plan Review Committee of Nashua's Board of
Directors.
EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the present executive
officers of the Company for Section 16 of the Securities and Exchange Act
purposes, their ages and their positions held with the Company:
-42-
<PAGE> 41
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Gerald G. Garbacz 59 President and Chief Executive Officer
Daniel M. Junius 43 Vice President-Finance, Chief Financial Officer and Treasurer
Robin J.T. Clabburn 59 Vice President and Chief Technical Officer
Bruce T. Wright 46 Vice President
Charles E. Turnbull 43 Vice President
John R. Mapley 64 Vice President
David A. Peterson 56 Vice President
</TABLE>
Mr. Garbacz has been President and Chief Executive Officer of Nashua
since January 1996. He was a private investor from 1994 through 1995. He was
Chairman and Chief Executive Officer of Baker & Taylor Inc. (information
distribution) from 1992 to 1994 and Executive Vice President of W.R. Grace &
Co. from prior to 1991 to 1992. He is also a Director of Handy & Harman Inc.
Mr. Junius has been Vice President-Finance, Chief Financial Officer and
Treasurer since November 1995. He was Vice President-Finance and Treasurer from
September 1995 to November 1995. From prior to 1991 through August 1995, he was
Treasurer of Nashua.
Mr. Clabburn has been Vice President and Chief Technical Officer since
October 1995. He worked as a consultant for Nashua from March 1994 to October
1995. From 1990 to March 1994 he was Chief Executive Officer for several
development stage companies at Cookson Group PLC, a manufacturer of specialty
material, chemical and precious metals.
Mr. Wright has been Vice President since October 1994. From 1993 to
October 1994, he was Vice President of Barry Controls, a custom manufacturer of
vibration and control systems. From 1990 to 1993 he was a Senior Group
Personnel Manager at Digital Equipment Corporation.
Mr. Turnbull has been Vice President since August 1995. From 1994 to
July 1995, he was President of Polyken Technologies (a Division of Tyco
International Ltd.), a manufacturer of tapes and industrial adhesives. He was a
Vice President/General Manager of Avery Dennison Corporation's Marketing Films
Division, a manufacturer of self-adhesive PVC films, from 1991 to 1993.
Mr. Peterson has been Vice President since November 1995. He was
General Manager of Cerion Technologies (Precision Technologies) from April 1992
to January 1996. From 1990 to April 1992 he held various operating positions
within the former Nashua Computer Products Division.
Executive officers are generally elected to their offices each year by
the Board of Directors shortly after the Annual Meeting of Shareholders.
-43-
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934 and Rule 12b-15 of the rules promulgated thereunder, the
registrant has duly caused this amendment to the Company's annual report on
Form 10-K originally filed with the Securities and Exchange Commission on April
1, 1996 to be signed on its behalf by the undersigned, thereunto duly
authorized.
NASHUA CORPORATION
Date: April 23, 1996 By /s/ Daniel M. Junius
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Daniel M. Junius
Vice President-Finance,
Chief Financial Officer and Treasurer
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