<PAGE> 1
FORM 10-Q
-----------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
SEPTEMBER 26, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
COMMISSION FILE NUMBER 1-5492-1
NASHUA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 02-0170100
(State of Incorporation) (I.R.S. Employer Identification No.)
44 FRANKLIN STREET 03061-2002
NASHUA, NEW HAMPSHIRE (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (603) 880-2323
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
AS OF OCTOBER 31, 1997, THE COMPANY HAD 6,670,931 SHARES OF COMMON
STOCK, EXCLUDING 24,064 SHARES IN TREASURY, PAR VALUE $1 PER SHARE, OUTSTANDING.
-1-
<PAGE> 2
NASHUA CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
--------
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations and Retained Earnings
Three Months Ended September 26, 1997 and September 27, 1996 3
Consolidated Statements of Operations and Retained Earnings
Nine Months Ended September 26, 1997 and September 27, 1996 4
Consolidated Balance Sheets
September 26, 1997 and December 31, 1996 5
Consolidated Statements of Cash Flows
Nine Months Ended September 26, 1997 and September 27, 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 1. Legal Proceedings 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
-2-
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1.
NASHUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
-----------------------------
September 26, September 27,
1997 1996
------------- -------------
<S> <C> <C>
Net sales $86,891 $100,932
Cost of products sold 63,046 71,916
------- --------
Gross margin 23,845 29,016
Selling, distribution and administrative expenses 23,813 25,689
Research expense 1,916 2,465
Restructuring and unusual charges 900 -
Equity in net (income) loss of Cerion Technologies (17) 174
Net interest income (123) (67)
------- --------
Income (loss) before income taxes (2,644) 755
Provision for income taxes 449 212
------- --------
Net income (loss) (3,093) 543
Retained earnings, beginning of period 82,423 85,682
------- --------
Retained earnings, end of period $79,330 $ 86,225
======= ========
Earnings (loss) per common
and common equivalent share $ (.48) $ .08
======= ========
Average common and common equivalent shares 6,386 6,413
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 4
NASHUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS (Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the nine months ended
-----------------------------
September 26, September 27,
1997 1996
------------- -------------
<S> <C> <C>
Net sales $242,554 $306,030
Cost of products sold 178,559 224,828
-------- --------
Gross margin 63,995 81,202
Selling, distribution and administrative expenses 63,659 75,215
Research expense 6,198 7,044
Restructuring and unusual charges 3,904 7,000
Equity in net income of Cerion Technologies (45) (211)
Gain on disposition of Cerion Technologies stock - (31,962)
Gain on Cerion Technologies public stock offering - (7,353)
Net interest expense (income) (539) 2,211
-------- --------
Income (loss) from continuing operations before income taxes (9,182) 29,258
Provision for income taxes (benefit) (2,755) 12,297
-------- --------
Income (loss) from continuing operations (6,427) 16,961
Income from discontinued operation, net of taxes - 524
Gain on disposal of discontinued operation, net of taxes - 8,434
-------- --------
Income (loss) before extraordinary loss (6,427) 25,919
Extraordinary loss on extinguishment of debt, net of tax benefit - 1,257
-------- --------
Net income (loss) (6,427) 24,662
Retained earnings, beginning of period 85,757 61,563
-------- --------
Retained earnings, end of period $ 79,330 $ 86,225
======== ========
Earnings (loss) per common and common equivalent share:
Income (loss) from continuing operations $ (1.00) $ 2.65
-------- --------
Income from discontinued operation:
Income from discontinued operation - .08
Gain on disposal of discontinued operation - 1.32
-------- --------
- 1.40
-------- --------
Income (loss) before extraordinary loss (1.00) 4.05
Extraordinary loss on extinguishment of debt - (.20)
-------- --------
Net income (loss) $ (1.00) $ 3.85
======== ========
Average common and common equivalent shares 6,384 6,400
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 5
NASHUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
September 26,
1997 December 31,
(Unaudited) 1996
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,412 $ 20,018
Accounts receivable 22,004 20,112
Inventories:
Materials and supplies 5,503 6,676
Work in process 2,991 2,498
Finished goods 7,294 7,494
-------- --------
Total inventories 15,788 16,668
Other current assets 19,910 15,367
-------- --------
Total current assets 67,114 72,165
-------- --------
Property, plant and equipment, at cost 117,617 118,577
Accumulated depreciation (62,026) (58,459)
-------- --------
Net property, plant and equipment 55,591 60,118
-------- --------
Other assets:
Intangible assets, net of amortization ($11,553 in 1997 and
$10,483 in 1996) 22,117 25,123
Investment in unconsolidated affiliate 7,263 7,218
Other assets 11,640 12,065
-------- --------
Total other assets 41,020 44,406
-------- --------
Total assets $163,725 $176,689
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 584 $ 811
Accounts payable 24,064 22,678
Accrued expenses 23,123 24,880
Income taxes payable 524 2,623
-------- --------
Total current liabilities 48,295 50,992
-------- --------
Long-term debt 1,702 2,044
Other long-term liabilities 20,115 21,736
-------- --------
Total long-term liabilities 21,817 23,780
-------- --------
Stockholders' Equity:
Common stock and additional paid-in capital 18,754 18,754
Retained earnings 79,330 85,757
Cumulative translation adjustment (3,714) (1,837)
Treasury stock, at cost (757) (757)
-------- --------
Total stockholders' equity 93,613 101,917
-------- --------
Commitments and contingencies
Total liabilities and stockholders' equity $163,725 $176,689
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 6
NASHUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the nine months ended
-----------------------------
September 26, September 27,
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (6,427) $ 24,662
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 10,847 13,705
Income from discontinued operations - (524)
Extraordinary loss on extinguishment of debt - 1,257
Gain on disposal of discontinued operations - (8,434)
Equity in net income of Cerion Technologies (45) (211)
Gain on disposition of Cerion Technologies stock - (31,962)
Gain on Cerion Technologies public stock offering - (7,353)
Restructuring and unusual charges 3,904 7,000
Change in working capital and other, net (11,492) 14,696
-------- --------
Cash provided by (used in) operating activities (3,213) 12,836
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment plant, property and equipment (7,391) (9,549)
Proceeds from sale of fixed assets 825 -
Proceeds from repayment of Cerion Technologies note - 11,142
Proceeds from sale of Cerion Technologies stock, net - 33,080
-------- --------
Cash provided by (used in) investing activities (6,566) 34,673
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings - 880
Repayment of borrowings (569) (63,110)
Extinguishment of debt - (952)
Other - 69
-------- --------
Cash used in financing activities (569) (63,113)
-------- --------
Proceeds from the sale of discontinued operation - 28,000
Cash used by activities of discontinued operations - (219)
Effects of exchange rate changes on cash (258) 43
-------- --------
Increase (decrease) in cash and cash equivalents (10,606) 12,220
Cash and cash equivalents at beginning of period 20,018 8,390
-------- --------
Cash and cash equivalents at end of period $ 9,412 $ 20,610
======== ========
Cash paid for interest $ 189 $ 3,140
======== ========
Cash paid for income taxes $ 2,420 $ 4,267
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE> 7
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period and Nine Months Ended September 26, 1997
The financial statements have been prepared in accordance with the requirements
of Form 10-Q and consequently do not include all disclosures required by Form
10-K. Additional information may be obtained by referring to the Company's Form
10-K for the year ended December 31, 1996.
The financial information submitted herewith is unaudited and reflects all
adjustments which are, in the opinion of management, necessary to provide a fair
statement of the results for the interim periods ended September 26, 1997 and
September 27, 1996. All such adjustments are of a normal recurring nature. The
results for interim periods are not necessarily indicative of the results to be
expected for the fiscal year.
Earnings Per Share
Earnings per common and common equivalent share is computed based on the total
of the weighted average number of common shares and, as applicable, the weighted
average number of common equivalent shares outstanding during the period. The
average common and common equivalent shares for the three months ended September
26, 1997 and September 27, 1996 were 6,386,000 and 6,413,000 and the nine months
ended September 26, 1997 and September 27, 1996 were 6,384,000 shares and
6,400,000 shares, respectively.
In February 1997, the Financial Accounting Standards Board issued "Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS 128). This
Statement will be effective for both interim and annual periods ending after
December 15, 1997. SFAS 128 replaces APB Opinion 15 and related interpretations
(APB 15). SFAS 128 simplifies the computation of EPS by replacing the
presentation of primary earnings per share with a presentation of basic EPS.
Basic EPS includes no dilution and is computed by dividing net income by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution of securities that could share in the earnings
of an entity, similar to fully diluted EPS under APB 15.
The Company has recorded net losses for the three and nine month periods ended
September 26, 1997, therefore, any common stock equivalents would be
antidilutive; therefore, earnings per common and common equivalent share as
presented on the consolidated statements of operations and retained earnings is
equivalent to Basic Earnings per Share and Diluted Earnings per Share under SFAS
128.
In June of 1997, the Financial Accounting Standards Board issued "Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130) and No. 131, Disclosures about Segments of an Enterprise and Related
Information (SFAS 131)." In accordance with these statements, the Company plans
to implement SFAS 130 which requires presentation of certain information related
to comprehensive income and SFAS 131 which requires that certain additional
information related to operating segments be reported during fiscal year 1998.
-7-
<PAGE> 8
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the period and nine months ended September 26, 1997
Stock Options
At September 26, 1997, options for 750,220 shares of common stock were
outstanding. Stock options for an additional 262,575 shares may be awarded under
the Company's 1996 Stock Incentive Plan.
Restructuring and Unusual Charges
In the third quarter of 1997, the Company recorded an unusual charge of
$.9 million related to the sale of certain excess real estate in Nashua, New
Hampshire.
Reclassification
Beginning in the fourth quarter of 1996, postage expenses relating to prepaid
photo mailers, which were treated as selling expenses, have been reclassified to
cost of products sold. The cost of products sold and selling expenses for the
third quarter of 1996 have been adjusted by $3.2 million and for the first nine
months of 1996 have been adjusted by $7.9 million to reflect the change.
Commitments and Contingencies
In respect to patent litigation brought by Ricoh Company, Ltd., the Federal
District Court for New Hampshire decided on March 31, 1997 to enjoin the Company
from manufacturing, using or selling its NT-50 and NT-6750 toner cartridges in
the United States. Sales of these products in 1996 amounted to less than one
percent of the Company's total sales. The Court left the subject of damages, if
any, to subsequent proceedings. The Company disagrees with the Court's decision
to enjoin and the Company has filed an appeal in the Federal Circuit Court of
Appeals in Washington, D.C.
Subsequent Event
In the fourth quarter of 1997 the Company announced its intention to sell its
Specialty Coated Products Division and its international photofinishing
businesses in Canada, Northern Ireland and the United Kingdom. The Specialty
Coated Products Division applies a broad range of chemical coatings to paper.
Products range from papers coated for thermal printers and fax machines to
carbonless and ink jet papers. The division has one plant in Merrimack, New
Hampshire, and currently employs approximately 220 people. It is expected that
this unit will continue to supply thermal paper to the Label Division for the
foreseeable future. Nashua through its brand names including York, Truprint,
Belmont and Scot is the photofinishing market segment leader in Northern
Ireland, Canada and the U.K. Nashua's international photofinishing facilities
are located in Belfast, Northern Ireland; Saskatoon, Saskatchewan; and Telford
and Newton Abbot, England. Collectively, these businesses employ approximately
800 people. Combined revenues for the businesses being divested were $34.5
million and $89.2 million, respectively, for the three and nine month periods
ended September 26, 1997 and $35.0 million and $93.3 million respectively for
the comparable periods in 1996. Combined operating losses for these businesses
were $.3 million and $.7 million, respectively, for the third quarter of 1997
and the first nine months of 1997 compared with operating income of $1.1 million
and $2.4 million, respectively, for the same periods in 1996. The Company
expects to recognize gains from the divestitures which will be recognized in
income when realized. A portion of the proceeds from the sale of the assets is
expected to be reinvested in the retained businesses and a portion is expected
to be returned to shareholders via a special dividend or share repurchases.
-8-
<PAGE> 9
NASHUA CORPORATION AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
I. RESULTS OF OPERATIONS
Sales and operating income (loss) by industry segment are shown in the
accompanying table on page 13.
THREE MONTHS ENDED SEPTEMBER 26, 1997 VERSUS
THREE MONTHS ENDED SEPTEMBER 27, 1996
In the third quarter of 1997, the Company reported a net loss of $3.1 million
($.48 per share), including an unusual charge of $.9 million related to the sale
of certain excess real estate, compared to net income of $.5 million or $.08 per
share for the third quarter of 1996. Also, the weak third quarter results
reduced the estimated annual effective tax benefit to 30% from 49%, as a result
approximately $.20 per share of the third quarter loss is attributable to this
change. Net sales decreased 14% to $86.9 million from $100.9 million in the same
period a year ago. Excluding sales related to the mainland European photo
business, which was sold in the fourth quarter of 1996, and the liquid toner and
the organic photoconductor ("OPC") drum product lines, which the Company has
exited, the comparable sales decrease was 5% from $91.5 million in the same
period a year ago. On a comparable basis, excluding the results of the mainland
European photo business and product lines exited, and the equity in the net loss
of Cerion Technologies Inc. ("Cerion"), the pretax income for the third quarter
of 1996 was $.5 million versus a pretax loss of $2.6 million.
In 1996, the Company recorded net restructuring and other unusual charges
related to the sale of the mainland European photo business, the divestiture of
the OPC drum product line and other business unit and functional realignments in
Corporate and the Photo Group. Additionally, during the second quarter of 1997,
the Company recorded restructuring and unusual charges of $3.0 million
associated with restructuring certain distribution channels and aligning the
workforce to current levels of demand principally within the Commercial Products
Group. Below are details of the charges and the activity recorded during the
third quarter of 1997.
<TABLE>
<CAPTION>
Balance Current Current Balance
June 27, Period Period Sept 26,
(In thousands) 1997 Provision Charges 1997
-----------------------------------------
<S> <C> <C> <C> <C>
Provisions for severance related to
workforce reductions $2,458 $ - $344 $2,114
Provisions for assets to be sold or discarded 1,662 - 87 1,575
Other 1,782 - 293 1,489
------ ----- ---- ------
Total $5,902 $ - $724 $5,178
====== ===== ==== ======
</TABLE>
The provision for workforce reductions includes amounts for salary and benefit
continuation for approximately 100 employees as part of the Commercial Products
Group restructuring. As of September 26, 1997, approximately 30 of the employee
terminations had occurred and the remaining separations are scheduled to be
completed by the end of the second quarter of 1998. The estimated savings in
personnel and operating costs resulting from the 1997 restructuring charge of
$3.0 million will be approximately $5.0 million annually.
The Commercial Products Group's third quarter net sales decreased 6% to $42.6
million from $45.3 million during the same quarter a year ago. The sales
decrease was primarily related to the Imaging Supplies Division partially
offset by slightly higher sales in the Label Division. The Imaging Supplies
Division experienced lower unit sales prices in dry toner, due in part to a
shift in mix, and copier paper partially offset by incresed laser printer
cartridge volumes. Additionally, the third quarter of 1996 included sales of
$.9 million relating to product lines which the Company has exited. The
Commercial Products Group's operating income for the third quarter of 1997 was
$.4 million compared to an operating loss of $.1 million for the third quarter
of 1996. The improvement was due to improved productivity, lower manufacturing
and operating costs, partially offset by lower sales prices and mix shift in
the Imaging Supplies Division.
-9-
<PAGE> 10
NASHUA CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
The Photo Group's third quarter sales decreased 20% to $44.3 million from $55.6
million during the same quarter a year ago. Excluding sales from the mainland
European photo business which was sold in the fourth quarter of 1996, the Photo
Group's third quarter 1997 net sales were approximately 6% lower from the same
period a year ago. Higher prices in the U.S., Canada and U.K. operations and
favorable currency effects were offset by lower unit volumes in the third
quarter of 1997. The Photo Group recorded an operating loss for the third
quarter of $.5 million compared to an operating profit of $3.3 million for the
same period a year ago. The decrease was due to the lower volumes, an increase
in operating expenses and the divestiture of the mainland European photo
business. The increase in operating expenses were primarily related to higher
marketing expenses related to new product development and marketing initiatives.
Selling, distribution and administrative expenses for the three month period
ended September 26, 1997 decreased $1.9 million or 7% from the same period a
year ago. Excluding the selling, distribution and administrative expenses for
the mainland European photo business, which was sold in the fourth quarter of
1996, the selling, distribution and administrative expenses for the three month
period ended September 26, 1997 increased $1.3 million or 6% primarily due to
increased marketing and administrative costs within the Photo Group partially
offset by reductions within the Commercial Products Group.
Research expenses for the three month period ended September 26, 1997 decreased
$.5 million primarily due to reduced spending in the Commercial Products Group.
In the fourth quarter of 1997 the Company announced its intention to sell its
Specialty Coated Products Division and its international photofinishing
businesses in Canada, Northern Ireland and the United Kingdom. The Specialty
Coated Products Division applies a broad range of chemical coatings to paper.
Products range from papers coated for thermal printers and fax machines to
carbonless and ink jet papers. The division has one plant in Merrimack, New
Hampshire, and currently employs approximately 220 people. It is expected that
this unit will continue to supply thermal paper to the Label Division for the
foreseeable future. Nashua through its brand names including York, Truprint,
Belmont and Scot is the photofinishing market segment leader in Northern
Ireland, Canada and the U.K. Nashua's international photofinishing facilities
are located in Belfast, Northern Ireland; Saskatoon, Saskatchewan; and Telford
and Newton Abbot, England. Collectively, these businesses employ approximately
800 people. Combined revenues for the businesses being divested were $34.5
million and $89.2 million for the three and nine months ended September 26,
1997 and $35.0 million and $93.3 million respectively for the comparable
periods in 1996. Combined operating losses for these businesses were $.3
million and $.7 million, respectively, for the third quarter of 1997 and the
first nine months of 1997 compared with operating income of $1.1 million and
$2.4 million, respectively, for the same periods in 1996. The Company expects
to recognize gains from the divestitures which will be recognized in income
when realized. A portion of the proceeds from the sale of the assets is
expected to be reinvested in the retained businesses and a portion is expected
to be returned to shareholders via a special dividend or share repurchases.
NINE MONTHS ENDED SEPTEMBER 26, 1997 VERSUS
NINE MONTHS ENDED SEPTEMBER 27, 1996
The Company recorded a net loss of $6.4 million or $1.00 per share for the nine
month period ended September 26, 1997 compared to net income of $24.7 million
for the nine month period ended September 27, 1996. The 1997 results included
restructuring and unusual charges of $3.9 million associated with the Commercial
Products Group and the sale of certain excess real estate. The 1996 results
included pretax gains of $39.3 million relating to the initial public offering
of Cerion common stock, a pretax charge of $7.0 million to write down the value
of goodwill in the mainland European photo business, an $8.4 million after-tax
gain on the sale of the Company's Tape Products Division and an extraordinary
after-tax charge of $1.3 million associated with the extinguishment of debt. On
a comparable basis, excluding all restructuring and unusual charges, gains,
extraordinary items, the results of the business units sold or spun-off and
product lines exited and net interest income or expense, the pretax loss for the
first nine months of 1997 was $5.7 million versus a pretax loss of $5.4 million
for the same period a year ago. The increased loss was due to lower results in
the Photo Group partially offset by improvement in the Commercial Products
Group.
-10-
<PAGE> 11
NASHUA CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Net sales for the nine months ended September 26, 1997 decreased 21% to $243
million from $306 million for the same period a year ago. Excluding the net
sales of the business units sold or spun-off and product lines exited, the net
sales decreased 7% from $262 million for the first nine months of 1996. The
decrease was primarily in the Commercial Products Group and was due to lower
volumes and pricing in the Imaging and Specialty Coated Products Divisions.
The Commercial Products Group recorded an operating loss of $1.0 million for
the nine months ended September 26, 1997 compared to an operating loss of $2.9
million for the same period a year ago. The 1997 results include a
restructuring and unusual charge of $2.8 million for costs associated with
restructuring certain distribution channels and workforce alignments. Excluding
the restructuring and unusual charge the operating income for the first nine
months of 1997 increased $4.7 million from the same period a year ago. The
increase was primarily due to improved productivity and a reduction in the
group's manufacturing and operating expenses partially offset by a reduction
in sales volumes within the Imaging Supplies Division.
The Commercial Products Group's net sales for the nine month period ended
September 26, 1997 decreased 14% to $130 million from $151 million for the same
period a year ago. Excluding the net sales of the product lines exited, the net
sales for the nine month period ended September 26, 1997 decreased 12% from the
same period a year ago. The decrease was due to lower volumes and pricing, due
in part to a shift in mix, in the toner, laser cartridge and paper product lines
within the Imaging Supplies Division and lower facsimile and carbonless paper
volumes in the Specialty Coated Products Division.
The Photo Group recorded an operating loss of $1.7 million for the nine month
period ended September 26, 1997 compared to an operating loss of $4.1 million
for the same period a year ago. The 1997 results include a restructuring and
unusual item of $.2 million for workforce reductions and the 1996 results
include a $7.0 million restructuring and unusual charge associated with the
write down of goodwill in the mainland European photo business. Excluding the
restructuring and unusual charges, the Photo Group's operating income for the
first nine months of 1997 decreased $4.4 million from the same period a year
ago. The decreased operating income was due primarily to an increase in selling
and marketing expenditures in the U.S. and U.K. businesses. The increased
expenditures were the result of new product and marketing initiatives.
The Photo Group's net sales for the nine month period ended September 26, 1997
decreased 17% to $112 million from $136 million for the same period a year ago.
Excluding the sales of the mainland European photo business, the Photo Group's
net sales for the nine month period ended September 26, 1997 decreased 2% from
$114 million for the same period a year ago. The decrease was primarily in the
U.S. photo business and was due to a decrease in volume partially offset by an
increase in pricing.
Selling, distribution and administrative expenses for the nine month period
ended September 26, 1997 decreased $11.6 million or 15% from the same period a
year ago primarily due to the sale of the mainland European photo business and
the spin off of Cerion. Excluding the 1996 selling, distribution and
administrative expenses for these units, the 1997 selling, distribution and
administrative expenses were unchanged from the first nine months of 1996 as
declines in the administrative and selling expenses within the Commercial
Products Group were offset by increases within the Photo Group.
Research expenses for the nine month period ended September 26, 1997 decreased
$.8 million or 12% primarily due to the 1996 spin off of Cerion and reduced
spending within the Commercial Products Group.
-11-
<PAGE> 12
NASHUA CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
The Company's estimated annual effective tax benefit for the nine month period
ended September 26, 1997 is 30% compared to a tax expense rate of 42% for the
same period a year ago. During the third quarter the estimated annual effective
tax benefit was reduced from 49%, reducing the benefit realized in the first
half of 1997 by $1.2 million. The estimated annual effective income tax benefit
is lower than the U.S. statutory rate primarily due to the unfavorable impact
of non-deductible goodwill.
II. CASH FLOWS AND LIQUIDITY
During the first nine months of the year, the Company's operations used $10.6
million of cash compared to cash provided from operations of $12.2 million last
year. The decrease in cash for the first nine months of 1997 was primarily due
to the operating loss of $6.4 million, an increase of $8.2 million in working
capital and investments in fixed assets of $7.4 offset by depreciation and
amortization of $10.8 million. The increase in working capital is primarily due
to the tax benefit recorded for the first nine months of 1997, payment of
income taxes payable and an increase in accounts receivable.
-12-
<PAGE> 13
NASHUA CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
(Dollars in millions, except per share amounts)
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------- ---------------------
9/26/97 9/27/96 9/26/97 9/27/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
INDUSTRY SEGMENT DATA
Net sales:
Commercial Products Group $42.6 $ 45.3 $130.3 $151.1
Photo Group 44.3 55.6 112.3 135.6
Cerion Technologies - - - 19.3
----- ------ ------ ------
Net sales $86.9 $100.9 $242.6 $306.0
===== ====== ====== ======
Operating income (loss):
Commercial Products Group(a) $ 0.4 $ (0.1) $ (1.0) $ (2.9)
Photo Group(a) (b) (0.5) 3.3 (1.7) (4.1)
Cerion Technologies(C) - (0.2) - 44.7
Corporate expense, including interest(d) (2.5) (2.3) (6.5) (8.4)
----- ------ ------ ------
Total operating income (loss) (2.6) 0.7 (9.2) 29.3
Provision for income taxes (benefit) 0.5 0.2 (2.8) 12.3
----- ------ ------ ------
Income (loss) from continuing operations $(3.1) $ 0.5 $ (6.4) $ 17.0
Income from discontinued operation - - - 0.6
Gain on disposal of discontinued operation - - - 8.4
----- ------ ------ ------
Income (loss) before extraordinary loss (3.1) 0.5 (6.4) 26.0
Extraordinary loss on extinguishment of debt - - - (1.3)
----- ------ ------ ------
Net income (loss) $(3.1) $ 0.5 $ (6.4) $ 24.7
===== ====== ====== ======
Net income (loss) per share $(.48) $ .08 $(1.00) $ 3.85
===== ====== ====== ======
</TABLE>
(a) Operating income for the nine months ended September 26, 1997 includes
restructuring and unusual charges of $2.8 million and $.2 million for Commercial
Products Group and Photo Group, respectively.
(b) Operating loss for the nine months ended September 27, 1996 included an
unusual charge of $7 million.
(c) Operating income for the nine months ended September 27, 1996 included gains
of $32 million from the sale of Cerion Technologies stock and $7.3 million from
Nashua's interest in the shares sold by Cerion, and income of $.4 million
recorded under the equity method of accounting.
(d) Operating loss for the three and nine months ended September 26, 1997
includes an unusual charge of $.9 million.
-13-
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In respect to patent litigation brought by Ricoh Company, Ltd., the Federal
District Court for New Hampshire decided on March 31, 1997 to enjoin the Company
from manufacturing, using or selling its NT-50 and NT-6750 toner cartridges in
the United States. Sales of these products in 1996 amounted to less than one
percent of the Company's total sales. The Court left the subject of damages, if
any, to subsequent proceedings. The Company disagrees with the Court's decision
to enjoin and the Company has filed an appeal in the Federal Circuit Court of
Appeals in Washington, D.C.
The Company references its first quarter Form 10-Q in respect to a shareholder
consolidated amended complaint filed against Cerion, the Company and other named
defendants on March 24, 1997 in the Circuit Court in Cook County, Illinois
relating to the initial public stock offering of Cerion in May 1996 ("Cerion
Litigation"). On October 9, 1997, the Court dismissed the Cerion Litigation
against all defendants. The plaintiffs have until December 5, 1997 to file
an amended complaint.
ITEM 5. OTHER INFORMATION
Annual Stockholders' Meeting
The Company hereby gives written notice to its stockholders that its next
annual stockholders' meeting will be held on April 24, 1998.
Factors Which May Affect Future Results
This report may contain forward-looking statements as that term is defined in
the Private Securities Litigation Reform Act of 1995. When used in this report,
the words "believe", "expects", "to be", "anticipates", "should" and similar
expressions are intended to identify such forward-looking statements. Any such
forward-looking statements and the Company's future results of operations and
financial condition are subject to risks and uncertainties which could cause
actual results to differ materially from those anticipated and from past
results. Such risks and uncertainties include, but are not limited to, possible
inability to sell the Speciality Coated Products Division and the international
photofinishing businesses within the timetable and at the prices anticipated,
possible negative effects of the announcement of such proposed sales on
relationships with customers, suppliers and employees, fluctuations in customer
demand, intensity of competition from other vendors, timing and acceptance of
new product introductions, general economic and industry conditions, delays or
difficulties in programs designed to increase sales and return the Company to
profitability, the possibility of a final award of material damages in the
patent litigation brought against the Company by Ricoh Company, Ltd. and the
Cerion Litigation and other risks detailed in the Company's filings with the
Securities and Exchange Commission.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) REPORTS ON FORM 8-K
None.
-14-
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NASHUA CORPORATION
Date: November 10, 1997 /s/ Daniel M. Junius
-------------------------------------------------
Daniel M. Junius
Vice President-Finance,
Chief Financial Officer and Treasurer
(principal financial and duly authorized officer)
-15-
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