<PAGE> 1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
SEPTEMBER 29, 2000
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) (IRS Employer Identification No.)
SECOND FLOOR
11 TRAFALGAR SQUARE 03063
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 NOVEMBER 9, 2000, THE COMPANY HAD 5,987,783 SHARES OF COMMON STOCK,
EXCLUDING 1,023,818 SHARES IN TREASURY, PAR VALUE $1 PER SHARE, OUTSTANDING.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NASHUA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
September 29, December 31,
2000 1999
------------- ------------
ASSETS:
Cash and cash equivalents $ 936 $ 25,056
Restricted cash 5,524 5,000
Accounts receivable 34,328 17,448
Inventories
Materials and supplies 14,032 7,911
Work in process 3,381 3,788
Finished goods 10,713 6,194
--------- ---------
28,126 17,893
Other current assets 13,151 14,170
--------- ---------
Total current assets 82,065 79,567
--------- ---------
Plant and equipment 93,809 76,596
Accumulated depreciation (38,810) (36,594)
--------- ---------
54,999 40,002
--------- ---------
Goodwill 32,149 --
Accumulated amortization (743) --
--------- ---------
31,406 --
--------- ---------
Other assets 16,623 10,120
Net non-current assets of discontinued operations 756 756
--------- ---------
Total assets $ 185,849 $ 130,445
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current maturities of long-term debt $ 2,864 $ 511
Accounts payable 22,826 10,946
Accrued expenses 32,657 30,253
Income taxes payable 2,065 2,295
--------- ---------
Total current liabilities 60,412 44,005
--------- ---------
Long-term debt 35,775 511
Other long-term liabilities 13,405 19,103
--------- ---------
Total long-term liabilities 49,180 19,614
--------- ---------
Common stock and additional capital 22,580 22,098
Retained earnings 68,599 59,650
Treasury stock, at cost (14,922) (14,922)
--------- ---------
Total shareholders' equity 76,257 66,826
--------- ---------
Total liabilities and shareholders' equity $ 185,849 $ 130,445
========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE> 3
NASHUA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share data) THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- -----------------------
SEPT. 29, OCT. 1, SEPT. 29, OCT. 1,
2000 1999 2000 1999
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Net sales $ 73,310 $ 43,668 $ 186,043 $ 128,890
Cost of products sold 59,279 33,330 147,717 97,843
-------- -------- --------- ---------
Gross margin 14,031 10,338 38,326 31,047
Selling, distribution and administrative expenses 13,701 7,932 36,106 25,219
Research and development expense 1,232 1,237 3,321 3,739
Pension settlement income -- -- (18,606) --
Restructuring and unusual charges (income) (136) 138 1,320 138
Loss (income) from equity investment (5) 53 9 53
Interest expense 1,043 197 2,057 614
Interest income (125) (314) (710) (1,041)
-------- -------- --------- ---------
Income (loss) before income taxes (1,679) 1,095 14,829 2,325
Income taxes (644) 443 5,821 941
-------- -------- --------- ---------
Net income (loss) (1,035) 652 9,008 1,384
Retained earnings, beginning of period 69,634 64,803 59,650 64,071
Dividend paid -- -- (59) --
-------- -------- --------- ---------
Retained earnings, end of period 68,599 65,455 68,599 65,455
======== ======== ========= =========
Basic earnings per share:
Net income (loss) per common share $ (.18) $ .12 $ 1.60 $ .24
======== ======== ========= =========
Average common shares 5,651 5,633 5,648 5,744
======== ======== ========= =========
Diluted earnings per share:
Net income (loss) per common share assuming dilution $ (.18) $ .12 $ 1.59 $ .24
======== ======== ========= =========
Average common and potential common shares 5,651 5,635 5,669 5,754
======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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NASHUA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands)
NINE MONTHS ENDED
-----------------------
Sept. 29, Oct. 1,
2000 1999
--------- -------
<S> <C> <C>
Cash flows from operating activities of continuing operations:
Net income $ 9,008 $ 1,384
Adjustments to reconcile net income to cash provided by
continuing operating activities:
Depreciation and amortization 6,710 4,414
Stock issued for director compensation 89 --
Pension settlement income (18,606) --
Equity in loss from unconsolidated joint venture 9 53
Loss on sale/disposal of fixed assets 48 --
Restricted cash (524) --
Net change in working capital and other assets 4,668 (5,384)
-------- --------
Cash provided by continuing operating activities 1,402 467
-------- --------
Cash flows from investing activities of continuing operations:
Investment in plant and equipment (7,497) (4,075)
Investment in unconsolidated joint venture (107) --
Proceeds from sale of plant and equipment 1,854 --
Business acquisition, net of cash acquired (58,619) --
-------- --------
Cash used in investing activities of continuing operations (64,369) (4,075)
-------- --------
Cash flows from financing activities of continuing operations:
Repayment of borrowings (383) (426)
Proceeds from borrowings 38,000 --
Dividends paid (59) --
Proceeds and tax benefits from shares issued under stock
compensation plan 393 91
Purchase of treasury stock -- (4,068)
-------- --------
Cash provided by (used in) financing activities of continuing operations 37,951 (4,403)
-------- --------
Cash provided by (used in) activities of discontinued operations 896 (3,154)
-------- --------
Decrease in cash and cash equivalents (24,120) (11,165)
Cash and cash equivalents at beginning of period 25,056 31,965
-------- --------
Cash and cash equivalents at end of period $ 936 $ 20,800
======== ========
Interest paid $ 839 $ 61
======== ========
Income taxes paid $ 2,565 $ 5,050
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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<PAGE> 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying financial statements contain all adjustments
consisting of normal recurring accruals necessary to present fairly the
financial position as of September 29, 2000, the results of operations for the
three and nine month periods ending September 29, 2000 and October 1, 1999 and
cash flows for the nine month periods ended September 29, 2000 and October 1,
1999. The accompanying financial statements should be read in conjunction with
the consolidated financial statements and footnotes thereto included in Nashua
Corporation's (the "Company") Form 10-K for the year ended December 31, 1999.
Certain amounts from the prior year have been reclassified to conform to the
current year presentation.
BUSINESS ACQUISITION
On April 17, 2000, the Company completed the acquisition of all outstanding
shares of stock of Rittenhouse Paper Company, an Illinois corporation
("Rittenhouse"), pursuant to a Stock Purchase Agreement, dated March 21, 2000,
by and among the Company, Rittenhouse and the stockholders of Rittenhouse. The
consideration paid by the Company totaled approximately $60 million in cash plus
a contingent payment of up to $6 million if certain financial targets are
achieved for the year 2000. The maximum potential impact of the contingent
payment on future earnings will be an expense of $.3 million annually for an
amortization period of twenty years.
The Company funded $35 million of the purchase price from borrowings under a
secured loan agreement with Fleet Bank-NH and LaSalle Bank, N.A. consisting of a
$20 million term loan and a $35 million revolving loan, as described in the
Indebtedness section of this report. The Company funded the remainder of the
purchase price from its cash reserves.
Preliminary Purchase Price Allocation:
The acquisition of Rittenhouse was accounted for using the purchase method of
accounting. Goodwill is being amortized on a straight-line basis over twenty
years. The preliminary purchase consideration was allocated to the assets
acquired and liabilities assumed as follows (in thousands):
<TABLE>
<CAPTION>
(In thousands) JUNE 30, 2000 ADJUSTMENTS SEPT. 29, 2000
-------------- ----------- ---------------
<S> <C> <C> <C>
Cash and short-term investments $ 1,476 $ -- $ 1,476
Accounts receivables and other current assets 13,634 (26) 13,608
Inventory 16,296 (235) 16,061
Property, plant and equipment 15,436 -- 15,436
Other assets 87 -- 87
Goodwill 31,699 450 32,149
Liabilities assumed (18,533) (189) (18,722)
-------- ----- --------
Total purchase consideration $ 60,095 $ -- $ 60,095
======== ===== ========
</TABLE>
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<PAGE> 6
Pro Forma Results of Operations:
The following unaudited pro forma condensed financial information presents the
combined results of operations of the Company and Rittenhouse, including the
amortization of goodwill and increased interest expense, as if the acquisition
had occurred at the beginning of the period.
NINE MONTHS ENDED
-----------------------
Sept. 29, Oct. 1,
(In thousands, except per share information) 2000 1999
--------- -------
Pro forma revenues $ 219,623 $230,257
=========== ========
Pro forma net income $ 7,588 $ 326
=========== ========
Pro forma basic earnings per share $ 1.34 $ .06
=========== ========
Pro forma diluted earnings per share $ 1.34 $ .06
=========== ========
Shares used in pro forma share calculations:
Average common shares 5,648 5,744
=========== ========
Average common and potential common shares 5,669 5,754
=========== ========
The pro forma results of operations are not necessarily indicative of the
results that would have occurred had the merger occurred at the beginning of
each period presented, and are not intended to be indicative of future results
of operations.
INDEBTEDNESS
On April 14, 2000, Nashua, Rittenhouse Paper Company and Rittenhouse, L.L.C.
(collectively, the "Company" as of April 17, 2000) entered into a Revolving
Credit and a Term Loan Agreement (collectively the "Loan Agreement") with Fleet
Bank - NH and LaSalle Bank, N.A. ("Banks"). The Revolving Loan Agreement and the
Term Loan Agreement are in the amounts of $35 million and $20 million,
respectively. Borrowings under this facility are collateralized by a security
interest in the Company's accounts receivable, inventory, certain machinery and
equipment and real estate located in Merrimack, NH. This agreement with the
Banks replaced Nashua's prior credit facility, which was scheduled to expire
April 22, 2001. The Company has borrowed the full $20 million under the Term
Loan to finance its purchase of Rittenhouse Paper Company. The Revolving Loan
Agreement is subject to certain limitations such as, if the aggregate principal
amount at any one time outstanding under the Revolving Loan exceeds $15 million
or the amount of certain Eligible Accounts Receivable, as defined in the Loan
Agreement, declines to $25 million or less, the maximum principal amount of the
Revolving Loan Agreement shall be the lesser of (a) $35 million or (b) the
Borrowing Base, which is defined as the sum of 80 percent of the Eligible
Accounts Receivable, plus 50 percent of the Eligible Inventory, minus a reserve
of $1 million as defined in the Loan Agreement.
Interest on the loans outstanding, at the Company's option, is either at a rate
per annum equal to the Base Rate (prime) or LIBOR plus applicable margin. The
applicable margin for both the Revolving Credit Loan and Term Loan is subject to
change based on the Company's net income as defined in the Loan Agreement. The
initial Revolver LIBOR margin is 2 percent and the initial Term LIBOR margin is
2.25 percent. The maturity of the Loan Agreement is June 30, 2005 with respect
to the Term Loan and June 30, 2002 with respect to the Revolving Loan.
The Loan Agreement requires the Company to maintain certain financial covenants
such as Total Funded Debt to earnings before interest, income taxes,
depreciation and amortization and a Fixed Charge Coverage Ratio. The Company was
not in compliance with the above quarterly financial covenants and received a
waiver from the Banks for the quarter ended September 29, 2000.
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<PAGE> 7
PENSION SETTLEMENT
In the first quarter, the Company recorded a pretax gain of $18.6 million
associated with the purchase of non-participating annuity contracts from
Principal Life Insurance Company to settle the Company's pension benefit
obligation with respect to the retired salaried and hourly employees covered
under its pension plans and receiving pension benefits as of December 1, 1999.
The Company paid the annuity premium in December 1999 transferring $74.6 million
of pension assets to Principal Life Insurance Company.
RESTRUCTURING AND UNUSUAL CHARGES
In the second quarter, the Company recorded a $.2 million pretax severance
charge related to workforce reductions. In the first quarter, the Company
recorded a $1.5 million pretax charge related to the discontinuance of its
remanufactured laser cartridge product line in the Imaging Supplies segment. The
Company reduced this charge by $.2 million in both the second and third quarters
based on revisions in the costs related to the discontinuance of this product
line. The Company discontinued its line of remanufactured laser cartridges due
to the continued decline in sales and pretax operating results.
SUBSEQUENT EVENTS
In the fourth quarter of 2000, the Company implemented a 15% reduction in
workforce, as well as other measures to lower costs, in its Imaging Supplies
segment. The company expects to record a restructuring charge of approximately
$600,000 in the fourth quarter of 2000 in connection with this workforce
reduction.
On October 24, 2000, the Company's Board of Directors elected two new members to
the Board. The new directors are George R. Mrkonic, Vice Chairman of Borders
Group, Inc. and Avrum Gray, Chairman and Founding Partner of G-Bar Limited
Partnership. These additions bring the total number of Board members temporarily
to 10. Two current directors will not stand for re-election at the 2001 annual
meeting.
SHAREHOLDER'S EQUITY
On April 24, 2000, the Company's Board of Directors voted to redeem the stock
purchase rights issued pursuant to the Rights Agreement dated July 19, 1996, as
amended. In redeeming the rights, the Nashua Board authorized a one-time payment
of $0.01 per common share. In the second quarter, the Company paid $59,000 to
shareholders pursuant to this authorization.
SEGMENT AND RELATED INFORMATION
Beginning with the second quarter of 2000, the Company realigned operating
segments for financial reporting purposes due to the acquisition of Rittenhouse.
The Imaging Supplies segment includes remanufactured laser cartridge and toner
and developer products and, effective in the first quarter, has transferred
reporting of the cut-sheet paper product line to the Specialty Paper segment.
The Label Products segment, formerly included in the Specialty Coated and Label
Products segment, includes pressure sensitive laminated paper, entertainment
tickets, stickers, retail shelf tags and thermosensitive label product lines.
The Specialty Paper segment, which was also included in the Specialty Coated and
Label Products segment, is now reported as a separate segment. The Specialty
Paper segment's product scope includes thermal papers, bond papers, carbonless
paper, specialty printed papers, such as ATM receipts and point-of-sale
receipts, wide format papers, dry-gum papers, heat seal papers and ribbons.
Historical segment data has been restated to reflect these changes.
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<PAGE> 8
The tables below present information about reported segments.
FOR THE QUARTER:
<TABLE>
<CAPTION>
(In thousands) NET SALES FROM PRETAX INCOME (LOSS) FROM
CONTINUING OPERATIONS CONTINUING OPERATIONS
------------------------------ -------------------------------
THREE MONTHS THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
SEPT. 29, 2000 OCT. 1, 1999 SEPT. 29, 2000 OCT. 1, 1999
-------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Imaging Supplies $ 6,147 $11,406 $(1,475) $ (89)
Specialty Paper Products 43,313 16,150 2,511 765
Label Products 29,182 20,194 656 2,164
Reconciling items:
Eliminations (5,537) (4,107) -- --
Other 205 25 570 1
Unallocated corporate expenses,
including interest -- -- (4,077) (1,608)
Restructuring and unusual charges -- -- 136 (138)
------- ------- ------- ------
Consolidated $73,310 $43,668 $(1,679) $1,095
======= ======= ======= ======
</TABLE>
FOR THE NINE MONTHS:
<TABLE>
<CAPTION>
(In thousands) NET SALES FROM PRETAX INCOME (LOSS) FROM
CONTINUING OPERATIONS CONTINUING OPERATIONS
------------------------------- -------------------------------
NINE MONTHS NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPT. 29, 2000 OCT. 1, 1999 SEPT. 29, 2000 OCT. 1, 1999
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Imaging Supplies $ 23,135 $ 31,142 $(2,866) $ (954)
Specialty Paper Products 100,589 50,336 6,262 2,043
Label Products 75,955 58,075 3,647 5,914
Reconciling items:
Eliminations (13,932) (10,810) -- --
Other 296 147 676 (122)
Unallocated corporate expenses,
including interest -- -- (10,176) (4,418)
Pension settlement income -- -- 18,606 --
Restructuring and unusual charges -- -- (1,320) (138)
-------- -------- ------- ------
Consolidated $186,043 $128,890 $14,829 $2,325
======== ======== ======= ======
</TABLE>
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<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On April 17, 2000, the Company acquired all of the outstanding shares of stock
of Rittenhouse Paper Company ("Rittenhouse"). The results of operations of
Rittenhouse have been included since the date of acquisition.
RESULTS OF OPERATIONS: FOR THE QUARTER:
Quarterly sales increased to $73.3 million, a 67.7 percent increase over third
quarter 1999 sales of $43.7 million. Rittenhouse sales included in the third
quarter were $35.0 million. Excluding Rittenhouse sales, the $5.4 million, or
12.4 percent decrease in revenue from the third quarter of 1999 was primarily
due to the discontinuance of the laser cartridge product line in the Imaging
Supplies segment during the first quarter of 2000.
Gross margin declined to 19.1 percent for the quarter compared to 23.7 percent
for the third quarter of 1999. Rittenhouse gross margin was 19.2 percent.
Excluding Rittenhouse gross margin, the Company's gross margin decreased to 19.1
percent. The decline was primarily due to decreased volume in the Imaging
Supplies segment, an unfavorable change in product mix in the Label Products
segment and an unfavorable inventory adjustment in the Label Products segment.
Research and development expense, as a percent of sales, decreased to 1.7
percent from 2.8 percent for the third quarter of 1999. Without the impact of
Rittenhouse sales, research and development expense increased to 3.2 percent of
sales in the third quarter primarily due to a reduction in sales in the Imaging
Supplies segment. Selling, distribution and administrative expenses, as a
percent of sales, increased to 18.7 percent from 18.2 percent for the third
quarter of 1999 primarily due to incremental costs relating to the environmental
clean-up at the Company's Omaha, Nebraska plant. Interest expense increased $.8
million due to the impact of borrowings related to the acquisition of
Rittenhouse. Interest income declined $.2 million due to a lower cash balance as
a result of the acquisition. The effective tax rate was 38.4 percent for the
third quarter of 2000 compared to 40.5 percent for the third quarter of 1999.
Net loss for the third quarter of 2000 was $1.0 million, or $.18 per share,
compared to net income of $.7 million, or $.12 per share, in the third quarter
of 1999. Excluding the impact of Rittenhouse net income and expenses related to
the acquisition and integration of Nashua and Rittenhouse, the Company's net
loss of $.7 million as compared to the third quarter 1999, was primarily a
result of lower sales volume and increased manufacturing expenses in the Imaging
Supplies segment, incremental costs related to the environmental clean-up at the
Omaha, Nebraska plant and inventory write-downs in the Label Products segment.
Net income in the third quarter of 2000 included restructuring and unusual
income related primarily to a revision in the costs related to the
discontinuance of the remanufactured laser cartridge product line.
Details of the restructuring and unusual charges related to continuing
operations and the activity recorded during the first nine months of 2000
follows:
<TABLE>
<CAPTION>
BALANCE CURRENT CURRENT BALANCE
(In thousands) JUNE 30, PERIOD PERIOD SEPT. 29,
2000 PROVISION CHARGES 2000
-------- --------- ------- ---------
<S> <C> <C> <C> <C>
Provisions for severance related to workforce reductions $436 $ (51) $(113) $272
Provisions for assets to be sold or discarded 205 (113) (92) --
Other 218 28 (31) 215
---- ----- ----- ----
Total $859 $(136) $(236) $487
==== ===== ===== ====
</TABLE>
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<PAGE> 10
The balance at June 30, 2000 for provision for workforce reductions included
amounts payable to three employees. All charges, excluding asset write-downs,
are principally cash in nature and are expected to be funded from operations.
RESULTS OF OPERATIONS BY REPORTABLE OPERATING SEGMENT: FOR THE QUARTER
IMAGING SUPPLIES SEGMENT:
The Imaging Supplies segment reported a 46.1 percent decrease in sales for the
third quarter of 2000 compared to the same period last year primarily the result
of exiting the remanufactured laser cartridge product line and lower sales of
Xerox-compatible toners resulting from Hewlett-Packard's decision to discontinue
its line of Xerox-compatible toners manufactured by the Company. Average pricing
in the Toner and Developer product line remained substantially unchanged, while
sales volume decreased for Xerox-compatible toners in the private label reseller
and end user channels. Effective during the first quarter of 2000,
responsibility of the cut sheet paper product line was transferred from the
Imaging Supplies segment to the Specialty Paper Products segment and segment
information for the prior period has been restated accordingly.
The segment's pretax loss in the third quarter of 2000 increased to $1.5 million
compared to $.1 million in the third quarter of 1999. The increased pretax loss
over the third quarter of 1999 was primarily due to lower sales volume and
increased manufacturing costs.
SPECIALTY PAPER PRODUCTS SEGMENT:
The Specialty Paper Products segment reported a 168.2 percent increase in sales
for the third quarter of 2000 compared to the same period last year as a result
of the Rittenhouse acquisition. Excluding the Rittenhouse paper product line,
sales increased 6.9 percent as a result of higher volume in the thermal paper
product line offset by decreased volume in the cut sheet paper product line.
Sales of thermal paper, which is used primarily for conversion into supermarket
labels and ticket and tag applications improved due to new product focus and
customer retention.
The segment's pretax income increased 228.2 percent to $2.5 million compared to
$.8 million in the third quarter of 1999 as a result of the Rittenhouse
acquisition. Excluding the Rittenhouse paper pretax profit of $1.2 million, the
Specialty Paper Product segment pretax profit improved 69.7 percent primarily
due to improvements in the segment's gross margin. Lower manufacturing costs,
improved manufacturing efficiency and a favorable mix of products sold were the
primary reasons for the improvement.
LABEL PRODUCTS SEGMENT:
The Label Products segment reported a 44.5 percent increase in sales for the
third quarter of 2000 compared to the same period last year as a result of the
Rittenhouse acquisition. Excluding Rittenhouse, sales of label products remained
relatively flat. Improved product mix and pricing in the supermarket thermal
product line was offset by decreased volume in the custom and stock EDP product
lines.
The segment's pretax income decreased 69.7 percent to $.7 million compared to
$2.2 million in the third quarter of 1999. Excluding the Rittenhouse label
pretax profit of $.7 million, the Label Product segment pretax profit declined
by $2.2 million over the same period last year, primarily due to a decline in
the segment's gross margin and an additional environmental charge for the Omaha
Plant site. Gross margin was negatively impacted by volume declines in the
custom and stock EDP product lines, an unfavorable mix of products sold,
manufacturing inefficiencies and the write-down of inventories.
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<PAGE> 11
RESULTS OF OPERATIONS: FOR NINE MONTHS YEAR-TO-DATE:
Sales for the first nine months of 2000 increased 44.3 percent to $186.0 million
compared to $128.9 million in the corresponding period of 1999 due to the
Rittenhouse acquisition. Excluding Rittenhouse sales, the Company's sales
declined 6.4 percent to $121.2 million, primarily due to the discontinuance of
the remanufactured laser cartridge product line within the Imaging Supplies
segment.
Gross margin declined to 20.6 percent for the first nine months from 24.1
percent for the same period last year. Excluding the Rittenhouse gross margin,
gross margin declined to 20.2 percent for the first nine months of 2000. The
decline was primarily attributable to reductions in gross margin in both the
Imaging Supplies and Label Product segments as a result of volume shortfalls,
increased manufacturing and raw material costs and unfavorable inventory
adjustments.
Research and development expense for the first nine months of 2000, as a percent
of sales, declined to 1.8 percent compared to 2.9 percent for the same period
last year. Excluding Rittenhouse sales, research and development expense
declined to 2.7 percent, primarily due to reductions in spending in the Imaging
Supplies segment. Selling, distribution and administrative expenses, as a
percent of sales, decreased to 19.4 percent from 19.6 percent for the first nine
months of 1999. Interest expense increased $1.4 million due to the impact of
borrowings related to the acquisition of Rittenhouse. Interest income declined
$.3 million due to a lower cash balance due to the acquisition. The effective
tax rate was 39.3 percent for the nine months of 2000 compared to 40.5 percent
for the nine months of 1999. The effective rate is higher than the U.S.
statutory rate, principally due to the impact of state income taxes.
Net income in the first nine months of 2000 totaled $9.0 million, or $1.60 per
share, compared to $1.4 million, or $.24 per share, in the same period in 1999.
Excluding the impact of Rittenhouse net income and expenses related to the
acquisition and integration, the Company's net income of $8.9 million included
the recognition of an $18.6 million pretax gain resulting from the settlement of
certain of the Company's pension obligations which was primarily offset by an
unusual charge relating to the Company's decision to discontinue the
remanufactured laser cartridge product line in the Imaging Supplies segment,
incremental costs relating to the environmental clean-up at the Company's Omaha,
Nebraska plant, and an unfavorable inventory adjustment in the Label Products
segment. The Company's net loss before the impact of the Rittenhouse
acquisition, pension settlement income and restructuring and unusual charges in
the first nine months of 2000 was $1.5 million, or $0.27 per share. The net loss
when compared to the first nine months of 1999, was primarily a result of
decreased volumes in the Imaging Supplies segment and increased manufacturing
costs, raw material costs and corporate administrative expenses relating to
proxy solicitation costs.
RESULTS OF OPERATIONS BY REPORTABLE OPERATING SEGMENT: FOR NINE MONTHS YEAR-TO
DATE:
IMAGING SUPPLIES SEGMENT:
The Imaging Supplies segment reported a $8.0 million decrease in sales for the
first nine months of 2000 compared to the same period last year, primarily the
result of exiting the remanufactured laser cartridge product line and decreased
sales of Xerox-compatible toners. Net sales in the toner and developer product
line declined $2.7 million from the first nine months of 1999. Sales volume
increases in the private label reseller channel were more than offset by volume
decreases in the end user channel. Effective during the first quarter of 2000,
responsibility for the cut sheet paper product line was transferred from the
Imaging Supplies segment to the Specialty Paper Products segment. Segment
information for the prior period has been restated accordingly.
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<PAGE> 12
The segment's pretax loss in the first nine months of 2000 increased $1.9
million to $2.9 million compared to $1.0 million in the same period in 1999. The
increased pretax loss over the first nine months of 1999 was primarily due to
lower sales volume and increased manufacturing costs in the toner and developer
product line.
SPECIALTY PAPER PRODUCTS SEGMENT:
The Specialty Paper Products segment reported a $50.3 million increase in sales
for the first nine months of 2000 compared to the same period last year due to
the Rittenhouse acquisition. Excluding the Rittenhouse paper product line sales,
sales increased 3.9 percent as a result of increased volume in the carbonless
and thermal paper product lines which more than offset volume declines in the
cut sheet paper product line. Thermal paper, which is used primarily for
conversion into supermarket labels and ticket and tag applications, improved due
to new product focus and customer retention.
The segment's pretax income increased 206.5 percent to $6.3 million compared to
$2.0 million in the first nine months of 1999 primarily as a result of the
Rittenhouse acquisition. Excluding the Rittenhouse paper pretax profit of $3.2
million, the Specialty Paper Product segment pretax profit improved 49.5
percent, primarily due to improvements in the segment's gross margin. Lower
manufacturing costs, improved manufacturing efficiency and a favorable mix of
products sold were the primary reasons for the improvement.
LABEL PRODUCTS SEGMENT:
The Label Products segment reported a 30.8 percent increase in sales for the
first nine months of 2000 compared to the same period last year primarily due to
the Rittenhouse acquisition. Excluding Rittenhouse sales of label products, the
Label Products segment sales increased 1.8 percent as a result of an improved
mix of products sold.
The segment's pretax income decreased 38.3 percent to $3.6 million compared to
$5.9 million in the first nine months of 1999. Excluding the Rittenhouse label
pretax profit of $2.0 million, the Label Product segment pretax profit declined
64.8 percent over the same period last year, primarily due to a decline in the
segment's gross margin and a charge related to environmental clean-up at the
Omaha, Nebraska facility. An unfavorable mix of products sold and an inventory
write-down were the primary reasons for the decline in gross margin.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Working capital decreased $13.9 million to $21.7 million from December 31, 1999
primarily the result of the Rittenhouse acquisition. Cash and cash equivalent
decreases and accounts payable and accrued liabilities increases more than
offset increases in accounts receivable and inventory. Cash and cash equivalents
decreased $24.1 million.
Net cash used in investing activities consisted primarily of the acquisition of
Rittenhouse, net of cash acquired, totaling $58.6 million and capital
expenditures of $7.5 million, offset by $1.9 million in proceeds from the sale
of certain real estate located in Nashua, NH. The capital expenditures reflect
purchases of machinery and equipment in all segments and building improvements
in the Imaging Supplies segment. Net cash provided by financing activities
consisted primarily of $38.0 million in proceeds from borrowings related
primarily to the Rittenhouse acquisition.
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During April 2000, the Company entered into a new financing agreement with Fleet
Bank - NH and LaSalle Bank, NA as detailed in the Indebtedness section of the
Notes to the Condensed Consolidated Financial Statements. The Loan Agreement
requires the Company to maintain certain financial covenants such as Total
Funded Debt to earnings before interest, income taxes, depreciation and
amortization and a Fixed Charge Coverage Ratio. The Company was not in
compliance with the above quarterly financial covenants and received a waiver
from the Banks for the quarter ended September 29,2000.
The Company used $23.7 million of its cash balance during April 2000 for the
acquisition of Rittenhouse and related expenses, as detailed in the Business
Acquisition section of the Notes to the Condensed Consolidated Financial
Statements.
Management believes that current cash and cash equivalents, cash flows from
operations and amounts available under the Company's financing agreement is
sufficient to fund its planned capital expenditures, working capital needs and
other cash requirements.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
ANNUAL MEETING OF STOCKHOLDERS
The Company's Annual Stockholders' Meeting will be held on May 8, 2001 at the
Crowne Plaza, 2 Somerset Parkway, Nashua, NH, at 10:00 a.m.
STOCKHOLDER PROPOSALS
Any proposal that a stockholder wishes the Company to consider for inclusion in
the proxy statement and form of proxy card for the Company's 2001 Annual Meeting
of Stockholders (the "2001 Meeting") must be received by the Company on or
before November 20, 2000. Such proposals should be directed to Nashua
Corporation, Second Floor, 11 Trafalgar Square, Nashua, New Hampshire 03063,
Attention: Secretary.
In addition, the Company's By-Laws require all stockholder proposals to be
timely submitted in advance to the Secretary of the Company at the above address
(other than proposals submitted for inclusion in the proxy statement and form of
proxy as described above). To be timely, the Secretary must receive such notice
not less than 60 days nor more than 90 days prior to the 2001 Meeting; provided
that, if less than 70 days' notice or prior public disclosure of the date of the
2001 Meeting is given or made, the notice must be received not later than the
close of business on the 10th day following the date on which such notice of the
date of the meeting was mailed or such public disclosure was made, whichever
occurs first.
MATTERS AFFECTING FUTURE RESULTS
This Form 10-Q 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," "will" 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, 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, failure of the Company to successfully
complete the integration of Rittenhouse
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or achieve the transactions' synergies, and other risks detailed in the
Company's filings with the Securities and Exchange Commission. The Company
assumes no obligation to update the information contained in this Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
10.19 Amendment to the Revolving Credit and Term Loan Agreement as of
October 23, 2000 by and among Nashua Corporation, Rittenhouse,
L.L.C., Rittenhouse Paper Company, Fleet National Bank and LaSalle
Bank, N.A.
27.01 Financial Data Schedule for the period ending September 29, 2000.
REPORTS ON FORM 8-K
None.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks from interest rate fluctuations
relating to its Loan Agreement entered into with Fleet Bank-NH and LaSalle Bank,
NA on April 17, 2000. We have performed a sensitivity analysis assuming a
hypothetical 10% adverse movement in interest rates applied to our debt. As of
September 29, 2000, the analysis indicated that the hypothetical market movement
would not have a material effect on the Company's consolidated financial
position, results of operations or cash flows. Actual changes in interest rate
and the related effects may differ materially from that analysis.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NASHUA CORPORATION
---------------------------------
(Registrant)
Date: NOVEMBER 13, 2000 By: /s/ John L. Patenaude
---------------------------------
John L. Patenaude
Vice President-Finance and
Chief Financial Officer
(principal financial and duly
authorized officer)
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