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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
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Commission file number 1-05492
NASHUA CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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Massachusetts
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02-0170100 |
(State or Other Jurisdiction of
Incorporation or Organization) |
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(IRS Employer
Identification No.) |
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11 Trafalgar Square, Suite 201
Nashua, New Hampshire
(Address of Principal Executive Offices) |
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03063
(Zip Code) |
Registrant’s telephone number, including area code:
(603) 880-2323
Securities registered pursuant to Section 12(b) of the
Act:
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Name of Each Exchange on Which Registered |
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Common Stock, par value $1.00
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
None
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 þ No o
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. þ
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act
Rule 12b-2). Yes o No þ
As of July 2, 2004, the aggregate market value of the
registrant’s voting stock held by non-affiliates was
approximately $35,951,251. As of March 1, 2005, the number
of shares outstanding of the registrant’s Common Stock was
6,216,334.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual
Meeting of Stockholders of the registrant to be held on
May 4, 2005 are incorporated by reference into
Part III of this Form 10-K.
TABLE OF CONTENTS
PART I
General
Nashua Corporation is a manufacturer, converter and marketer of
labels, specialty papers and imaging products. Our primary
products include thermal and other coated papers, wide-format
papers, pressure-sensitive labels and tags, transaction and
financial receipts and toners and developers for use in certain
photocopiers.
Our company was incorporated in Massachusetts in 1904. We
changed our state of incorporation to Delaware in 1957 and back
to Massachusetts in 2002. Our principal executive offices are
located at 11 Trafalgar Square, Nashua, New Hampshire 03063, and
our telephone number is (603) 880-2323. Our Internet
address is www.nashua.com. Copies of our Exchange Act
reports can be accessed from our website. We are subject to the
informational requirements of the Exchange Act, and,
accordingly, file reports, proxy statements and other
information with the Securities and Exchange Commission. Such
reports, proxy statements and other information can be read and
copied at the public reference facilities maintained by the
Securities and Exchange Commission at the Public Reference Room,
450 Fifth Street, NW, Washington, D.C. 20549.
Information regarding the operation of the Public Reference Room
may be obtained by calling the Securities and Exchange
Commission at 1-800-SEC-0330. The Securities and Exchange
Commission maintains a website (http://www.sec.gov) that
contains material regarding issuers that file electronically
with the Securities and Exchange Commission. References in this
Form 10-K to “us,” “we,”
“ours,” the “company” or to
“Nashua” refer to Nashua Corporation and our
consolidated subsidiaries, unless the context requires otherwise.
Operating Segments
Set forth below is a brief summary of each of our three
operating segments together with a description of their more
significant products, competitors and operations. Our three
operating segments are:
(1) Label Products
(2) Specialty Paper Products
(3) Imaging Supplies
Additional financial information regarding our business segments
is contained in Management’s Discussion and Analysis of
Financial Condition and Results of Operations in Item 7 of
Part II, and Note 13 to our Consolidated Financial
Statements included in Item 8 of Part II of this
Annual Report on Form 10-K.
Label Products Segment
Our Label Products segment converts, prints and sells
pressure-sensitive labels and tags to distributors and end-users.
Nashua pressure-sensitive labels and tags are used for
supermarket scales, retail shelf tags, inventory control,
tracking, automatic identification, event tickets and address
labels. We are a major supplier of labels to the supermarket
industry and our labels are also used for such applications as
retail shelf, ticket media, transportation, automatic data
collection (barcode), mailer/package distribution and
pharmaceutical and prescription fulfillment. The label industry
is price-sensitive and competitive and includes competitors such
as Moore-Wallace, a division of R. R. Donnelly and Sons, Hobart
Corporation and Corporate Express, as well as numerous regional
converters.
We depend on outside suppliers for most of the raw materials
used by our Label Products segment to produce labels and ticket
media. Primary materials used in producing our products include
laminated
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paper and inks. Thermal paper constitutes a large percentage of
the raw material cost for our and our competitors’
products. As a result, our costs and market pricing are heavily
impacted by changes in thermal paper costs. We purchase
materials from multiple suppliers and believe that adequate
quantities of supplies are available. However, for some
important raw materials, such as laminated paper and inks, we
either sole source or obtain supplies from a few vendors. There
is no current or anticipated supply disruption but a future
supply disruption could negatively impact our operations until
an alternate source of supply could be qualified. Additionally,
there can be no assurance that our future operating results
would not be adversely affected by either future increases in
the cost of raw materials or sourced products or the curtailment
of supply.
During the third quarter of 2001, we discontinued our lamination
business within our Label Products segment. In connection with
this discontinuance, we entered into a supply agreement for
laminated and coated products with The Fasson Roll North America
division of Avery Dennison that committed us to purchase a
significant portion of the laminated materials from them through
December 31, 2005. If we fail to meet the minimum purchase
volumes specified in the agreements, we will be subject to
financial penalties. We acquired the required quantities and
were in compliance with the requirements of the agreement for
2004.
Specialty Paper Products Segment
Our Specialty Paper Products segment coats, converts, prints and
sells papers and films. Products include: thermal papers,
dry-gummed papers, heat seal papers, wide-format media papers,
carbonless papers, small rolls, financial receipts, retail
consumer products and ribbons.
Thermal papers develop an image upon contact with either a
heated stylus or a thermal print head. Thermal papers are used
in point-of-sale printers, package identification systems,
gaming and airline ticketing systems, medical and industrial
recording charts and for conversion to labels. We coat and sell
large roll thermal papers primarily to printers, laminators and
converters. Competitors in the large roll thermal papers market
include companies such as Appleton Papers, Inc. and Ricoh
Corporation, as well as other manufacturers in the United
States, Asia and Europe.
Dry-gummed paper is a paper that is coated with a
moisture-activated adhesive. We sell dry-gummed paper primarily
to fine paper merchants, business forms manufacturers and paper
manufacturers, who ultimately convert it into various types of
labels and stamps. Our major competitor in the dry-gummed label
market is Troy Laminating and Coating, Inc.
Our heat seal papers are coated with an adhesive that is
activated when heat is applied. We sell these products through
fine paper merchants who, in turn, resell them to printers who
convert the papers into labels for use primarily in the
pharmaceutical industry. Heat seal papers are also used in
bakery, meat packaging and other barcode applications.
Carbonless paper is a coated paper used in the production of
multi-part business forms which produce multiple copies without
carbon paper. We coat and sell carbonless paper in sheet form
through fine paper merchants and in roll form directly to the
printing industry, where it is converted into multi-part
business forms. Within the carbonless paper market, we generally
compete with Appleton Papers, Inc., MeadWestvaco Corporation and
Imation Corporation.
Small rolls of bond, carbonless and thermal papers are used for
such applications as point-of-sale receipts for cash registers
and credit card verification, financial receipts for ATM, teller
systems and check processing, adding machine papers, and
self-service applications, such as gas station pay-at-the-pump,
casino/gambling and thermal facsimile for thermal fax printers.
We sell converted small rolls to fine paper merchants, paper
distributors, superstores, warehouse clubs, resellers and
end-users. Small roll brands include Perfect Print and IBM. Our
major competitors in the small roll market include NCR
Corporation, Paper Systems, Inc. and Moore-Wallace, a division
of R. R. Donnelly and Sons.
Wide-format media papers are premium quality papers untreated or
treated with either resin or non-resin coatings. We sell
wide-format media papers to merchants, resellers, print-for-pay
retailers and end-
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users for use in graphic applications, signs, engineering
drawings, posters and for the reproduction of original copies.
Our primary competitor in the wide-format papers market is
Océ N.V.
We depend on outside suppliers for the raw materials used by our
Specialty Paper Products segment. Primary raw materials include
paper, chemicals used in producing the various coatings that we
apply, inks and ribbons. Paper constitutes a large percentage of
the raw material cost for our and our competitors’
products. As a result, our costs and market pricing are heavily
impacted by changes in paper costs. Generally, we purchase
materials from multiple suppliers. However, we purchase some raw
materials for specific coated product applications from a single
supplier. While there is no current or anticipated supply
disruption, a future supply disruption could negatively impact
our operations until an alternate source of supply could be
qualified. There can be no assurance that our future operating
results would not be adversely affected by future increases in
either the cost of raw materials or sourced products or the
curtailment of supply.
Several of the products in our Specialty Paper Products segment
are in mature and declining markets. These include our
dry-gummed papers, heat seal papers, bond papers and carbonless
papers. Future sales and profitability for these product lines
depend on our ability to maintain current prices and retain and
increase our market share in these declining markets. We believe
the market for thermal and wide-format papers will continue to
grow in the foreseeable future.
Imaging Supplies Segment
Our Imaging Supplies segment manufactures and sells consumable
products used in producing hard copy images. Our product line is
comprised primarily of high quality, competitively priced toners
and developers compatible with printers and copiers manufactured
by Xerox Corporation, Ricoh Corporation, Océ N.V., IBM and
others. In addition, this segment is vertically integrated in
that it produces some of the resins that are used in the
production of toners for both internal use as well as for sales
to some external customers.
We market our products worldwide under both the Nashua brand and
select private labels. We sell our products through a variety of
distribution channels. For example, we sell toner and developer
to government agencies, machine service providers and
print-for-pay customers through both direct and agent sales
forces. We have also aligned ourselves with strategic partners
who market our Ricoh compatible toner and developer products in
complementary market segments. While sales for our Imaging
Supplies segment represent less than ten percent of our
consolidated sales, this segment has a significant customer that
represents more than half of its sales. The loss of this
customer would have a material adverse effect on this segment.
Our major competitors for toner and developer products include
Xerox Corporation, Ricoh Corporation, Océ N.V. and IBM. We
also compete with other smaller independent manufacturers of
toner and developer products. The market for toner and developer
products is highly competitive, with more sophisticated toner
formulas and shorter copier machine life cycles requiring timely
product development.
We depend on outside suppliers for most of the raw materials
used by our Imaging Supplies segment. One of our major raw
materials is resin, which is an oil-based product that is
susceptible to oil price fluctuations. Generally, we purchase
assorted custom raw materials from multiple suppliers and
believe that adequate quantities of supplies are available.
However, we purchase some raw materials from single source
suppliers. As such, while we are not currently aware of the
existence of a disruption of a vendor’s business or our
relationship with them that could significantly impact our
operations, such a disruption in the future could negatively
impact our operations until an alternative supplier could be
qualified. There can be no assurance that our future operating
results would not be adversely affected by future increases in
raw material prices or the curtailment of supply. During 2002,
we outsourced our toner filling operation and rely on
third-party suppliers to complete this portion of our
manufacturing process at a reduced cost compared to our prior
internal cost. As such, disruption of toner filling supply from
one or more vendors could negatively impact our operations until
an alternative supply could be arranged. The third-party filling
operations are currently satisfying our requirements.
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Information About Major Customers
We have one group of customers under common control that
represents more than ten percent of our consolidated revenues.
Combined sales to Wal-Mart and Sam’s Club totaled
$33.1 million in 2004, or approximately 11 percent of
our total sales in 2004, comprised of sales of
$20.5 million for our Specialty Paper Products segment and
$12.6 million for our Label Products segment. While no
other customer represented ten percent of our consolidated
revenues, each of our segments has significant customers. The
loss of a significant customer could have a material adverse
effect on us or our segments.
Development of New Products
Our success depends in part on our ability to continue
developing and marketing new products. There can be no assurance
that we will be able to develop and introduce new products in a
timely manner or that new products, if developed, will achieve
market acceptance. Additionally, our future growth depends on
our ability to penetrate new markets and to sell our products at
times through alternative channels of distribution. There can be
no assurance that the markets currently being served by us will
continue to grow, that our existing and new products will meet
the requirements of the markets in which we operate, that our
products will achieve customer acceptance, that our competitors
will not force prices to an unacceptably low level or take
market share from us, or that we can achieve or maintain profits
in the markets in which we operate.
Intellectual Property
Our ability to compete may be affected by our ability to protect
our proprietary information, as well as our ability to design
products outside the scope of our competitors’ intellectual
property rights. We hold a limited number of U.S. and foreign
patents, of which two are related to our Label Products segment,
13 are related to our Specialty Paper Products segment and six
are related to our Imaging Supplies segment, expiring in various
years between 2005 and 2021. There can be no assurance that our
patents will provide meaningful protection, nor can there be any
assurance that third parties will not assert infringement claims
against us or our customers in the future. If one of our
products was ruled to be in violation of a competitor’s
intellectual property rights, we could be required to expend
significant resources to develop non-infringing alternatives or
to obtain required licenses. There can be no assurance that we
could successfully develop commercially viable alternatives or
that we could obtain necessary licenses. Additionally,
litigation relating to infringement claims could be lengthy or
costly and could have an adverse material effect on our
financial condition or results of operations regardless of the
outcome of the litigation.
Manufacturing Operations
We operate manufacturing facilities in the following locations:
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Nashua, New Hampshire |
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Merrimack, New Hampshire |
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Omaha, Nebraska |
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Jefferson City, Tennessee |
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Morristown, Tennessee |
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Vernon, California |
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St. Louis, Missouri |
Our New Hampshire, Nebraska and California facilities are
unionized. We completed multi-year labor negotiations for our
New Hampshire and Nebraska sites during 2002 and our California
site during
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2005. More information regarding the operating segments and
principal products produced at each location can be found below
in Item 2 of Part I of this Form 10-K. There can
be no assurance that future operating results will not be
adversely affected by changes in either our or market labor wage
rates or productivity.
Research and Development
Our research and development efforts have been instrumental in
the development of many of our products. We direct our research
efforts primarily toward developing new products and processes
and improving product performance, often in collaboration with
customers. Our research and development efforts are focused
primarily on new thermal coating applications for our Specialty
Paper and Label Products segments and new toner and developer
formulations and toner cartridge designs for our Imaging
Supplies segment. Our research and development expenditures were
$2.1 million in 2004, $2.5 million in 2003 and
$3.1 million in 2002.
Environmental Matters
We and our 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, commonly known as
“CERCLA,” the Resource Conservation and Recovery Act,
commonly known as “RCRA,” the Clean Water Act and
other state and local counterparts of these statutes. We believe
that our operations have operated and continue to operate in
compliance with applicable environmental laws and regulations.
Nevertheless, we have received notices of alleged environmental
violations in the past and we could receive additional notices
of alleged environmental violations in the future. Violations of
these environmental laws and regulations could result in
substantial fines and penalties. Historically, we have addressed
and/or attempted to remedy any alleged environmental violation
upon notification.
Our expenditures for compliance with environmental laws and
regulations were $.1 million in 2004, $.4 million in
2003 and approximately $1.0 million per year in the
previous three years. Additionally, for sites which we have
received notification of the need to remediate, we have assessed
our potential liability and have established a reserve for
estimated costs associated with the remediation. At
December 31, 2004, our reserves for potential environmental
liabilities were $.4 million for continuing operations.
However, liability of potentially responsible parties under
CERCLA and RCRA is joint and several, and actual remediation
expenses at sites where we are a potentially responsible party
could either exceed or be below our current estimates. We
believe, based on the facts currently known to us, our insurance
coverage and the environmental reserve recorded, that our
estimated remediation expense and on-going costs of compliance
with environmental laws and regulations are not likely to have a
material adverse effect on our consolidated financial position,
results of operations, capital expenditures or our competitive
place in the market.
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Executive Officers
Listed below are our executive officers as of March 1,
2005. No family relationships exist among our executive officers.
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Position |
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Andrew B. Albert
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Chairman, President and Chief Executive Officer |
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John L. Patenaude
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Vice President — Finance, Chief Financial Officer and
Treasurer |
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Margaret S. Adams
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Vice President, Chief Information Officer and President of the
Converted Paper Division |
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Robert S. Amrein
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Vice President, General Counsel and Clerk/Secretary |
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Margaret M. Callan
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38 |
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Corporate Controller and Chief Accounting Officer |
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Donna J. DiGiovine
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Vice President, President of the Toner Products Division and the
Coated Paper Division |
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Thomas R. Pagel
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Vice President, President of the Label Products Division |
Mr. Albert has been our Chairman of the Board, President
and Chief Executive Officer since December 2000. He became our
President and Chief Operating Officer in April 2000 when we
completed our acquisition of Rittenhouse Paper Company. Prior to
joining us, Mr. Albert served as Chairman and Chief
Executive Officer of Rittenhouse Paper Company.
Mr. Patenaude has been our Vice President —
Finance and Chief Financial Officer since May 1998. In addition,
since August 2000 and from May 1998 to October 1999,
Mr. Patenaude has served as Treasurer.
Ms. Adams has been one of our Vice Presidents since May
2002 and Chief Information Officer since October 2001. She has
also served as President of our Converted Paper division since
August 2003. Prior to joining Nashua, she served as Vice
President of Operations for Kriticka from June 2000 to May 2001
and Vice President, Information Technology for Esselte from June
1998 to June 2000. Prior to June 1998, Ms. Adams held
various marketing, operational and information technology
positions at Avery Dennison, the most recent being Group
Director of North American Technology.
Mr. Amrein has been one of our Vice Presidents, General
Counsel and Clerk/ Secretary since December 2000 and was Vice
President — Human Resources from May 2002 to November
2004. Prior to joining Nashua, he served as Chief Legal Counsel
for M/ A-Com, Inc. from 1997 to 2000 and as General Counsel and
Corporate Secretary of Schneider Automation from 1988 to 1997.
Ms. Callan has been our Corporate Controller and Chief
Accounting Officer since May 2003. She served as our Director of
Strategic Planning and Analysis from January 2001 to May 2003
and our Director of External Reporting from November 1998 to
January 2001.
Ms. DiGiovine has been one of our Vice Presidents since
December 1999. She has also served as President of our Coated
Paper division since August 2003 and President of our Toner
Products division since December 1999. From April 1999 to August
2003, she served as the General Manager of the Toner Products
division.
Mr. Pagel has been one of our Vice Presidents and President
of our Label Products division since February 2001. He became
President of our Tennessee Label operation in April 2000 when we
completed our acquisition of Rittenhouse Paper Company. Prior to
joining Nashua, Mr. Pagel served as President and Chief
Operating Officer of Rittenhouse Paper Company’s Label
Media Group.
Our executive officers are generally elected to their offices
each year by our Board of Directors shortly after the Annual
Meeting of Stockholders.
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Employees
We had 906 full-time employees at February 10, 2005.
Approximately 274 of our employees are members of one of several
unions, principally the Paper, Allied Industrial, Chemical and
Energy Workers International Union. We believe our employee
relations are satisfactory.
Our significant labor agreements include:
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Approximate # | |
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of Employees | |
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Expiration Date | |
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Paper, Allied Industrial, Chemical and Energy Workers
International Union
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103 |
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Omaha, NE |
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March 31, 2007 |
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Paper, Allied Industrial, Chemical and Energy Workers
International Union
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120 |
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Merrimack, NH |
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April 2, 2006 |
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United Commercial Food Workers Union
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43 |
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Vernon, CA |
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March 5, 2008 |
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Other
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Merrimack, NH |
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April 2, 2006 |
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Forward-Looking and Cautionary Statements
Information we provide in this Form 10-K may contain
forward-looking statements, as defined in the Private Securities
Litigation Reform Act of 1995. We may also make forward-looking
statements in other reports we file with the Securities and
Exchange Commission, in materials we deliver to stockholders and
in our press releases. In addition, our representatives may,
from time to time, make oral forward-looking statements.
Forward-looking statements provide current expectations of
future events based on certain assumptions and include any
statement that is not directly related to historical or current
fact. Words such as “anticipate,” “believe,”
“can,” “could,” “estimate,”
“expect,” “intend,” “may,”
“plan,” “project,” “should,”
“will” and similar expressions are intended to
identify such forward-looking statements. Forward-looking
statements are subject to risks and uncertainties which could
cause actual results to differ materially from those
anticipated. Such risks and uncertainties include, but are not
limited to, our future capital needs, stock market conditions,
the price of our stock, fluctuations in customer demand,
intensity of competition from other vendors, timing and
acceptance of our new product introductions, general economic
and industry conditions, delays or difficulties in programs
designed to increase sales and improve profitability, the
settlement of tax issues, the possibility of a final award of
material damages in our pending litigation and other risks
detailed in this Form 10-K and our other filings with the
Securities and Exchange Commission. We assume no obligation to
update the information contained in this Form 10-K or to
revise our forward-looking statements.
Risk Factors
The following important factors, among others, could cause our
actual operating results to differ materially from those
indicated or suggested by forward-looking statements made in
this Form 10-K or presented elsewhere by management from
time to time.
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We face significant competition. |
The markets for our products are highly competitive, and our
ability to effectively compete in those markets is critical to
our future success. Our future performance and market position
depend on a number of factors, including our ability to react to
competitive pricing pressures, our ability to lower
manufacturing costs and consolidate production facilities, our
ability to introduce new value added products and services
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to the market and our ability to react to the commoditization of
products. Our performance could also be impacted by external
factors, such as:
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increasing pricing pressures from competitors in the markets for
our products; |
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a faster decline than anticipated in the more mature, higher
margin product lines, such as heat seal and dry gum products,
due to changing technologies; |
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our ability to pass on raw material price increases to
customers; and |
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our ability to capture market share in the radio frequency
identification label market. |
Our Imaging Supplies and Specialty Paper Products segments
operate in New Hampshire, which has relatively higher labor and
utility costs compared to other parts of the United States where
some of our competitors are located or operate. Some of our
competitors may be larger in size or scope than we are, which
may allow them to achieve greater economies of scale on a global
basis or allow them to better withstand periods of declining
prices and adverse operating conditions.
In addition, there has been an increasing trend among our
customers towards consolidation. With fewer customers in the
market for our products, the strength of our negotiating
position with these customers could be weakened, which could
have an adverse effect on our pricing, margins and profitability.
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Increases in raw material costs or the unavailability of
raw materials may adversely affect our profitability. |
We depend on outside suppliers for most of the raw materials
used in our business. Although we believe that adequate supplies
of the raw materials we use are available, any significant
decrease in supplies, or any increase in costs or a greater
increase in delivery costs for these materials could result in a
decrease in our margins, which would harm our financial
condition. For example, our Specialty Paper Products and Label
Products segments are impacted by the economic conditions and
the plant capacity dynamics within the paper industry. In
general, the availability and pricing of commodity paper such as
uncoated face sheet is affected by the capacity of the paper
mills producing the products. During 2004, we believe paper
manufacturers were operating at an increased rate of capacity,
which caused increases in the costs of the raw materials used in
our business. Further increases in the level at which paper
manufacturers, or other producers of the raw materials we use in
our business, operate could cause increases in the costs of raw
materials, which could harm our financial condition.
We have historically been able to pass on significant raw
material cost increases through price increases to our
customers. Nonetheless, our results of operations for individual
quarters can and have been negatively impacted by delays between
the time of raw material cost increases and price increases in
our products. Additionally, we may be unable to increase our
prices to offset higher raw material costs due to the failure of
competitors to increase prices and customer resistance to price
increases. Additionally, we rely on our suppliers for deliveries
of raw materials. If any of our suppliers were unable to deliver
raw materials to us for an extended period of time, there is no
assurance that our raw material requirements would be met by
other suppliers on acceptable terms, or at all, which could have
a material adverse effect on our results of operation.
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Declining returns in the investment portfolio of our
defined benefit plans will require us to increase cash
contributions to the plans. |
Funding for the defined benefit pension plans we sponsor is
determined based upon the funded status of the plans and a
number of actuarial assumptions, including an expected long-term
rate of return on assets and the discount rate. As of
December 31, 2002, we froze benefits under two of these
pension plans: the Nashua Corporation Retirement Plan for
Salaried Employees and the Supplemental Executive Retirement
Plan. Due to declining returns in the investment portfolio and
the discount rate of our defined benefit pension plans in recent
years, the defined benefit plans were underfunded as of
December 31, 2004 by approximately $17.9 million,
based on the actuarial methods and assumptions utilized for
purposes of
9
FAS 87 and after giving effect to the planned curtailment
of benefits. As a result, we expect to experience an increase in
our future cash contributions to our defined benefit pension
plans. We do not expect to make a contribution in 2005. In the
event that actual results differ from the actuarial assumptions,
the funded status of our defined benefit plans may change and
any such deficiency could result in additional charges to equity
and against earnings and increase our required cash
contributions. Additionally, legislative changes were recently
proposed in the U.S. Congress that, if enacted into law,
would impact our defined benefit pension plans by altering the
manner in which liabilities are determined for the purpose of
calculating required pension contributions and the timing and
manner in which required contributions to underfunded pension
plans would be made. The proposals are still in the early stages
and many details will need to be specified, and then approved by
Congress. However, the funding requirements for our defined
benefit pension plans could be significantly affected by these
proposed changes, if they are adopted.
|
|
|
Our future results may be adversely affected by receiving
fewer savings from our corporate initiatives than
expected. |
During the past five years, we have pursued a strategy to reduce
costs, streamline operations and resolve legacy issues that in
the past have affected our profitability, and we believe that
our results for 2004 reflect the success of this strategy.
However, there can be no assurance that all of the estimated
savings from these initiatives will be realized. Although we
currently expect to achieve our goals, we may encounter
unanticipated difficulties in implementing our initiatives.
|
|
|
We are dependent on key personnel and on the retention and
recruiting of key personnel for our future success. |
Our future success depends to a significant extent on the
continued service of our key administrative manufacturing, sales
and senior management personnel. However, our strategy to reduce
costs, streamline operations and resolve legacy issues may
adversely impact our workforce. We do not have employment
agreements with our executives and do not maintain key person
life insurance on any of these executives. The loss of the
services of one or more of our key employees could significantly
delay or prevent the achievement of our product development and
other business objectives and could harm our business. While we
have entered into executive severance agreements with many of
our key employees, there can be no assurance that the severance
agreements will provide adequate incentives to retain these
employees. Our future success also depends on our continuing
ability to attract, retain and motivate highly skilled employees
for key positions. There is competition for qualified employees
in our industry. We may not be able to retain our key employees
or attract, assimilate or retain other highly qualified
employees in the future.
We have from time to time in the past experienced, and we expect
to continue to experience from time to time in the future,
difficulty in hiring and retaining highly skilled employees with
appropriate qualifications for certain positions.
|
|
|
New technologies or changes in consumer preferences may
affect our ability to compete successfully. |
We believe that new technologies or novel processes may emerge
and that existing technologies may be further developed in the
fields in which we operate. These technologies or processes
could have an impact on production methods or on product quality
in these fields. For example, we believe that a trend in the
label business is the conversion of barcode labels used in
warehousing and distribution into radio frequency identification
(RFID) labels. Accordingly, we installed inlet insertion
equipment for RFID labels in the first quarter of 2005 and we
continue to invest in technology and equipment that should allow
us to print and convert RFID labels. However, the widespread use
and acceptance of RFID labels cannot be assured.
Unexpected rapid changes in employed technologies or the
development of novel processes that affect our operations and
product range could render the technologies we utilize, or the
products we produce, obsolete or less competitive in the future.
Difficulties in assessing new technologies may impede us from
10
implementing them and competitive pressures may force us to
implement these new technologies at a substantial cost. Any such
development could materially and adversely impact our revenues
or profitability, or both.
Additionally, the preferences of our customers may change as the
result of the availability of alternative products or services,
which could impact consumption of our products.
|
|
|
Our strategy to acquire complementary businesses and to
divest non-strategic businesses could cause our financial
results to fluctuate and could expose us to significant business
risks. |
An important aspect of our business strategy is to make
strategic acquisitions of businesses that complement our Label
and Converting businesses and will expand our customer base and
markets, improve distribution efficiencies and enhance our
technological capabilities. Acquisitions could result in the
consolidation of manufacturing plants. We also intend to divest
businesses that are not core to our future growth and
profitability. These acquisitions, potential plant
consolidations and divestitures could cause our financial
results and cash flows to fluctuate. Financial risks from
potential acquisitions include the use of our cash resources and
incurring debt and liabilities. Further, there are possible
operational risks including difficulties in assimilating and
integrating the operations, products, technology, information
systems and personnel of acquired businesses; the loss of key
personnel of acquired businesses; and difficulties honoring
commitments made to customers of the acquired businesses prior
to the acquisition. There also exists a potential risk of
increased direct and indirect costs associated with labor
discontent relative to a plant consolidation strategy. Such
costs could impact our financial results and our ability to
successfully implement plant consolidations. The failure to
adequately address these risks could adversely affect our
business.
|
|
|
We may be involved in litigation relating to our
intellectual property rights, which may have an adverse impact
on our business. |
We rely on patent protection, as well as a combination of
copyright, trade secret and trademark laws, nondisclosure and
confidentiality agreements and other contractual restrictions to
protect our proprietary technology. Litigation may be necessary
to enforce these rights, which could result in substantial costs
to us and a substantial diversion of management attention. If we
do not adequately protect our intellectual property, our
competitors or other parties could use the intellectual property
that we have developed to enhance their products or make
products similar to ours and compete more efficiently with us,
which could result in a decrease in our market share.
While we have attempted to ensure that our products and the
operations of our business do not infringe on other
parties’ patents and proprietary rights, our competitors
and other parties may assert that our products and operations
may be covered by patents held by them. In addition, because
patent applications can take many years to issue, there may be
applications now pending of which we are unaware, which may
later result in issued patents upon which our products may
infringe. If any of our products infringe a valid patent, we
could be prevented from selling them unless we obtain a license
or redesign the products to avoid infringement. A license may
not always be available or may require us to pay substantial
royalties. We also may not be successful in any attempt to
redesign any of our products to avoid infringement. Infringement
and other intellectual property claims, regardless of merit or
ultimate outcome, can be expensive and time-consuming and can
divert management’s attention from our core business.
|
|
|
Our information systems are critical to our business, and
a failure of those systems could materially harm us. |
We depend on our ability to store, retrieve, process and manage
a significant amount of information. If our information systems
fail to perform as expected, or if we suffer an interruption,
malfunction or loss of information processing capabilities, it
could have a material adverse effect on our business.
11
|
|
|
Compliance with changing regulation of corporate
governance and public disclosure may result in additional risks
and expenses. |
Changing laws, regulations and standards relating to corporate
governance and public disclosure, including the Sarbanes-Oxley
Act of 2002, new SEC regulations and New York Stock Exchange
rules, are creating uncertainty for companies such as ours.
These new or changed laws, regulations and standards are subject
to varying interpretations in many cases and, as a result, their
application in practice may evolve over time as new guidance is
provided by regulatory and governing bodies, which could result
in continuing uncertainty regarding compliance matters and
higher costs necessitated by ongoing revisions to disclosure and
governance practices. We are committed to maintaining high
standards of corporate governance and public disclosure. As a
result, our efforts to comply with evolving laws, regulations
and standards have resulted in, and are likely to continue to
result in, increased general and administrative expenses and
management time and attention. In particular, our efforts to
comply with Section 404 of Sarbanes-Oxley and the related
regulations regarding our required assessment of our internal
controls over financial reporting and our external
auditors’ audit of that assessment has required the
commitment of significant financial and managerial resources.
While the SEC has recently announced a one-year extension for
non-accelerated filers for compliance with Section 404 of
Sarbanes-Oxley, which will require us to begin to comply with
the Section 404 requirements for our fiscal year ending
December 31, 2006 instead of our fiscal year ending
December 31, 2005, we still expect our compliance efforts
to require the continued commitment of significant resources.
Additionally, if our efforts to comply with new or changed laws,
regulations and standards differ from the activities intended by
regulatory or governing bodies, our reputation may be harmed and
we might be subject to sanctions or investigation by regulatory
authorities, such as the SEC. Any such action could adversely
affect our business and the market price of our stock.
All of our manufacturing facilities are located in the United
States. We believe that our manufacturing facilities are in good
operating condition and suitable for the production of our
products. We have excess manufacturing space in some locations.
Our corporate offices are located in a leased facility in
Nashua, NH. The lease for our corporate offices expires on
May 31, 2011.
Our principal facilities are listed below by industry segment,
location and principal products produced. Except as otherwise
noted, we own each of the facilities listed.
12
Principal Properties
| |
|
|
|
|
|
|
|
| |
|
Total Square | |
|
|
| Location |
|
Footage | |
|
Nature of Products Produced |
| |
|
| |
|
|
|
Corporate
|
|
|
|
|
|
|
| |
Nashua, New Hampshire (leased)
|
|
|
5,000 |
(1) |
|
none (corporate offices) |
| |
Park Ridge, Illinois (leased)
|
|
|
3,000 |
(1) |
|
none (administrative offices) |
|
Specialty Paper Products Segment
|
|
|
|
|
|
|
| |
Nashua, New Hampshire (leased)
|
|
|
3,000 |
(1) |
|
none (administrative offices) |
| |
Merrimack, New Hampshire
|
|
|
475,000 |
(2) |
|
coated paper products |
| |
Jefferson City, Tennessee
|
|
|
198,000 |
|
|
converted paper products |
| |
Morristown, Tennessee (leased)
|
|
|
80,000 |
|
|
converted paper products |
| |
Vernon, California (leased)
|
|
|
61,000 |
|
|
converted paper products |
| |
Park Ridge, Illinois (leased)
|
|
|
8,000 |
(1) |
|
none (corporate and administrative offices) |
| |
Plymouth, Massachusetts (leased)
|
|
|
7,000 |
|
|
none (sales and administrative offices) |
| |
Kent, Washington (leased)
|
|
|
10,000 |
|
|
none (warehousing) |
|
Label Products Segment
|
|
|
|
|
|
|
| |
Omaha, Nebraska
|
|
|
170,000 |
|
|
label products |
| |
Jefferson City, Tennessee
|
|
|
60,000 |
|
|
label products |
| |
St. Louis, Missouri (leased)
|
|
|
33,000 |
|
|
label products |
| |
San Francisco, California (leased)
|
|
|
1,000 |
|
|
none (administrative offices) |
|
Imaging Supplies Segment
|
|
|
|
|
|
|
| |
Nashua, New Hampshire
|
|
|
203,000 |
|
|
dry toner and developer products |
| |
Merrimack, New Hampshire
|
|
|
112,000 |
|
|
dry toner and developer products |
|
|
| (1) |
Our Specialty Paper Products segment and corporate staff share
approximately 11,000 square feet of office space in Park
Ridge, IL and 8,000 square feet of office space in Nashua,
NH. |
| |
| (2) |
Our Specialty Paper Products segment utilizes approximately
315,000 square feet and the remaining space is leased to
third parties. |
|
|
| Item 3. |
Legal Proceedings |
In August and September 1996, two individual plaintiffs filed
lawsuits in the Circuit Court of Cook County, Illinois against
us, Cerion Technologies, Inc., certain directors and officers of
Cerion, and our underwriter, on behalf of all persons who
purchased the common stock of Cerion between May 24, 1996
and July 9, 1996. These two complaints were consolidated.
In March 1997, the same individual plaintiffs joined by a third
plaintiff filed a Consolidated Amended Class Action
Complaint. The consolidated complaint alleged that, in
connection with Cerion’s initial public offering, the
defendants issued materially false and misleading statements and
omitted the disclosure of material facts regarding, in
particular, certain significant customer relationships. In
October 1997, the Circuit Court, on motion by the defendants,
dismissed the consolidated complaint. The plaintiffs filed a
Second Amended Consolidated Complaint alleging similar claims as
the first consolidated complaint seeking damages and injunctive
relief. On May 6, 1998, the Circuit Court, on motion by the
defendants, dismissed with prejudice the Second Amended
Consolidated Complaint. The plaintiffs filed with the Appellate
Court an appeal of the Circuit Court’s ruling. On
November 19, 1999, the Appellate Court reversed the Circuit
Court’s ruling that dismissed the Second Amended
Consolidated Complaint. The Appellate Court ruled that the
Second Amended Consolidated Complaint represented a valid claim
and sent the case back to the Circuit Court for further
proceedings. On December 27, 1999, we filed a Petition with
the Supreme Court of Illinois. In that Petition, we asked the
Supreme Court of Illinois to determine whether the Circuit Court
or the Appellate Court is correct. Our Petition was denied and
the case was sent to the Circuit Court for trial.
13
Discovery has been completed, but no date has been set for trial
and pre-trial motions. On October 8, 2003, the Circuit
Court heard motions on a Summary Judgment motion and a class
action certification motion. The Circuit Court has not yet ruled
on these motions. We believe that the lawsuit is without merit
and will continue to defend ourselves in this matter. We also
believe that we will receive the value of our 37.1 percent
ownership in the Cerion Liquidating Trust which was valued at
$.9 million on an after-tax basis at December 31,
2004. Our investment in Cerion is included under other assets in
our Consolidated Balance Sheet.
In December 2002, we eliminated the availability of certain
postretirement health benefits to union and non-union employees
of Nashua who had at least 10 years of service and chose to
retire between age 60 to 65 which provided access to health
benefits until age 65. The unions in New Hampshire objected
to the action and filed a grievance. The final step of the
grievance process is arbitration by the American Arbitration
Association. The subject of the Arbitration was the
interpretation of the collective bargaining contract language
which we believe allows modification of the eligibility of those
postretirement health benefits. The unions’ position is
that regardless of the contract wording, these benefits cannot
be eliminated without bargaining with the unions. The
Arbitration hearing occurred on July 28, 2003 and the
arbitrator ruled in favor of the unions on October 24,
2003. On November 24, 2003, we filed an appeal of the
arbitration decision with the U.S. District Court for the
District of New Hampshire. We believe the arbitrator erred in
his decision process and in December 2004 we filed briefs
supporting our position with the U.S. District Court. We
anticipate the complete appeals process could take years.
On May 30, 2003, Ricoh Company, Ltd. and affiliated
companies filed a suit in the U.S. District Court for the
District of New Jersey against several defendants, including the
largest customer of our Imaging Supplies segment and another
company who is a supplier to the Imaging Supplies segment. The
Complaint alleged multiple counts of patent infringement,
trademark infringement, and unfair competition by the
defendants. On October 17, 2003, Ricoh amended the
Complaint and added us as an additional co-defendant in the
suit. The allegations arose from the sale and distribution of
Ricoh compatible toner products. We filed an answer to the
Complaint in December 2003. The suit is in the discovery phase.
The parties have filed various motions, including summary
judgment motions, and are awaiting rulings from the court. No
trial date has been set. We believe we have valid defenses and
potential recourse against certain other co-defendants in this
matter.
On November 5, 2004, Océ North America Inc. and
Océ Printing Systems GmbH filed a Complaint for patent
infringement against us in the U.S. District Court for the
Northern District of Illinois. Océ did not serve the
initial Complaint on us. On March 3, 2005, Océ filed
the First Amended Complaint in the U.S. District Court for the
Northern District of Illinois. The First Amended Complaint was
served on us on March 3, 2005. With our outside counsel, we
are reviewing the First Amended Complaint and will respond
appropriately. Our attorneys continue to evaluate the matter and
develop our legal defenses.
On November 12, 2004, Sandra Hook, a former employee, filed
suit in Chancery Court for Jefferson County, Tennessee claiming
discrimination related to the ending of her employment with us
in November 2003 and seeking damages in excess of
$1.2 million. We believe Ms. Hook’s claims to be
without merit and intend to defend the case vigorously.
We are involved in certain environmental matters and have been
designated by the Environmental Protection Agency, referred to
as the EPA, as a potentially responsible party for certain
hazardous waste sites. In addition, we have been notified by
certain state environmental agencies that some of our 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, our
ultimate cost of remediation is difficult to estimate.
Accordingly, estimates could either increase or decrease in the
future due to changes in such factors. At December 31,
2004, based on the facts currently known and our prior
experience with these matters, we have concluded that it is
probable that site assessment, remediation and monitoring costs
will be incurred. We have estimated a range for these costs of
$.4 million to $1.0 million for continuing operations.
These
14
estimates could increase if other potentially responsible
parties or our insurance carriers are unable or unwilling to
bear their allocated share and cannot be compelled to do so. At
December 31, 2004, our accrual balances relating to
environmental matters were $.4 million for continuing
operations. Based on information currently available, we believe
that it is probable that the major potentially responsible
parties will fully pay the costs apportioned to them. We believe
that our remediation expense is not likely to have a material
adverse effect on our consolidated financial position or results
of operations.
We are involved in various other lawsuits, claims and inquiries,
most of which are routine to the nature of our business. In the
opinion of our management, the resolution of these matters will
not materially affect us.
|
|
| Item 4. |
Submission of Matters to a Vote of Security Holders |
None.
PART II
|
|
| Item 5. |
Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
Our common stock is listed and traded on the New York Stock
Exchange under the trading symbol “NSH.” As of
December 31, 2004, the number of record holders of our
common stock was 887. The following table sets forth the high
and low sales price per share for our common stock as reported
by the New York Stock Exchange for each period indicated.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
1st | |
|
2nd | |
|
3rd | |
|
4th | |
|
|
| |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Year | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
High
|
|
$ |
9.04 |
|
|
$ |
9.75 |
|
|
$ |
11.20 |
|
|
$ |
11.65 |
|
|
$ |
11.65 |
|
| |
Low
|
|
$ |
8.20 |
|
|
$ |
8.25 |
|
|
$ |
9.09 |
|
|
$ |
10.23 |
|
|
$ |
8.20 |
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
High
|
|
$ |
9.02 |
|
|
$ |
9.48 |
|
|
$ |
9.50 |
|
|
$ |
9.08 |
|
|
$ |
9.50 |
|
| |
Low
|
|
$ |
8.65 |
|
|
$ |
8.73 |
|
|
$ |
6.75 |
|
|
$ |
7.93 |
|
|
$ |
6.75 |
|
Our ability to pay dividends is restricted to $.6 million
under the provisions of our debt agreement, without the prior
approval of our lenders. We did not declare or pay a cash
dividend on our common stock in 2004 or 2003 and do not
currently intend to pay dividends.
15
|
|
| Item 6. |
Selected Financial Data(1) |
Nashua Corporation and Subsidiaries
Five-Year Financial Review
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data, number of | |
| |
|
employees and percentages) | |
|
Operations(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
289,217 |
|
|
$ |
288,906 |
|
|
$ |
283,190 |
|
|
$ |
272,510 |
|
|
$ |
253,122 |
|
|
Gross margin percentage
|
|
|
18.6 |
% |
|
|
18.6 |
% |
|
|
19.8 |
% |
|
|
20.5 |
% |
|
|
20.1 |
% |
|
Selling, distribution, general and administrative expenses as a
percentage of sales
|
|
|
15.6 |
% |
|
|
16.5 |
% |
|
|
16.9 |
% |
|
|
18.3 |
% |
|
|
19.5 |
% |
|
Income before interest and income taxes as a percentage of
sales(3)
|
|
|
2.5 |
% |
|
|
0.5 |
% |
|
|
1.9 |
% |
|
|
— |
|
|
|
5.9 |
% |
|
Income (loss) before income taxes as a percentage of sales(3)
|
|
|
2.1 |
% |
|
|
0.1 |
% |
|
|
1.4 |
% |
|
|
(1.0 |
)% |
|
|
5.1 |
% |
|
Income (loss) as a percentage of sales(3)
|
|
|
1.3 |
% |
|
|
0.0 |
% |
|
|
.8 |
% |
|
|
(0.9 |
)% |
|
|
2.1 |
% |
|
Effective tax provision (benefit) rate
|
|
|
38.5 |
% |
|
|
53.4 |
% |
|
|
39.5 |
% |
|
|
(12.0 |
)% |
|
|
58.3 |
% |
|
Income (loss) before income taxes(3)
|
|
$ |
6,158 |
|
|
$ |
219 |
|
|
$ |
3,828 |
|
|
$ |
(2,782 |
) |
|
$ |
12,914 |
|
|
Net income (loss)(3)
|
|
$ |
3,787 |
|
|
$ |
102 |
|
|
$ |
2,316 |
|
|
$ |
(2,448 |
) |
|
$ |
5,386 |
|
|
Basic and diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.63 |
|
|
$ |
0.02 |
|
|
$ |
0.40 |
|
|
$ |
(0.43 |
) |
|
$ |
0.95 |
|
| |
Diluted
|
|
$ |
0.62 |
|
|
$ |
0.02 |
|
|
$ |
0.39 |
|
|
$ |
(0.43 |
) |
|
$ |
0.95 |
|
|
Financial Position(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$ |
31,662 |
|
|
$ |
22,296 |
|
|
$ |
21,011 |
|
|
$ |
16,528 |
|
|
$ |
22,531 |
|
|
Total assets
|
|
$ |
150,960 |
|
|
$ |
151,676 |
|
|
$ |
146,188 |
|
|
$ |
145,046 |
|
|
$ |
170,471 |
|
|
Non-current portion of long-term debt
|
|
$ |
27,350 |
|
|
$ |
24,200 |
|
|
$ |
23,000 |
|
|
$ |
23,280 |
|
|
$ |
35,905 |
|
|
Total long-term obligations
|
|
$ |
28,673 |
|
|
$ |
27,468 |
|
|
$ |
27,079 |
|
|
$ |
25,740 |
|
|
$ |
46,171 |
|
|
Total capital employed
|
|
$ |
96,698 |
|
|
$ |
88,797 |
|
|
$ |
87,018 |
|
|
$ |
95,677 |
|
|
$ |
118,048 |
|
|
Total debt as a percentage of capital employed
|
|
|
31.8 |
% |
|
|
31.1 |
% |
|
|
28.7 |
% |
|
|
26.4 |
% |
|
|
38.7 |
% |
|
Shareholders’ equity
|
|
$ |
65,948 |
|
|
$ |
61,197 |
|
|
$ |
62,018 |
|
|
$ |
70,397 |
|
|
$ |
72,337 |
|
|
Shareholders’ equity per common share
|
|
$ |
10.62 |
|
|
$ |
10.37 |
|
|
$ |
10.66 |
|
|
$ |
12.32 |
|
|
$ |
12.79 |
|
|
Other Selected Data(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in plant and equipment (excluding acquisitions)
|
|
$ |
6,599 |
|
|
$ |
4,307 |
|
|
$ |
4,349 |
|
|
$ |
2,375 |
|
|
$ |
9,625 |
|
|
Depreciation and amortization
|
|
$ |
7,900 |
|
|
$ |
7,942 |
|
|
$ |
7,581 |
|
|
$ |
9,748 |
|
|
$ |
9,304 |
|
|
Dividends per common share
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
.01 |
|
|
Return (loss) on average shareholders’ equity
|
|
|
6.0 |
% |
|
|
0.2 |
% |
|
|
3.5 |
% |
|
|
(3.4 |
)% |
|
|
7.7 |
% |
|
Common stock price range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
High
|
|
$ |
11.65 |
|
|
$ |
9.50 |
|
|
$ |
10.20 |
|
|
$ |
7.85 |
|
|
$ |
10.31 |
|
| |
Low
|
|
$ |
8.20 |
|
|
$ |
6.75 |
|
|
$ |
5.40 |
|
|
$ |
3.06 |
|
|
$ |
3.56 |
|
| |
Year-end closing price
|
|
$ |
11.36 |
|
|
$ |
8.50 |
|
|
$ |
8.78 |
|
|
$ |
5.87 |
|
|
$ |
4.44 |
|
|
Number of employees from continuing operations
|
|
|
906 |
|
|
|
929 |
|
|
|
1,026 |
|
|
|
971 |
|
|
|
1,140 |
|
|
Average common shares outstanding
|
|
|
6,209 |
|
|
|
5,869 |
|
|
|
5,783 |
|
|
|
5,696 |
|
|
|
5,649 |
|
|
|
| (1) |
See Note 14 to our Consolidated Financial Statements for
Selected Quarterly Financial Data required under Item 302
of Regulation S-K. |
| |
| (2) |
See Note 2 to our Consolidated Financial Statements for a
description of business changes relevant to this data. |
| |
| (3) |
Net income (loss) includes: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
Dollars | |
|
% Sales | |
|
Dollars | |
|
% Sales | |
|
Dollars | |
|
% Sales | |
|
Dollars | |
|
% Sales | |
|
Dollars | |
|
% Sales | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Dollars in millions) | |
|
Restructuring and other unusual (income) charges
|
|
|
— |
|
|
|
— |
|
|
$ |
(.1 |
) |
|
|
0 |
% |
|
$ |
(.1 |
) |
|
|
.1 |
% |
|
$ |
3.0 |
|
|
|
1.1 |
% |
|
$ |
1.0 |
|
|
|
.4 |
% |
|
Net (gain)/loss on settlement/ curtailment of postretirement
plans
|
|
$ |
(1.0 |
) |
|
|
0 |
% |
|
$ |
1.6 |
|
|
|
.1 |
% |
|
$ |
(.2 |
) |
|
|
.1 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Pension settlement income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
18.6 |
|
|
|
7.3 |
% |
16
|
|
| Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
Our Management Discussion and Analysis should be read in
conjunction with Item 1: Business; Item 6: Selected
Financial Data; and Item 8: Financial Statements and
Supplementary Data.
Overview
Throughout 2004, we continued to pursue our strategy of top line
growth, margin enhancement and cost reduction through
streamlining operations by focusing on:
|
|
|
| |
• |
Building shareholder value, |
| |
| |
• |
Building customer relationships by developing, acquiring and
delivering high-quality products and services, |
| |
| |
• |
Investment in equipment and processes which increase
efficiencies and lower our cost structure, |
| |
| |
• |
Investing strategically in higher-margin businesses where we see
greater opportunities for growth, |
| |
| |
• |
Resolving legacy issues that in the past have affected our
profitability and occupied an inordinate amount of time, and |
| |
| |
• |
Opportunistically pursuing non-commodity business where we can
clearly add value. |
Our results for 2004 reflect the success of this continued
strategy even as we have coped with fluctuating material costs,
overcapacity in the paper coating and converting and toner
markets, and pricing pressure in some of our more commoditized
product lines. As we proceed into 2005, we believe our
strategies are sound and our finances are strong.
As 2005 progresses, we will continue to review all elements of
our current businesses to insure that they fit our strategic
framework, are making progress towards improved performance and
are progressing towards their appropriate contributions to the
growth of shareholder value. As we have done in the past five
years, we are open to alternatives and opportunities that create
shareholder value which may include strategic acquisitions and
investments as well as divesting businesses that are not core to
our future growth and profitability.
Our net sales increased slightly to $289.2 million in 2004
compared to $288.9 in 2003. Our gross margin percentage remained
unchanged at 18.6 percent in 2004 and 2003. Our selling and
distribution expenses decreased $2.1 million and our
administrative expenses decreased $.6 million in 2004. Our
Label Products and Specialty Paper Products segments both
operated profitably in 2004 and improved profitability over the
prior year. Our income before income taxes increased from
$.2 million in 2003 to $6.2 million in 2004. These
financial results are further discussed in the Consolidated
Results of Operations.
Our 2004 results incorporate contributions from our
acquisitions. The principal acquisitions consist of the April
2002 acquisition of the assets of Computer Imaging Supplies,
known as CIS, used in the fraud prevention business, the June
2002 acquisition of certain assets of Dietzgen LLC, used in the
wide-format business, and the February 2003 acquisition of the
assets of The Label Company, a supplier of supermarket,
promotional and product identification labels. These
acquisitions expanded our product lines, increased our customer
base and helped us increase plant utilization.
Our results for 2004 were positively impacted by cost reduction
measures taken during 2003.
We remain focused on profitable sales and providing our customer
base with higher value products and services. We will also
continue our focus on cost containment initiatives, investments
that make our business more efficient and pursue technologies,
such as radio frequency identification products, or RFID, which
are of growing importance to our customer base. We installed
inlet insertion equipment for RFID labels in the first quarter
2005. As reflected in our 2004 results, we continue to
opportunistically address legacy issues.
17
During 2004, we experienced the following significant
developments:
|
|
|
| |
• |
In December 2004, we purchased property consisting of land and
building contiguous to our Jefferson City, Tennessee campus to
be utilized for manufacturing by our Specialty Paper Products
segment. We expect to move our wide-format manufacturing from
Morristown, Tennessee to Jefferson City, Tennessee in the second
quarter of 2005. The acquisition was financed by the issuance of
industrial revenue bonds by the Industrial Revenue Board of
Jefferson City, Tennessee, which is supported by an irrevocable
letter of credit in the amount of $2.8 million issued by
our lenders. Proceeds in excess of the cost of the building will
be utilized to retrofit the building and purchase equipment
utilized in Jefferson City, Tennessee. |
| |
| |
• |
In December 2004, we executed a purchase and sale agreement with
Southern New Hampshire Services to sell our land and buildings
located in Nashua, New Hampshire for $2.0 million. The
proposed transaction is expected to close by June 2006. The
agreement is subject to the potential buyer’s ability to
obtain financing. |
| |
| |
• |
During the fourth quarter of 2004 our strategic agreement with
Parlex Corporation expired in accordance with its terms. We are
in the process of negotiating cross-licensing agreements for use
of the press printed circuit technology by both parties. |
| |
| |
• |
During the third quarter of 2004 we recognized a
$.9 million non-cash pre tax gain related to the transfer
of the liability for retiree death benefits to Minnesota Life, a
subsidiary of Securian Financial Group. As part of the
transaction, Minnesota Life has assumed the liability for, and
the administration of, death benefits for approximately 580 of
our retirees. The agreement was effective October 1, 2004
and included a $2.4 million one-time premium payment to
Minnesota Life. |
During 2003, we experienced the following significant
developments:
|
|
|
| |
• |
In December 2003, we acquired the assets of the Magellan
wide-format graphics product line from PM Co. L.L.C. This
acquisition was consistent with our strategy of adding value
with new products and services that leverage our converting and
distribution capabilities. Operating activity relating to this
product line is reported in our Specialty Paper Products segment. |
| |
| |
• |
In November 2003, we acquired the assets of the supermarket
label product line from Zebra Technologies, Inc. The supermarket
label business markets and distributes pressure sensitive direct
thermal labels used solely for marking prepackaged meat,
produce, deli and bakery items in supermarkets, grocery and
convenience stores. Operating activity relating to this product
line is reported under our Label Products segment. |
| |
| |
• |
Our 2003 results were negatively impacted by a fourth quarter
one-time, non-cash charge of $1.6 million related to
postretirement healthcare benefits for union employees located
in New Hampshire. In December 2002, we eliminated a
postretirement healthcare benefit for all employees retiring
after December 31, 2002. The benefit provided employees who
had 10 years of service and retired at age 60 or older
with access to medical insurance through age 65. In 2002,
we recognized a $1.6 million non-cash gain for the
termination of this postretirement healthcare benefit for hourly
union employees located in New Hampshire. The unions
subsequently filed a grievance against the termination of the
postretirement healthcare benefits for union employees which was
heard by an arbitrator in July 2003. The arbitrator ruled in
favor of the unions on October 24, 2003, and we
subsequently appealed the arbitrator’s opinion in the
U.S. District Court in New Hampshire on November 24,
2003. After filing the appeal of the arbitrator’s ruling,
we held unsuccessful discussions with the unions in an attempt
to resolve and mitigate the impact of the arbitrator’s
ruling. Our appeal is currently pending. |
| |
| |
• |
In connection with workforce reductions in 2003, we incurred
severance charges of $1.6 million which were offset by
approximately $2.1 million of same year savings. These
workforce reductions reflect our initiatives to streamline
processes and control costs. |
18
|
|
|
| |
• |
In the fourth quarter of 2003, we incurred a one-time $330,000
charge related to the settlement of future obligations under an
employment contract in which we were required to fund a split
dollar life insurance policy on behalf of our Chief Executive
Officer, Andrew Albert. Future funding of these types of
insurance policies is now prohibited under the Sarbanes-Oxley
Act. As part of the agreement, Mr. Albert repaid Nashua
$313,000 for insurance premiums previously paid by us.
Therefore, the settlement had a negligible impact on our cash
flow. |
| |
| |
• |
In February 2003, we entered into a strategic agreement with
Parlex Corporation to cooperate in the development of flexible
circuit technology incorporating proprietary printing and
plating technologies. The agreement created an organization,
Stratos Technology, LLC, of which we owned 50 percent, that
drew on both parties’ relative expertise in ink and printed
circuit technology, label converting and the design, application
and production of flexible circuits. Under the agreement,
Stratos Technology worked to develop innovative products for use
in the automotive and cellular markets. |
| |
| |
• |
In February 2003, we acquired the assets and assumed certain
liabilities of The Label Company from Bunzl Distribution and
signed a multi-year agreement to supply Bunzl with label
products. The Label Company had primarily been a supplier of
supermarket, promotional and product identification labels
mainly for Bunzl and other customers. The acquisition added
flexibility to our label manufacturing operations, provided
additional volume to our coating facility within our Specialty
Paper Products segment and enhanced our relationship with a
valued and long-standing customer. The Label Company had 2002
sales of approximately $9.0 million. Operating activity
relating to the assets of The Label Company is reported under
our Label Products segment from the date of acquisition. |
During 2002, we experienced the following significant
developments:
|
|
|
| |
• |
During the fourth quarter of 2002, we recorded a non-cash charge
of $11.4 million to shareholders’ equity because as of
December 31, 2002, the accumulated benefit obligations of
our company-sponsored pension plans exceeded the fair value of
the assets of the plans due to declines in the fair market value
of equities held by the plans and decreases in our expected
return on plan assets and discount rate resulting from current
economic trends. This charge was net of $7.5 million in tax
benefits, which are included in other assets and reflect an
increase in our deferred tax assets. |
| |
| |
• |
During the fourth quarter of 2002, we reached an agreement with
the Appeals office of the United States Internal Revenue Service
regarding the outstanding proposed assessment of federal income
tax for the years 1992 to 1994 as more fully discussed in
Note 7 to our Consolidated Financial Statements included in
Item 8 of Part II of this Annual Report on
Form 10-K. |
| |
| |
• |
In October 2002, our Board of Directors approved changes to The
Nashua Corporation Retirement Plan for Salaried Employees, The
Supplemental Executive Retirement Plan and postretirement
benefit plans, which were effective as of December 31,
2002. As a result of these changes, we recognized a gain of
$2.7 million related to the elimination of certain benefits
related to our retiree medical and death benefit plans and a
gain of $.2 million from the buy out of a portion of
existing retirees’ death benefits, largely offset by a loss
of $2.7 million related to freezing benefits provided by
the salaried pension plans. This excluded the gain related to
the buy out of additional existing retirees’ death
benefits, which was completed in the first quarter of 2003.
Employees impacted by the freeze in pension benefits are
eligible to participate in Nashua’s profit sharing plan
beginning in 2003. Profit sharing contributions must be approved
by our Board of Directors and are discretionary. |
| |
| |
• |
In June 2002, we completed our shareholder-approved
reincorporation from Delaware to Massachusetts. The
reincorporation eliminated certain restrictions on our ability
to borrow funds and our new corporate charter increased
shareholder rights and reduced our corporate expenses. In
connection with our reincorporation, our authorized capital was
reduced from 40 million shares of common stock and
2 million shares of preferred stock, each with a par value
of $1 per share, to 20 million shares of common stock,
par value $1 per share. As part of the reincorporation, the |
19
|
|
|
| |
|
1,023,068 shares of common stock held in treasury were
retired with their cost above par value allocated on a pro rata
basis against additional paid-in capital and retained earnings. |
| |
| |
• |
In June 2002, we acquired out of bankruptcy some of the assets
of Dietzgen LLC, including trademarks, trade names, customer
lists and certain equipment and inventories. Dietzgen, an
after-market provider of wide-format digital media and imaging
supplies for the architectural, engineering and construction
markets, filed for protection under Chapter 11 of the
U.S. Bankruptcy Code on January 31, 2002. Operating
activity relating to the assets acquired from Dietzgen is
reported as part of our Specialty Paper Products segment from
the date of acquisition. |
| |
| |
• |
During the first quarter of 2002, we entered into a three-year
secured financing agreement with LaSalle Bank, NA and Fleet
National Bank. This agreement provides us with a revolving line
of credit of up to $30 million and a term loan of
$10 million as more fully described in Note 5 to our
Consolidated Financial Statements included in Item 8 of
Part II of this Annual Report on Form 10-K. |
| |
| |
• |
In April 2002, we acquired the assets of CIS, a privately held
manufacturer and marketer of security and fraud prevention
products for the point-of-sale transaction industry and of
inkjet and toner cartridges. The products of CIS include
multi-color ribbons and specialized inks that prevent
unauthorized duplication of cash register receipts. Operating
activity relating to the assets acquired from CIS is reported as
part of our Specialty Paper Products segment from the date of
acquisition. |
Consolidated Results of Operations
|
|
|
The consolidated results of operations should be read in
conjunction with the individual segment results. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Percent Change | |
| |
|
|
|
|
|
|
|
| |
| |
|
|
|
|
|
|
|
2004 vs. | |
|
2003 vs. | |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Label Products
|
|
$ |
104.3 |
|
|
$ |
101.8 |
|
|
$ |
100.8 |
|
|
|
2.5 |
|
|
|
1.0 |
|
| |
Specialty Paper Products
|
|
|
168.0 |
|
|
|
169.0 |
|
|
|
160.7 |
|
|
|
(0.6 |
) |
|
|
5.2 |
|
| |
Imaging Supplies
|
|
|
22.1 |
|
|
|
23.5 |
|
|
|
24.0 |
|
|
|
(6.0 |
) |
|
|
(2.1 |
) |
| |
Eliminating
|
|
|
(5.2 |
) |
|
|
(5.4 |
) |
|
|
(2.3 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Consolidated Net Sales
|
|
|
289.2 |
|
|
|
288.9 |
|
|
|
283.2 |
|
|
|
0.1 |
|
|
|
2.0 |
|
|
Gross margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Label Products
|
|
|
18.8 |
|
|
|
17.3 |
|
|
|
17.9 |
|
|
|
8.7 |
|
|
|
(3.4 |
) |
| |
Specialty Paper Products
|
|
|
31.2 |
|
|
|
31.9 |
|
|
|
32.6 |
|
|
|
(2.2 |
) |
|
|
(2.1 |
) |
| |
Imaging Supplies
|
|
|
3.9 |
|
|
|
4.6 |
|
|
|
5.6 |
|
|
|
(15.2 |
) |
|
|
(17.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Consolidated Gross margin
|
|
|
53.9 |
|
|
|
53.8 |
|
|
|
56.1 |
|
|
|
0.2 |
|
|
|
(4.1 |
) |
|
Gross margin %
|
|
|
18.6 |
% |
|
|
18.6 |
% |
|
|
19.8 |
% |
|
|
— |
|
|
|
— |
|
|
Selling and distribution expenses
|
|
|
25.1 |
|
|
|
27.2 |
|
|
|
28.1 |
|
|
|
(7.7 |
) |
|
|
(3.2 |
) |
|
General and administrative expenses
|
|
|
20.1 |
|
|
|
20.6 |
|
|
|
19.8 |
|
|
|
(2.4 |
) |
|
|
4.0 |
|
|
Research and development expenses
|
|
|
2.1 |
|
|
|
2.5 |
|
|
|
3.1 |
|
|
|
(16.0 |
) |
|
|
(19.4 |
) |
|
Net loss (gain) on settlement/curtailment of pension and
postretirement benefits
|
|
|
(1.0 |
) |
|
|
1.6 |
|
|
|
(.2 |
) |
|
|
— |
|
|
|
— |
|
|
Loss from equity investments
|
|
|
.4 |
|
|
|
.5 |
|
|
|
.1 |
|
|
|
(20.0 |
) |
|
|
— |
|
|
Restructuring and other unusual (income) charges
|
|
|
— |
|
|
|
(.1 |
) |
|
|
(.1 |
) |
|
|
— |
|
|
|
— |
|
|
Interest expense, net
|
|
|
1.0 |
|
|
|
1.3 |
|
|
|
1.5 |
|
|
|
(23.1 |
) |
|
|
(13.3 |
) |
|
Income before income taxes
|
|
|
6.2 |
|
|
|
.2 |
|
|
|
3.8 |
|
|
|
3,000.0 |
|
|
|
(94.7 |
) |
|
Net income
|
|
$ |
3.8 |
|
|
$ |
.1 |
|
|
$ |
2.3 |
|
|
|
3,700.0 |
|
|
|
(95.7 |
) |
20
Our net sales were $289.2 million in 2004, an increase of
$.3 million compared to $288.9 million in 2003 and an
increase of $5.7 million from 2003 compared to
$283.2 million in 2002.
|
|
|
| |
• |
The increase from 2003 to 2004 was primarily due to increased
sales in our Label Products segment, which was partially offset
by decreases in our Specialty Paper Products segment and in our
Imaging Supplies segment. |
| |
| |
• |
The 2.0 percent increase from 2002 to 2003 was primarily
due to increased sales in our Specialty Paper Products and Label
Products segments partially offset by a slight decrease in sales
in our Imaging Supplies segment. |
| |
| |
• |
Net sales for each of our business segments is discussed in
detail below under “Results of Operations by Reportable
Operating Segment.” |
Our gross margin was $53.9 million in 2004 compared to
$53.8 million in 2003 and $56.1 million in 2002. Our
operating gross margin percentage remained unchanged at
18.6 percent in 2004 and 2003 and decreased from
19.8 percent in 2002.
|
|
|
| |
• |
The margin percent in 2004 compared to 2003 improved in our
Label Products segment and decreased in both our Specialty Paper
Products and Imaging Supplies segments. |
| |
| |
• |
The margin percent decrease from 2002 to 2003 was a result of
lower margins in all of our segments. The $2.3 million
decrease in gross margin in 2003 was due primarily to an
unfavorable product mix, pricing pressures, and volume declines
within some of our product lines. |
| |
| |
• |
Gross margin for each of our business segments is discussed in
detail below under “Results of Operations by Reportable
Operating Segment.” |
Selling and distribution expenses decreased to
$25.1 million in 2004 compared to $27.2 million in
2003 and $28.1 million in 2002. As a percent of sales,
selling and distribution expenses decreased to 8.7 percent
in 2004 from 9.4 percent in 2003 and 9.9 percent in
2002.
|
|
|
| |
• |
The $2.1 million decrease from 2003 to 2004 was primarily
due to decreases across each of our segments, with
$1.1 million from our Label Products segment,
$.8 million from our Specialty Paper Products segment, and
$.1 million from our Imaging Supplies segment. |
| |
| |
• |
In 2003, increases of $.7 million in expenses in the
Specialty Paper Products segment were offset by reductions of
$.6 million in the Imaging Supplies segment and
$1.0 million in the Label Products segment compared to 2002. |
| |
| |
• |
Selling and distribution expenses for each of our business
segments is discussed in detail below under “Results of
Operations by Reportable Operating Segment.” |
General and administrative expenses decreased to
$20.1 million in 2004 compared to $20.6 million in
2003 and $19.8 million in 2002. As a percent of sales,
general and administrative expenses were 6.9 percent in
2004 compared to 7.1 percent in 2003 and 7.0 percent
in 2002.
|
|
|
| |
• |
The decrease in 2004 compared to 2003 was driven by decreased
expenses of $1.2 million in our Specialty Paper Products
segment and $.2 million in lower corporate expenses, which
was partially offset by increased expenses of $.7 million
in our Label Products segment and $.2 million in our
Imaging Supplies segment. The decrease in corporate expenses in
2004 was primarily due to lower legal expenses, rental expenses
and expense pertaining to a settlement of obligations under our
Chief Executive Officer’s employment contract which more
than offset increased directors’ fees which included a cash
payment in lieu of stock options, employee incentive expenses
and professional fees related to our review of strategic
alternatives. |
| |
| |
• |
The increase in 2003 compared to 2002 was driven by
$1.2 million of increased expenses in our Specialty Paper
Products segment offsetting a $.3 million decrease in
corporate expenses. The decrease in corporate expenses in 2003
was primarily due to lower legal fees, training costs, staffing
and pension administration costs which more than offset a
$.3 million expense relating to severance |
21
|
|
|
| |
|
costs associated with the reduction of corporate staff and a
$.3 million expense pertaining to a settlement of
obligations under our Chief Executive Officer’s employment
contract. |
| |
| |
• |
General and administrative expenses for each of our business
segments is discussed below under “Results of Operations by
Reportable Operating Segment.” |
Research and development expenses decreased to $2.1 million
in 2004 compared to $2.5 million in 2003 and
$3.1 million in 2002. As a percent of sales, research and
development expenses were .7 percent in 2004 compared to
..9 percent in 2003 and 1.1 percent in 2002.
|
|
|
| |
• |
The $.4 million decrease in 2004 compared to 2003 was
primarily due to lower expenses related to headcount reductions
in our Specialty Paper Products and Imaging Supplies segments. |
| |
| |
• |
The $.6 million decrease in 2003 compared to 2002 was
primarily due to a shift in quality control related costs from
research and development to manufacturing in our Specialty Paper
Products segment. |
| |
| |
• |
Research and development expenses for each of our business
segments is discussed below under “Results of Operations by
Reportable Operating Segment.” |
Net interest expense declined to $1.0 million in 2004
compared to $1.3 million in 2003 and $1.5 million in
2002. Our weighted average annual interest rate on long-term
debt was 3.5 percent in 2004 compared to 3.3 percent
in 2003 and 4.6 percent in 2002. Our average balance on
long-term debt increased $3.2 million from 2003 to 2004 and
increased $1.2 million from 2002 to 2003.
|
|
|
| |
• |
The decline in net interest expense in 2004 from 2003 was
primarily due to interest income related to a 1993 interest
matter with the Internal Revenue Service. |
| |
| |
• |
The decline in net interest expense in 2003 from 2002 was
primarily due to lower interest rates. |
During 2004, we recognized a pretax gain of $1.0 million
resulting from the settlement of postretirement death benefits.
During 2003, we recognized a $1.6 million expense resulting
from a reversal of a curtailment adjustment related to
postretirement healthcare benefits for union employees located
in New Hampshire as discussed above in the significant
developments section.
During 2002, we recognized a net gain of $.2 million
resulting from our decision to freeze our salaried pension plan
benefits and eliminate certain postretirement benefit plans.
Our income before income taxes was $6.2 million in 2004
compared to $.2 million in 2003 and $3.8 million in
2002.
|
|
|
| |
• |
The $6.0 million increase in our pretax income from 2003 to
2004 was mainly due to improved profitability in our Label
Products and Specialty Paper Products segments, as well as the
gain on the postretirement death benefits and the interest
income from the 1993 interest matter, which were partially
offset by a pretax loss in our Imaging Supplies segment. |
| |
| |
• |
The $3.6 million decrease in our pretax income from 2002 to
2003 was primarily due to lower profitability in our Specialty
Paper Products and Imaging Supplies segments and an incurred
expense resulting from the reversal of a curtailment adjustment
related to the postretirement healthcare benefits for union
employees located in New Hampshire, which were partially offset
by higher profitability in our Label Products segment. |
Our annual effective income tax rate in 2004 was
38.5 percent and is higher than the U.S. statutory
rate principally due to the impact of state income taxes and
non-deductible expenses. The decrease in the annual effective
income tax rate between 2004 and 2003 is primarily due to the
impact of higher income and deductible expenses. The increase in
the estimated annual income tax rate from 2002 to 2003 is
primarily due to the impact of lower income and non-deductible
expenses.
22
Net income for 2004 was $3.8 million, or $.63 per
share, an increase from $.1 million, or $.02 per share
in 2003, and $2.3 million, or $.40 per share in 2002.
Results of Operations by Reportable Operating Segment
Label Products Segment
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Percent Change | |
| |
|
|
|
|
|
|
|
| |
| |
|
|
|
|
|
|
|
2004 vs. | |
|
2003 vs. | |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Net sales
|
|
$ |
104.3 |
|
|
$ |
101.8 |
|
|
$ |
100.8 |
|
|
|
2.5 |
|
|
|
1.0 |
|
|
Gross margin
|
|
|
18.8 |
|
|
|
17.3 |
|
|
|
17.9 |
|
|
|
8.7 |
|
|
|
(3.4 |
) |
|
Gross margin %
|
|
|
18.0 |
% |
|
|
17.0 |
% |
|
|
17.7 |
% |
|
|
— |
|
|
|
— |
|
|
Selling and distribution expenses
|
|
|
6.3 |
|
|
|
7.4 |
|
|
|
8.4 |
|
|
|
(14.9 |
) |
|
|
(11.9 |
) |
|
General and administrative expenses
|
|
|
4.5 |
|
|
|
3.8 |
|
|
|
3.8 |
|
|
|
18.4 |
|
|
|
— |
|
|
Other
|
|
|
.4 |
|
|
|
.3 |
|
|
|
.2 |
|
|
|
33.3 |
|
|
|
50.0 |
|
|
Income from operations before interest, taxes and unusual items
|
|
$ |
7.6 |
|
|
$ |
5.8 |
|
|
$ |
5.5 |
|
|
|
31.0 |
|
|
|
5.5 |
|
Net sales for our Label Products segment increased to
$104.3 million in 2004, from $101.8 million in 2003
and $100.8 million in 2002.
|
|
|
| |
• |
The $2.5 million, or 2.5 percent increase, in 2004
compared to 2003 primarily resulted from a $5.7 million
increase in our automatic identification product line, which was
partially offset by a $1.2 million sales decline in our EDP
product line, $.8 million in our supermarket scale product
line, $.6 million in the retail shelf production line,
$.5 million in the inform product line, and a
$.1 million decline in other product lines. The increase in
automatic identification label sales resulted primarily from
incremental business gained from a major customer. The decreased
sales in our supermarket scale product line is primarily a
result of lost business which is partially offset by incremental
sales from the acquisition of the assets of The Label Company on
February 7, 2003. |
| |
| |
• |
The $1.0 million, or 1 percent, increase in 2003
compared to 2002 was driven by incremental supermarket sales of
$7.7 million from the acquired Label Company business,
which more than offset a decrease in sales of $5.7 million
in the remaining supermarket thermal product line. The lower
supermarket thermal sales were primarily due to the loss of a
major customer, as well as continued pricing pressures due to
overcapacity in the label industry. Other factors included
$2.5 million of increased sales in the automatic
identification product line, offset by decreases of
$1.4 million in the EDP product line, $.7 million in
the retail shelf product line, $.4 million in the ticket
product line, $.5 million in the inform product line and
$.5 million in other product lines. The increase in
automatic identification label sales was the result of new
business from a five-year contract executed in the fourth
quarter of 2002. The decrease in retail shelf sales was due to
the reduction of inventory by a major customer. The decrease in
the ticket product line sales was primarily due to the loss of a
major cinema customer due to consolidation within the theater
industry. Our sales in the EDP product line were negatively
impacted by a sluggish economy, changing technology and lower
sales to charitable organizations. |
Gross margin for our Label Products segment increased to
$18.8 million in 2004 compared to $17.3 million in
2003 and $17.9 million in 2002. The gross margin percentage
increased to 18.0 percent in 2004 compared to
17.0 percent in 2003 and 17.7 percent in 2002.
|
|
|
| |
• |
The gross margin increase of $1.5 million in 2004 compared
to 2003 was primarily due to a favorable mix of products sold
and higher sales volume as well as improved manufacturing
performance partially through the successful implementation of
improved manufacturing equipment. |
23
|
|
|
| |
• |
The gross margin decrease of $.6 million in 2003 compared
to 2002 was primarily due to unfavorable product mix and pricing
pressures exacerbated by certain Internet auctions and the
overcapacity in the label industry, partially offset by
manufacturing efficiencies and material cost reductions. |
Selling and distribution expenses for our Label Products segment
declined to $6.3 million in 2004 compared to
$7.4 million in 2003 and $8.4 million in 2002. As a
percentage of sales, selling and distribution expenses declined
to 6.0 percent in 2004 compared to 7.3 percent in 2003
and 8.4 percent in 2002. The decrease in expenses in 2004
was primarily related to headcount reductions that occurred in
November 2003 as well as a recovery of accounts receivable which
were previously reserved as uncollectible. The decrease in
expenses in 2003 resulted primarily from lower direct selling
expenses and lower distribution costs, which were partially
offset by severance costs related to headcount reductions.
General and administrative expenses for our Label Products
segment increased to $4.5 million in 2004 compared to
$3.8 million in both 2003 and 2002. As a percent of sales,
general and administrative expenses increased to
4.3 percent for 2004, compared to 3.8 percent for both
2003 and 2002. The $.7 million increase in expenses in 2004
compared to both 2003 and 2002 was primarily due to increased
employee incentive expenses.
Income from operations before interest, taxes and unusual items
for our Label Products segment increased to $7.6 million in
2004 compared to $5.8 million in 2003 and to
$5.5 million in 2002.
We believe an upcoming trend in automatic identification is the
anticipated use of radio frequency identification
(RFID) labels for marking, identifying and tracking
products and materials in warehousing, distribution and other
industries. This trend is being mandated by several major
retailers and by the U.S. Department of Defense. We believe
that meaningful implementation of this technology may not occur
until after 2005. We continue to invest in technology and
equipment that will allow us to print and convert RFID labels.
We believe that the implementation of RFID will eventually have
a significant impact on the label markets.
We continue to invest in equipment and systems that will
positively impact both our cost and efficiencies.
Specialty Paper Products Segment
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Percent Change | |
| |
|
|
|
|
|
|
|
| |
| |
|
|
|
|
|
|
|
2004 vs. | |
|
2003 vs. | |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Net sales
|
|
$ |
168.0 |
|
|
$ |
169.0 |
|
|
$ |
160.7 |
|
|
|
(0.6 |
) |
|
|
5.2 |
|
|
Gross margin
|
|
|
31.2 |
|
|
|
31.9 |
|
|
|
32.6 |
|
|
|
(2.2 |
) |
|
|
(2.1 |
) |
|
Gross margin %
|
|
|
18.6 |
% |
|
|
18.9 |
% |
|
|
20.3 |
% |
|
|
— |
|
|
|
— |
|
|
Selling and distribution expenses
|
|
|
17.5 |
|
|
|
18.3 |
|
|
|
17.6 |
|
|
|
(4.4 |
) |
|
|
4.0 |
|
|
General and administrative expenses
|
|
|
6.8 |
|
|
|
8.0 |
|
|
|
6.8 |
|
|
|
(15.0 |
) |
|
|
17.6 |
|
|
Research and development expenses
|
|
|
.7 |
|
|
|
.9 |
|
|
|
1.7 |
|
|
|
(11.1 |
) |
|
|
(47.1 |
) |
|
Other
|
|
|
— |
|
|
|
.3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Income from operations before interest, taxes and unusual items
|
|
$ |
6.2 |
|
|
$ |
4.4 |
|
|
$ |
6.5 |
|
|
|
38.6 |
|
|
|
(32.3 |
) |
Our Specialty Paper Products segment reported sales of
$168.0 million compared to $169.0 million in 2003 and
$160.7 million in 2002.
|
|
|
| |
• |
The $1.0 million decrease in 2004 compared to 2003 resulted
from decreased sales of $2.8 million in our bond, dry gum,
carbonless, ribbon and fax paper product lines,
$3.2 million in our retail product lines, $3.2 million
in our cut-sheet paper product line, $2.8 million in our
ticket and tag product lines and $.8 million in our heat
seal products, which is partially offset by increased sales of |
24
|
|
|
| |
|
$7.1 million in our wide-format product line,
$2.9 million in our thermal product line, $1.6 million
in our financial receipt product line and $.2 million in
our other product lines. The continued shift in printing
technologies in point-of-sale (POS) equipment from impact
to thermal printers and price increases due to the partial pass
through of increased raw material cost to our customers resulted
in the increased sales of our thermal POS products. The increase
in our wide-format product line resulted primarily from new
customer business. The decrease in retail sales was primarily
due to the temporary loss in the second quarter of a major
customer, which returned during the fourth quarter of 2004. Heat
seal and dry gum are mature product lines, which continue to
decline due to technology changes. The decrease in the thermal
ticket and tag product lines results from the loss of airline
ticket business. The lower cut-sheet paper products sales
resulted from the sale of our customer list and the exit of this
product line during the third quarter of 2003. |
| |
| |
• |
The $8.3 million increase in 2003 compared to 2002 resulted
from increased sales of $10.2 million of thermal products,
$6.5 million of wide-format products and $1.7 million
of our fraud prevention products which were partially offset by
a $5.7 million decrease in sales of bond, dry gum,
carbonless, ticket and tag, ribbon and fax paper products,
$1.9 million decrease in sales volume of cut-sheet paper
products, $1.2 million decrease in sales of heat seal
product, and a net decrease in sales of $1.3 million of
other product lines. The continued shift in printing
technologies from impact to thermal printers resulted in lower
sales of bond and carbonless products and increased thermal
product sales. In addition, we gained incremental volume from an
additional location from an existing thermal customer. The
increase in sales of our wide-format products resulted from the
Dietzgen product line acquired in June 2002, as well as gaining
major customers during the third quarter of 2003. The increase
in the fraud prevention product sales is related to the Computer
Imaging Supplies acquisition in April 2002. The decline in the
carbonless, dry gum, and heat seal product lines was due to
movement to competing technologies as these products become
mature. The movement to kiosk in the airline boarding pass
market caused a decline in ticket and tag products. The lower
cut-sheet paper products sales resulted from the sale of our
customer list and the exit of this product line during the third
quarter of 2003. |
Gross margin for our Specialty Paper Products segment declined
in 2004 to $31.2 million compared to $31.9 million in
2003 and $32.6 million in 2002. The gross margin percentage
declined to 18.6 percent in 2004 compared to
18.9 percent in 2003 and 20.3 percent in 2002.
|
|
|
| |
• |
The gross margin percentage decline in 2004 was due primarily to
decreased margins associated with competitive pricing related to
thermal products used in POS applications and face sheet sold to
laminators, lower absorption of production costs due to lower
production volume in our paper coating operation, and sales
declines in the higher margin heat seal and dry gum product
lines. The rate of sales decline for these mature product lines
may have an impact on the future gross margin in this segment. |
| |
| |
• |
The gross margin percentage decline in 2003 was due to an
unfavorable sales mix, competitive pricing pressure for thermal
products, severance costs and workers compensation expenses.
Margins declined due to increased sales of our lower margin
thermal products, lower sales in our higher margin heat seal
product line and lower absorption of production costs related to
the decrease in production volume in our paper coating business.
As indicated above in the segment sales section, mature product
lines such as heat seal and dry gum, which provide significantly
higher margins than thermal products, are declining due to
technological changes. |
Selling and distribution expenses for our Specialty Paper
Products segment decreased in 2004 to $17.5 million
compared to $18.3 million in 2003 and $17.6 million in
2002. The decrease in 2004 was driven primarily by 2003
headcount reductions, which was partially offset by increased
distribution expenses due to higher freight cost and the
increase in our wide-format product line sales which carry a
higher freight and warehousing cost structure in order to
service customers on a timely delivery basis. The increase in
2003 was driven by higher freight expenses associated with the
increase in our wide-format
25
sales, and a full-year impact of the Dietzgen and CIS volumes
and selling expenses, which were partially offset by other cost
reductions.
General and administrative expenses for our Specialty Paper
Products segment decreased in 2004 to $6.8 million compared
to $8.0 million in 2003 and $6.8 million in 2002. The
decrease in 2004 was primarily attributable to reduced employee
costs from headcount reductions, which occurred in 2003. The
increase in 2003 compared to 2002 was primarily due to increased
expenses associated with the two acquired product lines and
severance costs due to headcount reductions.
Research and development expenses decreased in 2004 to
$.7 million from $.9 million in 2003 and
$1.7 million in 2002. The decrease in 2004 was primarily
attributable to headcount reductions, which occurred in 2003.
The decrease in 2003 compared to 2002 was primarily due to a
shift in cost from research and development to manufacturing.
Income from operations before interest, taxes and unusual items
for our Specialty Paper Products segment increased in 2004 to
$6.2 million from $4.4 million in 2003 and decreased
from $6.5 million in 2002. The increase in 2004 was due to
lower operating expenses, which was partially offset by a
reduced gross margin. The decrease in 2003 compared to 2002 was
primarily due to higher operating expenses as well as lower
sales and gross margin percentage in our coating business.
Imaging Supplies Segment
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Percent Change | |
| |
|
|
|
|
|
|
|
| |
| |
|
|
|
|
|
|
|
2004 vs. | |
|
2003 vs. | |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Net sales
|
|
$ |
22.1 |
|
|
$ |
23.5 |
|
|
$ |
24.0 |
|
|
|
(6.0 |
) |
|
|
(2.1 |
) |
|
Gross margin
|
|
|
3.9 |
|
|
|
4.6 |
|
|
|
5.6 |
|
|
|
(15.2 |
) |
|
|
(17.9 |
) |
|
Gross margin %
|
|
|
17.6 |
% |
|
|
19.6 |
% |
|
|
23.4 |
% |
|
|
— |
|
|
|
— |
|
|
Selling and distribution expenses
|
|
|
1.4 |
|
|
|
1.5 |
|
|
|
2.1 |
|
|
|
(6.7 |
) |
|
|
(28.6 |
) |
|
General and administrative expenses
|
|
|
1.4 |
|
|
|
1.1 |
|
|
|
1.1 |
|
|
|
27.3 |
|
|
|
— |
|
|
Research and development expenses
|
|
|
1.3 |
|
|
|
1.5 |
|
|
|
1.5 |
|
|
|
(13.3 |
) |
|
|
— |
|
|
Other
|
|
|
— |
|
|
|
.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Income (loss) from operations before interest, taxes and unusual
items
|
|
$ |
(.2 |
) |
|
$ |
.4 |
|
|
$ |
.9 |
|
|
|
— |
|
|
|
(55.6 |
) |
Our Imaging Supplies segment sales were $22.1 million in
2004 compared to $23.5 million in 2003 and
$24.0 million in 2002.
|
|
|
| |
• |
The $1.4 million, or 6.0 percent, decline in sales in
2004 was driven by a decrease in sales volume of Ricoh and Xerox
compatible toners, which was partially offset by an increase in
sales of Océ compatible toners. The lower sales of Ricoh
compatible toner were primarily driven by an inventory
correction by a major customer during the fourth quarter of
2004. The lower sales of Xerox compatible toner were due to the
partial loss of a major customer and the decline in more mature
products. We expect that the sales of mature products will
continue to decline. The increase in Océ compatible toner
sales was due to a new product introduction in 2004. |
| |
| |
• |
The $.5 million, or 2.1 percent, decline in sales in
2003 was driven by a decrease in sales volume of Ricoh, Xerox,
Océ and Kodak compatible toners, which were partially
offset by an increase in sales of IBM compatible toners and
resin products. The lower volume of Ricoh, Xerox, Océ and
Kodak compatible toners resulted both from products that are
nearing the end of their life cycle and difficulties in
commercializing certain toners. The increase in IBM compatible
toner and resin sales result from the addition of new customers
in 2003. |
Gross margin for our Imaging Supplies segment declined to
$3.9 million in 2004 compared to $4.6 million in 2003
and $5.6 million in 2002. The gross margin percentage
decreased to 17.6 percent in
26
2004 compared to 19.6 percent in 2003 and 23.4 percent
in 2002. The $.7 million decline in gross margin in 2004
compared to 2003 and the $1.0 million decline in gross
margin in 2003 compared to 2002 were both primarily driven by
lower sales and the unfavorable changes in our product mix. Our
product mix was negatively impacted by lower sales volume of
some higher margin high-speed toners.
Selling and distribution expenses for our Imaging Supplies
segment declined $.1 million from 2003 to 2004 and
$.6 million from 2002 to 2003. Decreases in both 2004 and
2003 were primarily driven by lower headcount as well as lower
distribution costs.
General and administrative expenses for our Imaging Supplies
segment were $1.4 million for 2004 and $1.1 million in
2003 and 2002. The increase in 2004 was primarily due to higher
legal fees associated with the Ricoh litigation which were only
partially offset by lower spending in other areas.
Research and development expenses for our Imaging Supplies
segment were $1.3 million in 2004 and $1.5 million in
2003 and 2002. The decrease of $.2 million in 2004 was
mainly due to reduced material purchases associated with product
trials.
Pretax loss from operations before interest for our Imaging
Supplies segment was $.2 million in 2004 compared to pretax
income of $.4 million in 2003 and $.9 million in 2002.
Liquidity, Capital Resources and Financial Condition
Our primary sources of liquidity are cash flow provided by
operations and our revolving credit facility with Lasalle Bank,
NA and Fleet National Bank. Set forth below is a summary of our
cash activity for the years ended December 31, 2004, 2003
and 2002:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended | |
| |
|
December 31, | |
| |
|
| |
| Cash Provided by (Used in): |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Operating activities
|
|
$ |
1.3 |
|
|
$ |
8.6 |
|
|
$ |
6.1 |
|
|
Investing activities
|
|
|
(5.5 |
) |
|
|
(10.6 |
) |
|
|
(6.0 |
) |
|
Financing activities
|
|
|
4.0 |
|
|
|
2.6 |
|
|
|
0 |
|
|
Activities of discontinued operations
|
|
|
(0.1 |
) |
|
|
(0.5 |
) |
|
|
(0.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$ |
(0.3 |
) |
|
$ |
0.1 |
|
|
$ |
0 |
|
| |
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
Cash flow from operations of $1.3 million in 2004 was
primarily generated by favorable results of operations in our
Specialty Paper Products and Label Products segments which were
partially offset by unfavorable changes in working capital.
Working capital changes were related to increased inventories in
all segments, increased accounts receivable primarily in our
Specialty Paper Products segment, decreased accounts payable
primarily in our Label Products segment and decreased accrued
expenses primarily due to payments related to severance reserves
accrued in 2003.
Cash flow from operations of $8.6 million in 2003 was
generated from positive working capital changes that included an
increase in accounts payable primarily in our Label Products
segment, partially offset by increases in inventory in our
Specialty Paper Products and Imaging Supplies segments.
Inventories in the Specialty Paper Products segment were higher
than 2002 primarily due to the purchase of thermal paper
inventories in anticipation of price increases in the first
quarter of 2004.
The cash generated by operations of $6.1 million during
2002 was primarily due to the positive results of operations
across all segments and a reduction of inventories in our
Specialty Paper Products and Imaging Supplies segments partially
offset by decreases in accrued expenses and accounts payable in
all of our segments.
27
Cash used in investing activities
During 2004 cash used in investing activities of
$5.5 million was primarily the result of investments in
plant and equipment of $6.6 million partially offset by
cash received related to the surrender of retired executive
whole life insurance policies which were replaced with term life
policies. Our investment in plant and equipment included the
purchase of a manufacturing facility located in Tennessee for
use by our Specialty Paper Products segment. Capital
expenditures for 2005 are expected to be in the range between
$5 million to $7 million. Funding of the projected
capital expenditures is expected to be provided by operating
cash flows and cash which was generated by industrial revenue
bonds issued by the City of Jefferson City, Tennessee during
December 2004 described below.
Our 2003 cash used in investing activities of $10.6 million
is primarily the result of $6 million used for the
acquisition of the assets of The Label Company and the
acquisition of the supermarket thermal product line from Zebra
Technologies. We also used $4.3 million for investments in
plant and equipment across all of our segments.
During 2002, the cash used in investing activities was primarily
related to investments in plant and equipment in addition to two
small acquisitions including the assets of Computer Imaging
Supplies and certain assets of Dietzgen LLC.
Cash provided by and used in financing activities
In addition to cash flows from operations, we have a bank
financing arrangement that allows us to adequately finance our
operations at competitive rates. We had $3.6 million of
available borrowing capacity at December 31, 2004 under our
revolving loan commitment with LaSalle Bank, NA and Fleet
National Bank. At December 31, 2004, we had a
$5.4 million obligation under standby letters of credit
under the credit facility which are included in our bank debt
when calculating our borrowing capacity. The weighted average
interest rate on long-term debt borrowings of $27.4 million
outstanding at December 31, 2004 was 3.5 percent.
In December 2004, LaSalle Bank, NA and Fleet National Bank
issued an irrevocable letter of credit for $2.8 million in
support of an Industrial Development Revenue Bond issued by the
Industrial Development Board of the City of Jefferson City,
Tennessee for our purchase of property and equipment located in
Jefferson City, Tennessee. The unused proceeds from the IRB are
restricted to the purchase of equipment on the Tennessee campus
and for improvements to the acquired property. Unreimbursed
funds of $1.2 million are included under the caption
“Restricted Cash” in our Consolidated Balance Sheets.
We expect to use the unreimbursed funds by June 9, 2006.
We are party to a Credit Agreement, dated March 1, 2002,
with LaSalle Bank, NA as Agent and Issuing Bank and Fleet
National Bank that, as amended, consists of a term loan of
$15 million and a revolving loan commitment of
$30 million and that requires us to maintain certain
financial covenants such as total funded debt to adjusted
earnings before interest, income taxes, depreciation and
amortization, also known as adjusted EBITDA, and a fixed charge
coverage ratio. Borrowings under the Credit Agreement are
collateralized by a security interest in our accounts
receivable, inventories, certain machinery and equipment and
real estate located in Merrimack, New Hampshire. We entered into
a first amendment to the Credit Agreement, effective
July 15, 2003, to increase the term loan under the Credit
Agreement from $10 million to $15 million and to
adjust the terms of the quarterly interest payments. We entered
into a second amendment to the Credit Agreement, effective
July 24, 2003, to waive our non-compliance with the funded
debt to EBITDA ratio and the minimum EBITDA financial covenants
for the quarter ended June 27, 2003. We entered into a
third amendment to the Credit Agreement, effective
September 25, 2003, to replace the minimum EBITDA covenant
with a minimum adjusted EBITDA covenant, and we entered into a
consent and fourth amendment to the Credit Agreement, effective
December 30, 2003, adding the provision to the funded debt
to EBITDA ratio, for the computation period ended
December 31, 2003 only, to be computed as the funded debt
to adjusted EBITDA ratio.
28
We entered into a fifth amendment to the Credit Agreement,
effective March 31, 2004, and a sixth amendment effective
December 1, 2004. Together, these amendments:
|
|
|
| |
• |
extended the term of the credit facility to February 28,
2007; |
| |
| |
• |
modified the definition of fixed charge coverage ratio to
provide that (1) the ratio is based on our adjusted EBITDA
and (2) payments of principal of funded debt, included in
the calculation of the fixed charge coverage ratio, are limited
to the last four principal payments; |
| |
| |
• |
replaced the definition and covenant relating to the total debt
to EBITDA ratio with a definition and covenant relating to the
funded debt to adjusted EBITDA ratio; |
| |
| |
• |
eliminated the covenant relating to minimum adjusted EBITDA; |
| |
| |
• |
adjusted the interest rate on loans outstanding under the credit
facility to provide that the interest rate is based on the
funded debt to adjusted EBITDA ratio and that the interest rate
is, at our option, either (1) a range from zero to
.25 percent over the base rate (prime) or (2) a
range from 1.5 percent to 2.0 percent over LIBOR; |
| |
| |
• |
modified the definitions of Revolving Outstandings and Stated
Amount to include the IRB Letter of Credit; |
| |
| |
• |
adjust the letter of credit commitment amount to include the IRB
Letter of Credit; |
| |
| |
• |
adjust the covenants on the limitations on debt and liens to
exclude the debt to the IDB and related liens; and |
| |
| |
• |
adjust the description of any non-payment of other debt to
include debt arising under the Reimbursement Agreement relating
to the IRB Letter of Credit. |
Under the amended Credit Agreement, we are also subject to a
non-use fee for any unutilized portion of our revolving loan
that ranges from .25 percent to .375 percent based on
our funded debt to adjusted EBITDA ratio.
We were in compliance with the financial covenants and our
compliance at December 31, 2004 under the amended Credit
Agreement is as follows:
| |
|
|
|
|
| |
|
|
|
December 31, 2004 |
| Covenant |
|
Requirement |
|
Compliance |
| |
|
|
|
|
|
Maintain a fixed charge coverage ratio
|
|
Not less than 1.1 to 1.0 |
|
1.5 to 1.0 |
|
Maintain a funded debt to adjusted EBITDA ratio
|
|
Less than 2.75 to 1.0 |
|
2.27 to 1.0 |
Furthermore, without prior consent of our lenders, the Credit
Agreement limits, among other things, the payment of dividends
to $.6 million, capital expenditures to $8.0 million,
the incurrence of additional debt and restricts the sale of
certain assets and merger or acquisition activities. While we
were in compliance with the above financial covenants as of
December 31, 2004, should results of operations fall short
of our expectations and we fail to maintain our covenants and be
unable to obtain a waiver from our lenders, our debt could
become callable by our lenders.
We have net deferred tax assets of $12.3 million on our
Consolidated Balance Sheet. We expect the tax assets to be fully
utilized in the future based on our expectations of future
taxable income. We expect future cash expenditures to be less
than taxes provided in the financial statements. Should taxable
income not meet our expectation in future years, tax planning
with respect to the sale of real estate would provide us
sufficient taxable income to absorb unutilized tax assets. The
fair market value of our real estate significantly exceeds the
book value.
As referenced in Note 12 to our Consolidated Financial
Statements, we maintain defined benefit pension plans. We were
not required to fund the qualified defined benefit plans during
2004. We will not be required to contribute to our pension plans
in 2005.
29
The 2004 cash payments for the Supplemental Executive Retirement
Plan was $.5 million. For 2005, the estimated payments to
retirees are $.3 million. The 2004 cash payments for
postretirement benefits were $.4 million. For 2005, the
estimated cash payments are $.4 million.
Future obligations
We have operating leases primarily for office, warehouse and
manufacturing space, and electronic data processing and
transportation equipment. We also have capital leases primarily
for automobiles, computer equipment and office equipment. The
terms of these leases do not impose significant restrictions or
unusual obligations. Our energy-related purchase obligations
consist of a fuel oil contract with an expiration date in 2005.
Our obligations relating to long-term debt, notes payable,
purchase obligations and leases at year-end 2004 were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Beyond | |
|
|
| |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2009 | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Term portion of long-term debt
|
|
$ |
3,400 |
|
|
$ |
3,400 |
|
|
$ |
100 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,900 |
|
|
Revolving portion of long-term debt
|
|
|
— |
|
|
|
— |
|
|
|
21,050 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21,050 |
|
|
Notes payable
|
|
|
710 |
|
|
|
250 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
960 |
|
|
Industrial revenue bond
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,800 |
|
|
|
2,800 |
|
|
Energy-related purchase obligations
|
|
|
574 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
574 |
|
|
Capital leases
|
|
|
184 |
|
|
|
84 |
|
|
|
22 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
290 |
|
|
Non-cancelable operating leases
|
|
|
626 |
|
|
|
505 |
|
|
|
460 |
|
|
|
346 |
|
|
|
149 |
|
|
|
166 |
|
|
|
2,252 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
5,494 |
|
|
$ |
4,239 |
|
|
$ |
21,632 |
|
|
$ |
346 |
|
|
$ |
149 |
|
|
$ |
2,966 |
|
|
$ |
34,826 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our liquidity is affected by many factors, some based on the
normal operations of our business and others related to the
uncertainties of the industry such as overcapacity and raw
material pricing pressures and global economies. Although our
cash requirements could fluctuate based on the timing of these
factors, we believe that our current cash position, cash flows
from operations and amounts available under our revolving line
of credit are sufficient to fund our cash requirements.
Litigation and Other Matters
In December 1998, the IRS completed an examination of our
corporate income tax returns for the years 1992 through 1994 and
issued a Notice of Proposed Adjustment, which assessed
additional taxes of $4.6 million, excluding interest. We
disagreed with the positions taken by the IRS and filed a formal
protest of the proposed adjustment on January 12, 1999. On
October 10, 2002, we reached an agreement with the Appeals
office of the IRS regarding the outstanding proposed assessment
of federal income tax for the years 1992 to 1994 subject to the
approval of the Joint Committee on Taxation of the United States
Congress. The agreement received final approval by the Joint
Committee on Taxation of the United States Congress as indicated
in a letter from the IRS Appeals Office dated December 24,
2002 and is now final. Our agreement determined the tax
liability for the period 1989 through 1994 and resulted in a net
tax refund in the amount of $.3 million for that period.
The agreement impacted the earlier years due to the carryback of
tax losses and credits and the recomputation of alternative
minimum taxes.
In December 1999, the IRS completed an examination of our
corporate income tax returns for the years 1995 through 1997 and
issued a Notice of Proposed Adjustment which assessed additional
taxes of $5.2 million, excluding interest. This assessment
represents a total of $14.0 million of adjustments to
taxable income for the years under review. The proposed
adjustments relate to the deductibility of restructuring and
other reserves for continuing and discontinued operations and
the utilization of foreign net operating losses associated with
discontinued operations. We disagreed with the position taken by
the IRS and filed a formal protest of their proposed adjustments
on April 6, 2000.
30
On October 28, 2003, the IRS completed an examination of
our corporate income tax returns for the years 1998 through 2000
and issued a Notice of Proposed Adjustment which assessed
additional taxes of $30,021 excluding interest. While the amount
assessed is immaterial, we have filed a protest of the proposed
adjustment since certain adjustments proposed by the IRS for the
years 1995 through 1997 could impact the tax liability for the
period 1998 through 2000.
On January 26, 2005, we executed a proposed settlement with
the appeals office of the IRS for all outstanding years, which
is subject to review and final approval by the Joint Committee
on Taxation. The proposed settlement proposes final assessments
for all outstanding years totaling $1.2 million before
interest.
We believe that we are adequately reserved for potential
liabilities that could arise from the resolution of the
IRS’ assessment for the years 1995 through 2000. While we
believe that we have adequately provided for tax liabilities
through December 31, 2004, we can provide no assurances
that we will prevail in our defense against adjustments proposed
in pending or future federal and state tax examinations. In
addition, we can provide no assurances that the ultimate
resolution of open tax matters will not be either in excess of
or less than current reserves.
In August and September 1996, two individual plaintiffs filed
lawsuits in the Circuit Court of Cook County, Illinois against
us, Cerion Technologies, Inc., certain directors and officers of
Cerion, and our underwriter, on behalf of all persons who
purchased the common stock of Cerion between May 24, 1996
and July 9, 1996. These two complaints were consolidated.
In March 1997, the same individual plaintiffs joined by a third
plaintiff filed a Consolidated Amended Class Action
Complaint. The consolidated complaint alleged that, in
connection with Cerion’s initial public offering, the
defendants issued materially false and misleading statements and
omitted the disclosure of material facts regarding, in
particular, certain significant customer relationships. In
October 1997, the Circuit Court, on motion by the defendants,
dismissed the consolidated complaint. The plaintiffs filed a
Second Amended Consolidated Complaint alleging similar claims as
the first consolidated complaint seeking damages and injunctive
relief. On May 6, 1998, the Circuit Court, on motion by the
defendants, dismissed with prejudice the Second Amended
Consolidated Complaint. The plaintiffs filed with the Appellate
Court an appeal of the Circuit Court’s ruling. On
November 19, 1999, the Appellate Court reversed the Circuit
Court’s ruling that dismissed the Second Amended
Consolidated Complaint. The Appellate Court ruled that the
Second Amended Consolidated Complaint represented a valid claim
and sent the case back to the Circuit Court for further
proceedings. On December 27, 1999, we filed a Petition with
the Supreme Court of Illinois. In that Petition, we asked the
Supreme Court of Illinois to determine whether the Circuit Court
or the Appellate Court is correct. Our Petition was denied and
the case was sent to the Circuit Court for trial. Discovery has
been completed, but no date has been set for trial and pre-trial
motions. On October 8, 2003, the Circuit Court heard
motions on a summary judgment motion and a class action
certification motion. The Circuit Court is expected to rule on
these motions at any time. We believe that the lawsuit is
without merit and will continue to defend ourselves in this
matter. We also believe that we will receive the value of our
37.1 percent ownership in the Cerion Liquidating Trust
which was valued at $.9 million on an after-tax basis at
December 31, 2004. Our investment in Cerion is included
under other assets in our Consolidated Balance Sheet.
In December 2002, we eliminated the availability of certain
postretirement health benefits to union and non-union employees
of Nashua who had at least 10 years of service and chose to
retire between age 60 to 65 which provided access to health
benefits until age 65. The unions in New Hampshire objected
to the action and filed a grievance. The final step of the
grievance process is arbitration by the American Arbitration
Association. The subject of the Arbitration was the
interpretation of the collective bargaining contract language
which we believe allows modification of the eligibility of those
postretirement health benefits. The unions’ position is
that regardless of the contract wording, these benefits cannot
be eliminated without bargaining with the unions. The
Arbitration hearing occurred on July 28, 2003 and the
arbitrator ruled in favor of the unions on October 24,
2003. On November 24, 2003, we filed an appeal of the
arbitration decision with the U.S. District Court for the
District of New Hampshire. We believe the
31
arbitrator erred in his decision process and in December 2004 we
filed briefs supporting our position with the U.S. District
Court. We anticipate the complete appeals process could take
years.
On May 30, 2003, Ricoh Company, Ltd. and affiliated
companies filed a suit in the U.S. District Court for the
District of New Jersey against several defendants, including the
largest customer of our Imaging Supplies segment and another
company who is a supplier to the Imaging Supplies segment. The
Complaint alleged multiple counts of patent infringement,
trademark infringement, and unfair competition by the
defendants. On October 17, 2003, Ricoh amended the
Complaint and added us as an additional co-defendant in the
suit. The allegations arose from the sale and distribution of
Ricoh compatible toner products. We filed an answer to the
Complaint in December 2003. The suit is in the discovery phase.
The parties have filed various motions, including summary
judgment motions, and are awaiting rulings from the court. No
trial date has been set. We believe we have valid defenses and
potential recourse against certain other co-defendants in this
matter.
On November 5, 2004, Océ North America Inc. and
Océ Printing Systems GmbH filed a Complaint for patent
infringement against us in the U.S. District Court for the
Northern District of Illinois. Océ did not serve the
initial Complaint on us. On March 3, 2005, Océ filed
the First Amended Complaint in the U.S. District Court for
the Northern District Court for the Northern District of
Illinois. The First Amended Complaint was served on us on
March 3, 2005. With our outside counsel, we are reviewing
the First Amended Complaint and will respond appropriately. Our
attorneys continue to evaluate the matter and develop our legal
defenses.
On November 12, 2004, Sandra Hook, a former employee filed
suit in Chancery Court for Jefferson County, Tennessee claiming
discrimination related to the ending of her employment with us
in November 2003 and seeking damages in excess of
$1.2 million. We believe Ms. Hook’s claims to be
without merit and intend to defend the case vigorously.
We are involved in certain environmental matters and have been
designated by the Environmental Protection Agency, referred to
as the EPA, as a potentially responsible party for certain
hazardous waste sites. In addition, we have been notified by
certain state environmental agencies that some of our 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, our
ultimate cost of remediation is difficult to estimate.
Accordingly, estimates could either increase or decrease in the
future due to changes in such factors. At December 31,
2004, based on the facts currently known and our prior
experience with these matters, we have concluded that it is
probable that site assessment, remediation and monitoring costs
will be incurred. We have estimated a range for these costs of
$.4 million to $1.0 million for continuing operations.
This estimate could increase if other potentially responsible
parties or our insurance carriers are unable or unwilling to
bear their allocated share and cannot be compelled to do so. At
December 31, 2004, our accrual balance relating to
environmental matters was $.4 million for continuing
operations. Based on information currently available, we believe
that it is probable that the major potentially responsible
parties will fully pay the costs apportioned to them. We believe
that our remediation expense is not likely to have a material
adverse effect on our consolidated financial position or results
of operations.
We are involved in various other lawsuits, claims and inquiries,
most of which are routine to the nature of our business. In the
opinion of our management, the resolution of these matters will
not materially affect our company.
Application of Critical Accounting Policies
The preparation of financial statements in conformity with
generally accepted accounting principles requires that we make
estimates and assumptions for the reporting period and as of the
financial statement date. Our management has discussed our
critical accounting estimates, policies and related disclosures
with the audit/finance and investment committee of our Board of
Directors. These estimates and assumptions
32
affect the reported amounts of assets and liabilities, the
disclosure of contingent liabilities and the reported amounts of
revenues and expenses. Actual results could differ from those
amounts.
Critical accounting policies are those that are important to the
portrayal of our financial condition and results, and which
require us to make difficult, subjective and/or complex
judgments. Critical accounting policies cover accounting matters
that are inherently uncertain because the future resolution of
such matters is unknown. We believe that our critical accounting
policies include:
Accounts Receivable — Allowance for Doubtful
Accounts
We evaluate the collectibility of our accounts receivable based
on a combination of factors. In circumstances where we become
aware of a specific customer’s inability to meet its
financial obligations to us, such as a bankruptcy filing or a
substantial downgrading of a customer’s credit rating, we
record a specific reserve to reduce our net receivable to the
amount we reasonably expect to collect. We also record reserves
for bad debts based on the length of time our receivables are
past due, the payment history of our individual customers and
the current financial condition of our customers based on
obtainable data and historical payment and loss trends. After
management’s review of accounts receivable, we decreased
the allowance for doubtful accounts to $.7 million at
December 31, 2004 from $.9 million at
December 31, 2003. Uncertainties affecting our estimates
include future industry and economic trends and the related
impact on the financial condition of our customers, as well as
the ability of our customers to generate cash flows sufficient
to pay us amounts due. If circumstances change, such as higher
than expected defaults or an unexpected material adverse change
in a customer’s ability to meet its financial obligations
to us, our estimates of the recoverability of the receivables
due us could be reduced by a material amount.
Inventories — Slow Moving and Obsolescence
We estimate and reserve amounts related to slow moving and
obsolete inventories that result from changing market conditions
and the manufacture of excess quantities of inventory. We
develop our estimates based on the quantity and quality of
individual classes of inventory compared to historical and
projected sales trends. Inventory values at December 31,
2004 have been reduced by a reserve of $1.0 million, based
on our assessment of the probable exposure related to excess and
obsolete inventories. Our estimated reserve was also
$1.0 million at December 31, 2003. Major uncertainties
in our estimation process include future industry and economic
trends, future needs of our customers, our ability to retain or
replace our customer base and other competitive changes in the
marketplace. Significant changes in any of the uncertainties
used in estimating the loss exposure could result in a
materially different net realizable value for our inventory.
Goodwill
As of December 31, 2004, we had $31.5 million of
recorded goodwill. Effective January 1, 2002, we adopted
Statement of Financial Accounting Standards No. 142,
“Goodwill and Other Intangible Assets.” Under
FAS 142, goodwill and indefinite lived intangible assets
are no longer amortized but are reviewed annually, or more
frequently if impairment indicators arise, for impairment. We
have performed the annual impairment tests required by
FAS 142 and have concluded that no impairment exists as of
November 5, 2004. We computed the fair value of our
reporting units based on a discounted cash flow model and
compared the result to the book value of each unit. The fair
value exceeded book value for each reporting unit as of our
valuation date of November 5, 2004. Significant estimates
included in our valuation included future business results and
the discount rate. Material changes in our estimated future
operating results or discount rate could significantly impact
our carrying value of goodwill.
Pension and Other Postretirement Benefits
The most significant elements in determining our pension income
or expense are the expected return on plan assets and the
discount rate. We assumed an expected long-term rate of return
on plan assets of 8.5 percent for each of the years ended
December 31, 2004 and December 31, 2003. The assumed
long-
33
term rate of return on assets is applied to a calculated value
of plan assets, which recognizes changes in the fair value of
plan assets in a systematic manner over five years. This
produces the expected return on plan assets that is included in
the determination of our pension income or expense. The
difference between this expected return and the actual return on
plan assets is deferred. The net deferral of past asset gains or
losses affects the calculated value of plan assets and,
ultimately, our future pension income or expense. Should our
long-term return on plan assets either fall below or increase
above 8.5 percent, our future pension expense would either
increase or decrease.
Each year, we determine the discount rate to be used to discount
plan liabilities which reflects the current rate at which our
pension liabilities could be effectively settled. The discount
rate that we utilize for determining future benefit obligations
is based on a review of long-term bonds, including published
indices, which receive one of the two highest ratings given by
recognized ratings agencies. For the year ended
December 31, 2003, we used a discount rate of
6.0 percent. This rate was used to determine fiscal year
2004 expense. For the year ended December 31, 2004
disclosure purposes, we also used a discount rate of
6.0 percent. Should the discount rate either fall below or
increase above 6.0 percent, our future pension expense
would either increase or decrease accordingly. Our policy is to
defer the net effect of changes in actuarial assumptions and
experience. As discussed in detail in Note 12 to our
Consolidated Financial Statements, we froze benefits under our
salaried pension plans effective December 31, 2002.
At December 31, 2004, our consolidated pension liability
was $17.9 million compared to a consolidated pension
liability of $17.1 million at the end of 2003. We
recognized an incremental comprehensive loss of
$.3 million, net of a $.2 million tax benefit for
2004. We recognized pretax pension expense of $1.0 million
for the year ended December 31, 2004, compared to pretax
pension income of $.1 million in 2003. Future changes in
our actuarial assumptions and investment results due to future
interest rate trends could have a material adverse effect on our
future costs and pension obligations.
Assumed health care cost trend rates for us have a significant
effect on the amounts reported for our health care plan. Our
assumed health care cost trend rate is 7 percent for 2005
and ranges from 7 percent to 4 percent for future
years.
Deferred Tax Assets
As of December 31, 2004, we had approximately
$12.3 million of deferred tax assets. During 2004 and 2003
we added deferred tax assets of $.2 million and
$.9 million, respectively, associated with minimum pension
liability adjustments as discussed in detail in Note 12 to
our Consolidated Financial Statements. A portion of our deferred
tax assets relates to state loss carryforwards that expire
between 2004 and 2020. We have a valuation allowance of
$.6 million for our state loss carryforwards. Although
realization of our deferred tax assets is not assured,
management believes it is more likely than not that all of the
deferred tax asset will be realized. Significant changes in any
of the estimated future taxable income could impair our ability
to utilize our deferred tax assets. Additional disclosures
relating to income taxes and our deferred tax assets are
included in Note 7 to our Consolidated Financial Statements.
Environmental Reserves
We expense environmental expenditures relating to ongoing
operations unless the expenditures extend the life, increase the
capacity or improve the safety or efficiency of our property,
mitigate or prevent environmental contamination that has yet to
occur and improve our property compared with its original
condition or are incurred for property held for sale. We record
specific reserves related to site assessments, remediation or
monitoring when the costs are both probable and the amount can
be reasonably estimated. We base estimates on in-house and
third-party studies considering current technologies,
remediation alternatives and current environmental standards. In
addition, if there are other participants and the site is joint
and several, the financial stability of other participants is
considered in determining our accrual. At December 31,
2004, we believe the probable range for future expenditures is
$.4 million to $1.0 million and have accrued
$.4 million. The decline in our accruals from
$.7 million at December 31, 2003 was due to current
year payments.
34
Uncertainties affecting our estimates include changes in the
type or degree of contamination uncovered during assessment and
actual clean-up; changes in available treatment technologies;
changes in the financial condition of other participants for
sites with joint and several responsibility; changes in the
financial condition of insurance carriers financially
responsible for our share of the remediation costs at certain
sites; and changes in local, state or federal standards or the
application of those standards by governmental officials. We
believe a material change in any of the uncertainties described
above could result in spending materially different from the
amounts accrued.
New Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board
(“FASB”) issued Statement of Financial Accounting
Standards No. 151, Inventory Costs, an amendment of ARB
No. 43, Chapter 4, Inventory Pricing
(“FAS 151”). FAS 151 clarifies the
accounting for abnormal amounts of idle facility expense,
freight, handling costs, and waste material. Such abnormal
expenses must be recognized in the period in which they are
incurred. In addition, FAS 151 requires the allocation of
fixed production overhead to inventory based on the normal
capacity of the production facilities. Unallocated overheads
must be recognized as an expense in the period in which they are
incurred. FAS 151 is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005 and we do
not currently anticipate any material accounting or disclosure
requirement under the adoption of this new accounting
pronouncement.
In December 2004, the FASB issued Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based
Payment (“FAS 123R”). This standard is a revision
of FAS 123, Accounting for Stock-Based Compensation, and
supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and its related
implementation guidance. FAS 123R requires all share-based
payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on
their fair values and is effective for the first interim or
annual reporting period beginning after June 15, 2005. We
expect to adopt FAS 123R on July 1, 2005, using the
standard’s modified prospective application method. Had we
expensed employee stock options and employee share purchase
rights under FAS 123R for the year ended December 31,
2004, net income and diluted earnings per share would have been
reduced by $ .1 million and $0.01 per share,
respectively (see Note 1 to the Consolidated Financial
Statements). Under FAS 123R, the fair value would be
amortized into compensation expense over the vesting period of
the stock options.
|
|
| Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk |
We are exposed to market risks from interest rate fluctuations
relating to our debt. We performed a sensitivity analysis
assuming a hypothetical 10 percent increase in interest
rates for our debt as of December 31, 2004. This analysis
indicated that a 10 percent increase in interest rates
would not have a material effect on our consolidated financial
position, results of operations or cash flows. Actual changes in
interest rates and their impact on us could differ materially
from this hypothetical analysis.
35
|
|
| Item 8. |
Financial Statements and Supplementary Data |
NASHUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Net sales
|
|
$ |
289,217 |
|
|
$ |
288,906 |
|
|
$ |
283,190 |
|
|
Cost of products sold
|
|
|
235,345 |
|
|
|
235,101 |
|
|
|
227,102 |
|
| |
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
53,872 |
|
|
|
53,805 |
|
|
|
56,088 |
|
| |
|
|
|
|
|
|
|
|
|
|
Selling and distribution expenses
|
|
|
25,148 |
|
|
|
27,208 |
|
|
|
28,119 |
|
|
General and administrative expenses
|
|
|
19,985 |
|
|
|
20,560 |
|
|
|
19,720 |
|
|
Research and development expense
|
|
|
2,126 |
|
|
|
2,469 |
|
|
|
3,139 |
|
|
Net loss (gain) on settlement/curtailment of pension and
postretirement plans
|
|
|
(971 |
) |
|
|
1,599 |
|
|
|
(181 |
) |
|
Restructuring and other unusual income
|
|
|
— |
|
|
|
(68 |
) |
|
|
(88 |
) |
|
Loss from equity investment
|
|
|
416 |
|
|
|
523 |
|
|
|
59 |
|
|
Interest expense
|
|
|
1,323 |
|
|
|
1,295 |
|
|
|
1,494 |
|
|
Interest income
|
|
|
(313 |
) |
|
|
— |
|
|
|
(2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
6,158 |
|
|
|
219 |
|
|
|
3,828 |
|
|
Provision for income taxes
|
|
|
2,371 |
|
|
|
117 |
|
|
|
1,512 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
3,787 |
|
|
$ |
102 |
|
|
$ |
2,316 |
|
| |
|
|
|
|
|
|
|
|
|
|
Per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income per common share
|
|
$ |
0.63 |
|
|
$ |
0.02 |
|
|
$ |
.40 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net income per common share, assuming dilution
|
|
$ |
0.62 |
|
|
$ |
0.02 |
|
|
$ |
.39 |
|
| |
|
|
|
|
|
|
|
|
|
|
Average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Common shares
|
|
|
6,011 |
|
|
|
5,869 |
|
|
|
5,783 |
|
| |
Common shares, assuming dilution
|
|
|
6,130 |
|
|
|
5,999 |
|
|
|
5,873 |
|
The accompanying notes are an integral part of these
consolidated financial statements.
36
NASHUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands, except | |
| |
|
share data) | |
|
ASSETS |
|
Current assets
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
884 |
|
|
$ |
1,183 |
|
| |
Restricted cash
|
|
|
1,202 |
|
|
|
— |
|
| |
Accounts receivable
|
|
|
33,501 |
|
|
|
31,665 |
|
| |
Inventories:
|
|
|
|
|
|
|
|
|
| |
|
Raw materials
|
|
|
14,124 |
|
|
|
11,399 |
|
| |
|
Work in process
|
|
|
3,260 |
|
|
|
3,450 |
|
| |
|
Finished goods
|
|
|
7,841 |
|
|
|
7,886 |
|
| |
|
|
|
|
|
|
| |
|
|
25,225 |
|
|
|
22,735 |
|
| |
Other current assets
|
|
|
4,493 |
|
|
|
5,205 |
|
| |
|
|
|
|
|
|
| |
|
|
65,305 |
|
|
|
60,788 |
|
| |
|
|
|
|
|
|
|
Plant and equipment:
|
|
|
|
|
|
|
|
|
| |
Land
|
|
|
1,322 |
|
|
|
902 |
|
| |
Buildings and improvements
|
|
|
31,201 |
|
|
|
28,920 |
|
| |
Machinery and equipment
|
|
|
66,013 |
|
|
|
62,689 |
|
| |
Construction in progress
|
|
|
1,002 |
|
|
|
875 |
|
| |
|
|
|
|
|
|
| |
|
|
99,538 |
|
|
|
93,386 |
|
| |
Accumulated depreciation
|
|
|
(59,693 |
) |
|
|
(52,609 |
) |
| |
|
|
|
|
|
|
| |
|
|
39,845 |
|
|
|
40,777 |
|
|
Goodwill
|
|
|
31,516 |
|
|
|
31,471 |
|
|
Intangibles, net of amortization
|
|
|
1,451 |
|
|
|
1,781 |
|
|
Loans to related parties
|
|
|
957 |
|
|
|
1,208 |
|
|
Other assets
|
|
|
11,886 |
|
|
|
15,651 |
|
| |
|
|
|
|
|
|
| |
|
|
Total assets
|
|
$ |
150,960 |
|
|
$ |
151,676 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
Current liabilities
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
16,751 |
|
|
$ |
20,474 |
|
| |
Accrued expenses
|
|
|
12,782 |
|
|
|
14,368 |
|
| |
Current maturities of long-term debt
|
|
|
3,400 |
|
|
|
3,400 |
|
| |
Current maturities of notes payable to related parties
|
|
|
710 |
|
|
|
250 |
|
| |
|
|
|
|
|
|
| |
|
|
33,643 |
|
|
|
38,492 |
|
| |
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
|
27,350 |
|
|
|
24,200 |
|
|
Notes payable to related parties
|
|
|
250 |
|
|
|
960 |
|
|
Other long-term liabilities
|
|
|
23,769 |
|
|
|
26,827 |
|
|
Commitments and contingencies (see Note 11)
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
| |
Common stock, par value $1.00; authorized
20,000,000 shares; Issued 6,208,834 shares in 2004 and
5,902,734 shares in 2003
|
|
|
6,209 |
|
|
|
5,903 |
|
| |
Additional paid-in capital
|
|
|
15,484 |
|
|
|
14,515 |
|
| |
Retained earnings
|
|
|
57,264 |
|
|
|
53,477 |
|
| |
Accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
| |
|
Minimum pension liability adjustment, net of tax
|
|
|
(13,009 |
) |
|
|
(12,698 |
) |
| |
|
|
|
|
|
|
| |
|
|
65,948 |
|
|
|
61,197 |
|
| |
|
|
|
|
|
|
| |
|
|
Total liabilities and shareholders’ equity
|
|
$ |
150,960 |
|
|
$ |
151,676 |
|
| |
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
37
NASHUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
| |
|
Common Stock | |
|
Add’l | |
|
Treasury Stock | |
|
Other | |
|
|
|
|
| |
|
| |
|
Paid-In | |
|
| |
|
Comprehensive | |
|
Retained | |
|
|
| |
|
Shares | |
|
Par Value | |
|
Capital | |
|
Shares | |
|
Cost | |
|
Loss | |
|
Earnings | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except share data) | |
|
Balance, December 31, 2001
|
|
|
6,886,649 |
|
|
$ |
6,887 |
|
|
$ |
15,901 |
|
|
|
(1,023,818 |
) |
|
$ |
(14,922 |
) |
|
|
— |
|
|
$ |
62,531 |
|
|
$ |
70,397 |
|
|
Stock issued for director compensation
|
|
|
13,428 |
|
|
|
13 |
|
|
|
77 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
90 |
|
|
Stock issued for executive compensation
|
|
|
— |
|
|
|
— |
|
|
|
(6 |
) |
|
|
750 |
|
|
|
11 |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
|
Stock options exercised and related tax benefit
|
|
|
53,600 |
|
|
|
54 |
|
|
|
259 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
313 |
|
|
Restricted stock forfeiture
|
|
|
(60,000 |
) |
|
|
(60 |
) |
|
|
(295 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(355 |
) |
|
Deferred compensation
|
|
|
— |
|
|
|
— |
|
|
|
328 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
328 |
|
|
Deferred compensation forfeiture
|
|
|
— |
|
|
|
— |
|
|
|
355 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
355 |
|
|
Retirement of treasury shares
|
|
|
(1,023,068 |
) |
|
|
(1,023 |
) |
|
|
(2,416 |
) |
|
|
1,023,068 |
|
|
|
14,911 |
|
|
|
— |
|
|
|
(11,472 |
) |
|
|
— |
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,316 |
|
|
|
2,316 |
|
| |
Minimum pension liability adjustment, net of tax
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
(11,431 |
) |
|
|
— |
|
|
|
(11,431 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,115 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
|
5,870,609 |
|
|
$ |
5,871 |
|
|
$ |
14,203 |
|
|
|
— |
|
|
|
— |
|
|
$ |
(11,431 |
) |
|
$ |
53,375 |
|
|
$ |
62,018 |
|
|
Stock options exercised and related tax benefit
|
|
|
52,125 |
|
|
|
52 |
|
|
|
282 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
334 |
|
|
Restricted stock forfeiture
|
|
|
(20,000 |
) |
|
|
(20 |
) |
|
|
(306 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(326 |
) |
|
Deferred compensation
|
|
|
— |
|
|
|
— |
|
|
|
10 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10 |
|
|
Deferred compensation forfeiture
|
|
|
— |
|
|
|
— |
|
|
|
326 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
326 |
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
102 |
|
|
|
102 |
|
| |
Minimum pension liability adjustment, net of tax
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
(1,267 |
) |
|
|
— |
|
|
|
(1,267 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,165 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
$ |
5,902,734 |
|
|
$ |
5,903 |
|
|
$ |
14,515 |
|
|
|
— |
|
|
|
— |
|
|
$ |
(12,698 |
) |
|
$ |
53,477 |
|
|
$ |
61,197 |
|
|
Stock options exercised and related tax benefit
|
|
|
170,100 |
|
|
|
170 |
|
|
|
1,105 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,275 |
|
|
Restricted stock issued
|
|
|
136,000 |
|
|
|
136 |
|
|
|
(136 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,787 |
|
|
|
3,787 |
|
| |
Minimum pension liability adjustment, net of tax
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
(311 |
) |
|
|
— |
|
|
|
(311 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,476 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
$ |
6,208,834 |
|
|
$ |
6,209 |
|
|
$ |
15,484 |
|
|
|
— |
|
|
|
— |
|
|
$ |
(13,009 |
) |
|
$ |
57,264 |
|
|
$ |
65,948 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
38
NASHUA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Cash Flows from Operating Activities of Continuing
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
3,787 |
|
|
$ |
102 |
|
|
$ |
2,316 |
|
|
Adjustments to reconcile net income to cash provided by
continuing operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation and amortization
|
|
|
7,900 |
|
|
|
7,942 |
|
|
|
7,581 |
|
| |
Deferred income taxes
|
|
|
2,371 |
|
|
|
281 |
|
|
|
1,603 |
|
| |
Stock based compensation
|
|
|
— |
|
|
|
92 |
|
|
|
423 |
|
| |
Tax benefit from exercised stock options
|
|
|
187 |
|
|
|
— |
|
|
|
— |
|
| |
Net loss (gain) on curtailment of pension and
postretirement plans
|
|
|
(971 |
) |
|
|
1,599 |
|
|
|
(181 |
) |
| |
Loss on sale/disposal of fixed assets
|
|
|
8 |
|
|
|
45 |
|
|
|
42 |
|
| |
Equity in loss from unconsolidated joint ventures
|
|
|
416 |
|
|
|
523 |
|
|
|
59 |
|
| |
Death benefit premiums purchase (see note 12)
|
|
|
(2,416 |
) |
|
|
— |
|
|
|
— |
|
| |
Change in operating assets and liabilities, net of effects from
acquisition of businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Restricted cash
|
|
|
(1,202 |
) |
|
|
— |
|
|
|
— |
|
| |
|
Accounts receivable
|
|
|
(1,836 |
) |
|
|
(733 |
) |
|
|
(2,554 |
) |
| |
|
Inventories
|
|
|
(2,459 |
) |
|
|
(1,588 |
) |
|
|
1,418 |
|
| |
|
Tax receivable
|
|
|
— |
|
|
|
— |
|
|
|
(517 |
) |
| |
|
Other assets, other current assets and loans to related parties
|
|
|
823 |
|
|
|
(658 |
) |
|
|
(1,433 |
) |
| |
|
Accounts payable
|
|
|
(3,723 |
) |
|
|
2,423 |
|
|
|
(1,623 |
) |
| |
|
Accrued expenses
|
|
|
(1,400 |
) |
|
|
(454 |
) |
|
|
(3,207 |
) |
| |
|
Other long-term liabilities
|
|
|
(177 |
) |
|
|
(969 |
) |
|
|
2,156 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Cash provided by operating activities
|
|
|
1,308 |
|
|
|
8,605 |
|
|
|
6,083 |
|
|
Cash Flows from Investing Activities of Continuing
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in plant and equipment
|
|
|
(6,599 |
) |
|
|
(4,307 |
) |
|
|
(4,349 |
) |
|
Investment in unconsolidated joint venture
|
|
|
— |
|
|
|
(325 |
) |
|
|
— |
|
|
Proceeds from sale of plant and equipment
|
|
|
67 |
|
|
|
21 |
|
|
|
90 |
|
|
Business acquisitions, net of cash acquired
|
|
|
(126 |
) |
|
|
(6,020 |
) |
|
|
(1,700 |
) |
|
Proceeds from surrender of retired executive life insurance
policies
|
|
|
1,117 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Cash used in investing activities
|
|
|
(5,541 |
) |
|
|
(10,631 |
) |
|
|
(5,959 |
) |
|
Cash Flows from Financing Activities of Continuing
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from revolving portion of long-term debt
|
|
|
3,750 |
|
|
|
300 |
|
|
|
1,662 |
|
|
Principal repayments on term portion of long-term debt
|
|
|
(3,400 |
) |
|
|
(2,700 |
) |
|
|
(2,000 |
) |
|
Principal repayment on note payable to related parties
|
|
|
(250 |
) |
|
|
(250 |
) |
|
|
— |
|
|
Repayment on refinancing
|
|
|
— |
|
|
|
— |
|
|
|
(27,630 |
) |
|
Proceeds from Industrial Revenue Bond
|
|
|
2,800 |
|
|
|
— |
|
|
|
— |
|
|
Proceeds from refinancing
|
|
|
— |
|
|
|
5,000 |
|
|
|
27,688 |
|
|
Proceeds from shares exercised under stock option plans
|
|
|
1,089 |
|
|
|
272 |
|
|
|
239 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Cash provided by (used in) financing activities
|
|
|
3,989 |
|
|
|
2,622 |
|
|
|
(41 |
) |
|
Cash used in activities of discontinued operations
|
|
|
(55 |
) |
|
|
(498 |
) |
|
|
(61 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(299 |
) |
|
|
98 |
|
|
|
22 |
|
|
Cash and cash equivalents at beginning of year
|
|
|
1,183 |
|
|
|
1,085 |
|
|
|
1,063 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
884 |
|
|
$ |
1,183 |
|
|
$ |
1,085 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid (net of amount capitalized)
|
|
$ |
1,068 |
|
|
$ |
1,198 |
|
|
$ |
1,452 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income taxes paid for continuing operations, net
|
|
$ |
282 |
|
|
$ |
94 |
|
|
$ |
203 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental Schedule of Non-Cash Investing and Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired in acquisitions
|
|
$ |
208 |
|
|
$ |
6,314 |
|
|
$ |
4,694 |
|
|
Accrued liability to purchase Dietzgen inventories
|
|
|
— |
|
|
|
— |
|
|
|
(1,052 |
) |
|
Note payable with Computer Imaging Supplies, Inc.
|
|
|
— |
|
|
|
— |
|
|
|
(1,000 |
) |
|
Liabilities assumed in acquisitions
|
|
|
(82 |
) |
|
|
(294 |
) |
|
|
(942 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions
|
|
$ |
126 |
|
|
$ |
6,020 |
|
|
$ |
1,700 |
|
| |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
39
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
| Note 1: |
Summary of Significant Accounting Policies |
Description of the Company
Nashua Corporation is a manufacturer, converter and marketer of
labels, specialty papers and imaging products. Our primary
products include thermal and other coated papers, wide-format
papers, pressure-sensitive labels and tags, transaction and
financial receipts and toners/developers for use in photocopiers.
Segment and Related Information
We have three reportable segments as discussed in detail in
Note 13:
(1) Label Products
(2) Specialty Paper Products
(3) Imaging Supplies
Basis of Consolidation
Our consolidated financial statements include the accounts of
Nashua Corporation and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been
eliminated.
Revenue Recognition
We recognize revenue from product sales or services rendered
when the following four revenue recognition criteria are met:
persuasive evidence of an arrangement exists, delivery has
occurred or services have been rendered, the selling price is
fixed or determinable, and collectibility is reasonably assured.
Environmental Expenditures
We expense environmental expenditures relating to ongoing
operations unless the expenditures extend the life, increase the
capacity or improve the safety or efficiency of our property,
mitigate or prevent environmental contamination that has yet to
occur and improve our 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. We base
estimates on in-house and 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 our accrual.
Shipping Costs
We classify third-party shipping costs as a component of selling
and distribution expenses in our Consolidated Statement of
Operations. Third-party shipping costs totaled
$11.5 million, $11.3 million and $10.0 million
for the years ended December 31, 2004, 2003 and 2002,
respectively.
Research and Development
We expense research and development costs as incurred.
Use of Estimates
The preparation of our consolidated financial statements
requires us to make estimates and assumptions that affect the
amounts reported in our financial statements and accompanying
notes.
40
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Significant estimates include tax contingency reserves,
allowances for obsolete inventory and uncollectible receivables,
environmental obligations, pension and other postretirement
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
our estimates.
Cash Equivalents
We consider all highly liquid investment instruments purchased
with a maturity of three months or less to be cash equivalents.
Restricted Cash
Restricted cash represents $1.2 million of unused proceeds
from an Industrial Revenue Bond issued by the Industrial Revenue
Board of Jefferson City, Tennessee. The unused proceeds are
restricted to the purchase of certain equipment and leasehold
improvements to be used in our Jefferson City, Tennessee
facility.
Accounts Receivable
Our consolidated accounts receivable balance is net of
allowances for doubtful accounts of $.7 million at
December 31, 2004 and $.9 million at December 31,
2003.
Inventories
Our inventories are carried at the lower of cost or market. Cost
is determined by the first-in, first-out, or commonly known as
FIFO, method for approximately 81 percent of our
inventories at December 31, 2004 and 83 percent of our
inventories at December 31, 2003, and by the last-in,
first-out, or commonly known as LIFO, method for the balance. If
the FIFO method had been used to cost all inventories, the
balances would have been approximately $1.8 million and
$1.7 million higher at December 31, 2004 and 2003,
respectively.
Plant and Equipment
Our plant and equipment are stated at cost. We charge
expenditures for maintenance and repairs 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 related
accumulated depreciation, are removed from our accounts and,
where applicable, the related gain or loss is recognized.
Depreciation expense was $7.5 million for 2004,
$7.5 million for 2003 and $7.3 million for 2002. For
financial reporting purposes, we compute depreciation expense
using the straight-line method over the following estimated
useful lives:
| |
|
|
|
|
|
Buildings and improvements
|
|
|
5 – 40 years |
|
|
Machinery and equipment
|
|
|
3 – 20 years |
|
We review the value of our plant and equipment whenever events
or changes in circumstances indicate that the carrying value may
not be recoverable.
Goodwill and Intangible Assets
Goodwill represents the excess of the cost of acquired
businesses over the fair value of identifiable net assets
acquired. We adopted Statement of Financial Accounting Standards
No. 142, “Goodwill and Other Intangible Assets,”
at the beginning of fiscal 2002. For the purposes of performing
the required
41
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
impairment tests, a present value (discounted cash flow) method
was used to determine fair value of the reporting units. We
performed our annual impairment test in the fourth quarter of
2004 with an assessment that no impairment had occurred.
Intangible assets deemed to have an indefinite life are tested
for impairment by comparing the fair value of the asset to its
carrying amount. We do not have intangible assets with an
indefinite life. See Note 3 “Intangible Assets”
and Note 4 “Goodwill” for more information.
Stock-Based Compensation
At December 31, 2004, we had three stock compensation
plans, which are described more fully in Note 9. We account
for those plans under the recognition and measurement principles
of APB No. 25, “Accounting for Stock Issued to
Employees,” and related interpretations. Under APB
No. 25, no stock-based employee compensation cost relating
to stock option awards is reflected in our net income, as all
options under our plans had an exercise price equal to the
market value of our common stock on their date of grant.
Stock-based compensation, representing grants to non-employee
directors and vesting of performance-based restricted stock
awards, was $0 for 2004, $.1 million for 2003 and
$.4 million for 2002. The following table illustrates the
effect on net income and earnings per share if we had applied
the fair value recognition provisions of FASB Statement
No. 123, “Accounting for Stock-Based
Compensation,” as amended by Statement of Financial
Accounting Standards No. 148, “Accounting for
Stock-Based Compensation — Transition and
Disclosure,” to stock-based employee compensation:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per | |
| |
|
share data) | |
|
Net income as reported
|
|
$ |
3,787 |
|
|
$ |
102 |
|
|
$ |
2,316 |
|
|
Add: Stock-based employee compensation expense included in the
determination of net income as reported, net of related tax
effects
|
|
|
— |
|
|
|
43 |
|
|
|
259 |
|
|
Deduct: Stock-based employee compensation expense determined
under the fair value based method for all awards, net of related
tax effects
|
|
|
(78 |
) |
|
|
(107 |
) |
|
|
(683 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$ |
3,709 |
|
|
$ |
38 |
|
|
$ |
1,892 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic — as reported
|
|
$ |
0.63 |
|
|
$ |
0.02 |
|
|
$ |
0.40 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Basic — pro forma
|
|
$ |
0.62 |
|
|
$ |
0.01 |
|
|
$ |
0.33 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted — as reported
|
|
$ |
0.62 |
|
|
$ |
0.02 |
|
|
$ |
0.39 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted — pro forma
|
|
$ |
0.61 |
|
|
$ |
0.01 |
|
|
$ |
0.32 |
|
| |
|
|
|
|
|
|
|
|
|
Income Taxes
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 and other tax credits.
Concentrations of Credit Risk
Financial instruments that potentially subject us to
concentrations of credit risk consist primarily of cash
equivalents and trade receivables.
42
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
We place our temporary cash investments with high quality
financial institutions and in high quality liquid investments.
Concentrations of credit risk with respect to accounts
receivable are limited because our customer base consists of a
large number of geographically diverse customers. We perform
ongoing credit evaluations of our customers’ financial
condition and maintain allowances for potential credit losses.
We generally do not require collateral or other security to
support customer receivables.
Concentrations of Labor
We had 906 full-time employees at February 10, 2005.
Approximately 274 of our employees are members of one of several
unions, principally the Paper, Allied Industrial, Chemical and
Energy Workers International Union. The agreements had initial
durations of one to three years and expire on April 2,
2006, March 31, 2007 or March 5, 2008. We believe our
employee relations are satisfactory.
Concentrations of Supply
We purchase certain important raw materials from a sole source
or a limited number of manufacturers. Management believes that
other suppliers could qualify to provide similar raw materials
on comparable terms. The time required to locate and qualify
other suppliers, however, could cause a delay in manufacturing
that could be disruptive to our company.
Fair Value of Financial Instruments
The recorded amounts for cash and cash equivalents, other
current assets, accounts receivable and accounts payable and
other current liabilities approximate fair value due to the
short-term nature of these financial instruments. The fair
values of amounts outstanding under our debt instruments
approximate their book values in all material respects due to
the variable nature of the interest rate provisions associated
with such instruments.
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.
New Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board
(“FASB”) issued Statement of Financial Accounting
Standards No. 151, Inventory Costs, an amendment of ARB
No. 43, Chapter 4, Inventory Pricing
(“FAS 151”). FAS 151 clarifies the
accounting for abnormal amounts of idle facility expense,
freight, handling costs, and waste material. Such abnormal
expenses must be recognized in the period in which they are
incurred. In addition, FAS 151 requires the allocation of
fixed production overhead to inventory based on the normal
capacity of the production facilities. Unallocated overheads
must be recognized as an expense in the period in which they are
incurred. FAS 151 is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005 and we do
not currently anticipate any material accounting or disclosure
requirement under the adoption of this new accounting
pronouncement.
In December 2004, the FASB issued Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based
Payment (“FAS 123R”). This standard is a revision
of FAS 123, Accounting for Stock-Based Compensation, and
supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and its related
implementation guidance. FAS 123R requires all share-based
payments to employees, including grants of employee stock
options, to be recognized in the financial
43
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
statements based on their fair values and is effective for the
first interim or annual reporting period beginning after
June 15, 2005. We expect to adopt FAS 123R on
July 1, 2005, using the standard’s modified
prospective application method. Had we expensed employee stock
options and employee share purchase rights under FAS 123R
for the year ended December 31, 2004, net income and
diluted earnings per share would have been reduced by $
..1 million and $0.01 per share, respectively (see
above, “Stock Based Compensation”). Under
FAS 123R, the fair value would be amortized into
compensation expense over the vesting period of the stock
options.
Business Acquisitions
In December 2003, we acquired the assets of the Magellan
wide-format graphics product line from PM Co. L.L.C. Operating
activity under this product line is reported in our Specialty
Paper Products segment from the date of acquisition.
In November 2003, we acquired the assets of the supermarket
label product line from Zebra Technologies, Inc. The supermarket
label business markets and distributes pressure sensitive direct
thermal labels used solely for marking prepackaged meat,
produce, deli and bakery items in supermarkets, grocery and
convenience stores. Operating activity relating to this line is
reported under our Label Products segment from the date of
acquisition.
In February 2003, we acquired the operating assets of The Label
Company from Bunzl Distribution and signed a multi-year
agreement to supply Bunzl with label products. The Label Company
had primarily been a supplier of supermarket promotional, scale
and product identification labels mainly for Bunzl and other
customers. Operating activity relating to The Label Company is
reported under our Label Products segment from the date of
acquisition.
In June 2002, we acquired out of bankruptcy certain assets of
Dietzgen LLC, including trademarks, trade names, customer lists
and certain equipment and inventories. Dietzgen, an after-market
provider of wide-format digital media and imaging supplies for
the architectural, engineering and construction markets, filed
for protection under Chapter 11 of the U.S. Bankruptcy
Code on January 31, 2002. Operating activity relating to
the assets acquired from Dietzgen is reported as part of our
Specialty Paper Products segment from the date of acquisition.
In April 2002, we acquired the assets of Computer Imaging
Supplies Inc., a privately held manufacturer and marketer of
security and fraud prevention products for the point-of-sale
transaction industry and of inkjet and toner cartridges. The
products of Computer Imaging Supplies include multi-color
ribbons and specialized inks that prevent unauthorized
duplication of cash register receipts. Operating activity
relating to the assets acquired from Computer Imaging Supplies
is reported as part of our Specialty Paper Products segment from
the date of acquisition.
Strategic Alliance
During 2004 our strategic agreement with Parlex Corporation
expired in accordance with its terms. We entered into the
strategic agreement on February 25, 2003 to cooperate in
the development of flexible circuit technology incorporating
proprietary printing and plating technologies. The agreement
created an organization, Stratos Technology, LLC, of which we
owned 50 percent that utilized both parties’ relative
expertise in ink and printed circuit technology, label
converting and the design, application and production of
flexible circuits. Under the agreement, Stratos Technology
worked to develop innovative products for use in the automotive
and cellular markets. We are in the process of negotiating
cross-licensing agreements for use of the press printed circuit
technology by both parties.
44
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Discontinued Operations
Details of balances outstanding related to discontinued
operations recorded prior to 2000 were as follows:
| |
|
|
|
|
|
|
|
|
| |
|
At December 31 | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Assets
|
|
$ |
930 |
|
|
$ |
930 |
|
|
Liabilities
|
|
|
(3,502 |
) |
|
|
(3,727 |
) |
| |
|
|
|
|
|
|
|
Net assets and (liabilities) of discontinued operations
|
|
$ |
(2,572 |
) |
|
$ |
(2,797 |
) |
| |
|
|
|
|
|
|
Our asset balance as of December 31, 2004, consists
primarily of our 37.1 percent interest in the Cerion
Technologies Liquidating Trust, a trust established pursuant to
the liquidation of Cerion Technologies Inc., formerly a publicly
held company. Cerion ceased operations during the fourth quarter
of 1998 and is currently in the process of liquidation. We
account for our investment in Cerion based on its expected net
realizable value, net of taxes.
Our liability balance consists primarily of tax reserves
relating to discontinued operations.
|
|
| Note 3: |
Intangible Assets |
Details of acquired intangible assets are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At December 31, 2004 | |
| |
|
| |
| |
|
|
|
Weighted | |
| |
|
Gross | |
|
|
|
Average | |
| |
|
Carrying | |
|
Accumulated | |
|
Amortization | |
| |
|
Amount | |
|
Amortization | |
|
Period | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Trademarks and trade names
|
|
$ |
560 |
|
|
$ |
220 |
|
|
|
9 years |
|
|
Licensing agreement
|
|
|
230 |
|
|
|
126 |
|
|
|
5 years |
|
|
Customer relationships and lists
|
|
|
1,062 |
|
|
|
421 |
|
|
|
9 years |
|
|
Customer contracts
|
|
|
620 |
|
|
|
340 |
|
|
|
4 years |
|
|
Non-competition agreements
|
|
|
100 |
|
|
|
55 |
|
|
|
5 years |
|
|
Patented technology
|
|
|
90 |
|
|
|
49 |
|
|
|
5 years |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
2,662 |
|
|
$ |
1,211 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
45
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Customer relationships and lists increased from 2003 due to an
acquisition of a customer list made during 2004.
| |
|
|
|
|
|
|
Amortization Expense:
|
|
|
|
|
|
For the year ended December 31, 2003
|
|
$ |
481 |
|
|
For the year ended December 31, 2004
|
|
$ |
441 |
|
|
Estimated for the year ending:
|
|
|
|
|
| |
December 31, 2005
|
|
$ |
389 |
|
| |
December 31, 2006
|
|
$ |
345 |
|
| |
December 31, 2007
|
|
$ |
208 |
|
| |
December 31, 2008
|
|
$ |
91 |
|
| |
December 31, 2009 and thereafter
|
|
$ |
57 |
|
| |
December 31, 2010 and thereafter
|
|
$ |
361 |
|
The carrying amount of goodwill by segment and activity during
the year ended December 31, 2004, is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Specialty Paper | |
|
Label Products | |
|
|
| |
|
Products Segment | |
|
Segment | |
|
Total | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Balance as of January 1, 2004
|
|
$ |
14,142 |
|
|
$ |
17,329 |
|
|
$ |
31,471 |
|
|
Adjustments to goodwill resulting from the acquisition of The
Label Company business
|
|
|
— |
|
|
|
45 |
|
|
|
45 |
|
| |
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2004
|
|
$ |
14,142 |
|
|
$ |
17,374 |
|
|
$ |
31,516 |
|
| |
|
|
|
|
|
|
|
|
|
Accumulated amortization of goodwill prior to the adoption of
FAS 142 was $2.7 million.
In December 2004, LaSalle Bank, NA and Fleet National Bank
issued an irrevocable letter of credit for $2.8 million in
support of an Industrial Development Revenue Bond issued by the
Industrial Development Board of the City of Jefferson City,
Tennessee for our purchase of property consisting of land and
building contiguous to our Jefferson City, Tennessee campus. The
$2.8 million borrowed under the Industrial Revenue Bond
matures on December 1, 2024. The bonds carry a weekly
variable interest rate established by the remarketing agent
based on the Bond Market Association Municipal Swap Index. The
unused proceeds from the IRB are restricted to the purchase of
equipment on the Tennessee campus and improvements to the
acquired property. The unused proceeds of $1.2 million are
included under the caption “Restricted Cash” in our
Consolidated Balance Sheets. We plan to use the unreimbursed
funds by June 9, 2006.
We are party to a Credit Agreement, dated March 1, 2002,
with LaSalle Bank, NA as Agent and Issuing Bank and Fleet
National Bank that, as amended, consists of a term loan of
$15 million and a revolving loan commitment of
$30 million and that requires us to maintain certain
financial covenants such as total funded debt to adjusted
earnings before interest, income taxes, depreciation and
amortization, also known as adjusted EBITDA, and a fixed charge
coverage ratio. Borrowings under the Credit Agreement are
collateralized by a security interest in our accounts
receivable, inventories, certain machinery and equipment and
real estate located in Merrimack, New Hampshire. We had
$3.6 million of additional borrowing capacity at
December 31, 2004 under our revolving loan commitment. We
had $5.4 million of
46
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
obligations under standby letters of credit with the banks which
are included in our bank debt when calculating our borrowing
capacity. We entered into a first amendment to the Credit
Agreement, effective July 15, 2003, to increase the term
loan under the Credit Agreement from $10 million to
$15 million and to adjust the terms of the quarterly
interest payments. We entered into a second amendment to the
Credit Agreement, effective July 24, 2003, to waive our
non-compliance with the funded debt to EBITDA ratio and the
minimum EBITDA financial covenants for the quarter ended
June 27, 2003. We entered into a third amendment to the
Credit Agreement, effective September 25, 2003, to replace
the minimum EBITDA covenant with a minimum adjusted EBITDA
covenant, and we entered into a consent and fourth amendment to
the Credit Agreement, effective December 30, 2003, adding
the provision to the funded debt to EBITDA ratio, for the
computation period ended December 31, 2003 only, to be
computed as the funded debt to adjusted EBITDA ratio.
We entered into a fifth amendment to the Credit Agreement,
effective March 31, 2004 and we entered into a sixth
amendment effective December 1, 2004. Together, these
amendments:
|
|
|
| |
• |
extended the term of the credit facility to February 28,
2007; |
| |
| |
• |
modified the definition of fixed charge coverage ratio to
provide that (1) the ratio is based on our adjusted EBITDA
and (2) payments of principal of funded debt, included in
the calculation of the fixed charge coverage ratio, are limited
to the last four principal payments; |
| |
| |
• |
replaced the definition and covenant relating to the total debt
to EBITDA ratio with a definition and covenant relating to the
funded debt to adjusted EBITDA ratio; |
| |
| |
• |
eliminated the covenant relating to minimum adjusted EBITDA; |
| |
| |
• |
adjusted the interest rate on loans outstanding under the credit
facility to provide that the interest rate is based on the
funded debt to adjusted EBITDA ratio and that the interest rate
is, at our option, either (1) a range from zero to
.25 percent over the base rate (prime) or (2) a
range from 1.5 percent to 2.0 percent over LIBOR; |
| |
| |
• |
modified the definitions of Revolving Outstandings and Stated
Amount to include the IRB Letter of Credit; |
| |
| |
• |
adjusts the letter of credit commitment amount to include the
IRB Letter of Credit; |
| |
| |
• |
adjust the covenants on the limitations on debt and liens to
exclude the debt to the IDB and related liens; and |
| |
| |
• |
adjust the description of any non-payment of other debt to
include debt arising under the Reimbursement Agreement relating
to the IRB Letter of Credit. |
Under the amended Credit Agreement, we are also subject to a
non-use fee for any unutilized portion of our revolving loan
that ranges from .25 percent to .375 percent based on
our funded debt to adjusted EBITDA ratio. For the twelve months
ended December 31, 2004 and 2003, the weighted average
annual interest rate on our long-term debt was 3.5 percent
and 3.3 percent, respectively.
Furthermore, without prior consent of our lenders, the Credit
Agreement limits, among other things, the payment of dividends
to $.6 million, capital expenditures to $8.0 million,
the incurrence of additional debt and restricts the sale of
certain assets and merger or acquisition activities. We were in
compliance with all of the above financial covenants as of
December 31, 2004.
47
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The aggregate amounts of maturities on our long-term debt are as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 |
|
Beyond | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
| |
|
(In thousands) | |
|
Term portion of long-term debt
|
|
$ |
3,400 |
|
|
$ |
3,400 |
|
|
$ |
100 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,900 |
|
|
Revolving portion of long-term debt
|
|
|
— |
|
|
|
— |
|
|
|
21,050 |
|
|
|
— |
|
|
|
— |
|
|
|
21,050 |
|
|
Industrial revenue bond
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,800 |
|
|
|
2,800 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
3,400 |
|
|
$ |
3,400 |
|
|
$ |
21,150 |
|
|
$ |
— |
|
|
$ |
2,800 |
|
|
$ |
30,750 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Note 6: |
Notes Payable to Related Parties |
On April 1, 2002, we acquired the assets of Computer
Imaging Supplies, Inc. In connection with the acquisition, we
issued a promissory note payable to Computer Imaging Supplies in
the original principal amount of $1 million. The
outstanding principal balance on the promissory note bears
interest at the prime rate. Interest on the promissory note is
payable quarterly, and the principal is payable in four annual
installments of $250,000 through April 1, 2006. As a result
of the acquisition, the founders and co-owners of Computer
Imaging Supplies became Nashua employees.
We also have two notes held by former Rittenhouse and current
Nashua employees that were assumed in connection with our
acquisition of Rittenhouse Paper Company. These notes are in the
original principal amount of $230,000 each, payable on
August 31, 2005. Interest on these notes is payable
quarterly and accrues at our incremental borrowing rate.
The aggregate amounts of maturities on our notes payable are as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 | |
|
2006 | |
|
Total | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Notes payable to related parties
|
|
$ |
710 |
|
|
$ |
250 |
|
|
$ |
960 |
|
| |
|
|
|
|
|
|
|
|
|
The provision (benefit) for income taxes consists of the
following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States
|
|
$ |
— |
|
|
$ |
(147 |
) |
|
$ |
(91 |
) |
| |
State
|
|
|
— |
|
|
|
(17 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total current
|
|
|
— |
|
|
|
(164 |
) |
|
|
(91 |
) |
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States
|
|
|
2,080 |
|
|
|
257 |
|
|
|
1,362 |
|
| |
State
|
|
|
291 |
|
|
|
24 |
|
|
|
241 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total deferred
|
|
|
2,371 |
|
|
|
281 |
|
|
|
1,603 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Provision for income taxes
|
|
$ |
2,371 |
|
|
$ |
117 |
|
|
$ |
1,512 |
|
| |
|
|
|
|
|
|
|
|
|
48
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Total net deferred tax assets (liabilities) are comprised
of the following:
| |
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Depreciation
|
|
$ |
(1,423 |
) |
|
$ |
(1,124 |
) |
|
Other
|
|
|
(358 |
) |
|
|
(372 |
) |
| |
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(1,781 |
) |
|
|
(1,496 |
) |
|
Restructuring
|
|
|
— |
|
|
|
496 |
|
|
Pension and postretirement benefits
|
|
|
8,402 |
|
|
|
8,818 |
|
|
State net operating loss carryforwards and other state credits
|
|
|
2,359 |
|
|
|
1,922 |
|
|
Alternative minimum tax and general business credits
|
|
|
1,428 |
|
|
|
1,434 |
|
|
Accrued expenses
|
|
|
633 |
|
|
|
931 |
|
|
Inventory reserves
|
|
|
558 |
|
|
|
1,000 |
|
|
Bad debt reserves
|
|
|
341 |
|
|
|
419 |
|
|
Other
|
|
|
961 |
|
|
|
2,175 |
|
| |
|
|
|
|
|
|
|
Gross deferred tax asset
|
|
|
14,682 |
|
|
|
17,195 |
|
|
Deferred tax assets valuation allowance
|
|
|
(600 |
) |
|
|
(600 |
) |
| |
|
|
|
|
|
|
| |
Net deferred tax assets
|
|
$ |
12,301 |
|
|
$ |
15,099 |
|
| |
|
|
|
|
|
|
Reconciliations between income tax provision from continuing
operations computed using the United States statutory income tax
rate and our effective tax rate are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
United States federal statutory rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
State taxes, net of federal tax benefit
|
|
|
2.9 |
|
|
|
2.0 |
|
|
|
4.1 |
|
|
Non-deductible meals and entertainment
|
|
|
.5 |
|
|
|
12.3 |
|
|
|
.4 |
|
|
Other, net
|
|
|
.1 |
|
|
|
4.1 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Effective tax rate
|
|
|
38.5 |
% |
|
|
53.4 |
% |
|
|
39.5 |
% |
| |
|
|
|
|
|
|
|
|
|
At December 31, 2004, other current assets included
$2.8 million of net deferred tax assets and
$.7 million of tax receivables, and other assets included
$9.5 million of net deferred tax assets. At
December 31, 2003, $3.7 million and $.5 million
of net deferred tax assets were included in other current assets
and other assets, respectively. At December 31, 2004 and
2003, $4.5 million and $5.3 million of accrued taxes
were included in accrued expenses.
At December 31, 2004, we had $2.4 million of state net
operating loss carryforwards and other state credits and
$1.4 million of Federal tax credit carryforwards, which are
available to offset future domestic taxable earnings. The state
net operating loss carryforward benefits and other state credits
expire between 2004 and 2020. Included in the $1.4 million
of Federal tax credit carryforwards are business tax credits of
$.6 million that expire beginning in 2013 and
$.8 million of tax credit carryforwards for alternative
minimum tax that have no expiration date.
In December 1999, the Internal Revenue Service completed an
examination of our corporate income tax returns for the years
1995 through 1997 and issued a Notice of Proposed Adjustment
which assessed additional taxes of $5.2 million, excluding
interest. The assessment represents a total of
$14.0 million of adjustments to taxable income for the
years under review. The proposed adjustments relate to the
deductibility of restructuring and other reserves applicable to
continuing and discontinued operations as well as the
utilization of foreign net operating losses primarily associated
with discontinued operations. We
49
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
disagreed with the position taken by the IRS and filed a formal
protest of the proposed adjustments on April 6, 2000.
On October 28, 2003, the IRS completed an examination of
our corporate income tax returns for the years 1998 through 2000
and issued a Notice of Proposed Adjustment which assessed
additional taxes of $30,021 excluding interest. While the amount
assessed is immaterial, we have filed a protest of the proposed
adjustment since certain adjustments proposed by the IRS for the
years 1995 through 1997 could impact the tax liability for the
period 1998 through 2000.
On January 26, 2005, we executed a proposed settlement with
the appeals office of the IRS for all outstanding years, which
is subject to review and final approval by the Joint Committee
on Taxation. The proposed settlement proposes final assessments
for all outstanding years totaling $1.2 million before
interest.
While we believe that we have provided adequately for our tax
liabilities through December 31, 2004, including
liabilities related to matters in dispute with taxing
authorities, we can provide no assurances that we will prevail
in our defense against adjustments proposed in these pending or
future federal and state examinations. In addition, the ultimate
resolution of these open tax matters could be either in excess
of or less than current reserves.
|
|
| Note 8: |
Shareholders’ Equity |
Our ability to pay dividends is restricted to $.6 million
under the provisions of our credit agreement, without the prior
approval of our lenders. We did not declare or pay a cash
dividend on our common stock in 2004 or 2003 and do not
currently intend to pay dividends.
|
|
| Note 9: |
Stock Option and Stock Award Plans |
On May 4, 2004, our stockholders adopted our 2004 Value
Creation Incentive Plan pursuant to which restricted stock
awards have been granted to certain key executives that will
vest only upon achievement of certain target average closing
prices of our common stock over the 40-consecutive trading day
period which ends on the third anniversary of the date of grant
(40-day average closing price). The terms of the restricted
stock provide that 33 percent of such shares shall vest if
the 40-day average closing price of at least $13.00 but less
than $14.00 is achieved, 66 percent of such shares shall
vest if the 40-day average closing price of at least $14.00 but
less than $15.00 is achieved, and 100 percent of such
shares shall vest if the 40-day average closing price of $15.00
or greater is achieved. The restricted shares vest upon a change
of control if the share price at the date of the change in
control exceeds $13.00. Shares of the restricted stock are
forfeited if the specified closing prices of our common stock
are not met. Of the 150,000 shares authorized for issuance
under the 2004 Value Creation Incentive Plan, 14,000 shares
are available to be awarded as of December 31, 2004.
In addition to our 2004 Value Creation Incentive Plan, we have
three stock compensation plans at December 31, 2004: the
1987 Stock Option Plan, the 1996 Stock Incentive Plan and the
1999 Shareholder Value Plan. Awards may no longer be
granted under the 1987 Plan. Awards under the 1996 Plan and the
1999 Plan are made at the discretion of our Leadership and
Compensation Committee of our Board of Directors.
Under the 1987 Plan, nonstatutory stock options have been
awarded and are currently exercisable. Nonstatutory stock
options expire 10 years and one day from the date of grant.
Under the 1996 and 1999 Plans, nonstatutory stock options have
been awarded. Of the 660,000 and 600,000 shares authorized
for the 1996 and 1999 Plans, respectively, 10,343 and
3,450 shares are available to be awarded as of
December 31, 2004. Stock options under the 1996 and 1999
Plans generally become
50
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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 Committee.
Certain options may become exercisable immediately under certain
circumstances and events as defined under these plans and option
agreements. Nonstatutory stock options under the 1996 Plan
expire 10 years and one day from the date of grant, and
incentive stock options expire 10 years from the date of
grant. Nonstatutory and incentive stock options granted under
the 1999 Plan expire 10 years from the date of grant.
Currently, there are no incentive stock options granted under
the 1996 and 1999 Plans.
Under the 1996 and 1999 Plans, performance based restricted
stock awards have been granted. There were no restricted stock
awards outstanding at December 31, 2004 under these plans.
Shares issued under the plans 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 these awards. During 2003 restrictions lapsed on
33,334 shares and in 2002 restrictions lapsed on
33,333 shares. We recognized compensation expense of
$0 million in 2004, $.1 million in 2003 and
$.3 million in 2002 in our Consolidated Statement of
Operations, along with an increase to additional paid-in
capital, representing the earned portion of these awards. Shares
of performance based restricted stock are forfeited if the
specified closing prices of our common stock are not met within
five years of grant or the executive leaves the company.
A summary of the status of our fixed stock option plans as of
December 31, 2004, 2003 and 2002 and changes during the
years ended on those dates is presented below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
| |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
| |
|
|
|
Exercise | |
|
|
|
Exercise | |
|
|
|
Exercise | |
| |
|
Shares | |
|
Price | |
|
Shares | |
|
Price | |
|
Shares | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Outstanding beginning of year
|
|
|
806,175 |
|
|
$ |
7.58 |
|
|
|
905,500 |
|
|
$ |
7.75 |
|
|
|
909,500 |
|
|
$ |
7.68 |
|
|
Granted
|
|
|
10,000 |
|
|
|
9.61 |
|
|
|
— |
|
|
|
— |
|
|
|
61,200 |
|
|
|
6.72 |
|
|
Exercised
|
|
|
(170,100 |
) |
|
|
6.40 |
|
|
|
(52,125 |
) |
|
|
5.23 |
|
|
|
(53,600 |
) |
|
|
4.45 |
|
|
Forfeited — non-vested
|
|
|
— |
|
|
|
— |
|
|
|
(17,175 |
) |
|
|
6.27 |
|
|
|
(4,025 |
) |
|
|
6.74 |
|
|
Forfeited — exercisable
|
|
|
(58,350 |
) |
|
|
14.98 |
|
|
|
(24,200 |
) |
|
|
15.47 |
|
|
|
(6,075 |
) |
|
|
11.00 |
|
|
Expired
|
|
|
(5,500 |
) |
|
|
26.02 |
|
|
|
(5,825 |
) |
|
|
26.27 |
|
|
|
(1,500 |
) |
|
|
28.13 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding end of year
|
|
|
582,225 |
|
|
|
7.04 |
|
|
|
806,175 |
|
|
$ |
7.58 |
|
|
|
905,500 |
|
|
$ |
7.75 |
|
|
Options exercisable at end of year
|
|
|
572,225 |
|
|
|
7.00 |
|
|
|
791,175 |
|
|
$ |
7.59 |
|
|
|
732,000 |
|
|
$ |
8.19 |
|
|
Weighted average fair value of options granted during the year
|
|
|
— |
|
|
$ |
3.64 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
2.85 |
|
51
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table summarizes information about stock options
outstanding at December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding | |
|
Options Exercisable | |
| |
|
| |
|
| |
| |
|
|
|
Weighted | |
|
Number | |
|
Weighted | |
| |
|
Number | |
|
Weighted Average | |
|
Average | |
|
Exercisable | |
|
Average | |
| |
|
Outstanding | |
|
Remaining | |
|
Exercise | |
|
at | |
|
Exercise | |
| Range of Exercise Prices |
|
at 12/31/04 | |
|
Contractual Life | |
|
Price | |
|
12/31/04 | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$ 4.01 – $ 4.38
|
|
|
170,100 |
|
|
|
6.1 years |
|
|
$ |
4.12 |
|
|
|
170,100 |
|
|
$ |
4.12 |
|
|
$ 5.70 – $ 6.63
|
|
|
190,025 |
|
|
|
6.4 years |
|
|
$ |
6.02 |
|
|
|
190,025 |
|
|
$ |
6.02 |
|
|
$ 6.65 – $ 6.70
|
|
|
46,200 |
|
|
|
7.2 years |
|
|
$ |
6.67 |
|
|
|
46,200 |
|
|
$ |
6.67 |
|
|
$ 8.06 – $ 8.63
|
|
|
65,300 |
|
|
|
5.4 years |
|
|
$ |
8.17 |
|
|
|
65,300 |
|
|
$ |
8.17 |
|
|
$ 9.61 – $11.63
|
|
|
49,100 |
|
|
|
5.3 years |
|
|
$ |
10.20 |
|
|
|
39,100 |
|
|
$ |
10.36 |
|
|
$12.37 – $19.75
|
|
|
61,500 |
|
|
|
2.6 years |
|
|
$ |
14.82 |
|
|
|
61,500 |
|
|
$ |
14.82 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 4.01 – $19.75
|
|
|
582,225 |
|
|
|
5.8 years |
|
|
$ |
7.04 |
|
|
|
572,225 |
|
|
$ |
7.00 |
|
A summary of the status of our restricted stock plans as of
December 31, 2004, 2003 and 2002 and changes during the
years ended on those dates is presented below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Restricted stock outstanding at beginning of year
|
|
|
— |
|
|
|
53,334 |
|
|
|
146,667 |
|
|
Granted
|
|
|
136,000 |
|
|
|
— |
|
|
|
— |
|
|
Forfeited and converted
|
|
|
— |
|
|
|
(53,334 |
) |
|
|
(93,333 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Restricted stock outstanding at end of year
|
|
|
136,000 |
|
|
|
— |
|
|
|
53,334 |
|
|
Weighted average fair value per restricted share at grant date
|
|
$ |
3.47 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Weighted average share price at grant date
|
|
$ |
9.00 |
|
|
$ |
— |
|
|
$ |
— |
|
We follow the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 “Accounting for
Stock-Based Compensation.” We continue to measure
compensation cost using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25. Stock-based
compensation representing grants to non-employee directors and
vesting of performance based restricted stock awards, recognized
in our Consolidated Statement of Operations, was
$.1 million for 2004, $.1 million for 2003 and
$.4 million for 2002. If we had elected to recognize
compensation cost based on the fair value of options and
restricted stock granted at grant date as prescribed by
FAS 123, net income (loss) and earnings (loss) per share
would have decreased (increased) as disclosed in our
summary of significant accounting policies included in
Note 1, “Summary of Significant Accounting
Policies.”
52
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The assumptions and methods used in estimating the fair value at
the grant date of options and restricted shares granted are
listed below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Grant Year | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Volatility of Share Price:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Options
|
|
|
34.0% |
|
|
|
N/A |
|
|
|
36% |
|
| |
Restricted stock
|
|
|
33.8% |
|
|
|
— |
|
|
|
— |
|
|
Dividend yield:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Options
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Restricted stock
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Interest rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Options
|
|
|
3.6% |
|
|
|
N/A |
|
|
|
4.7% |
|
| |
Restricted stock
|
|
|
3.3% |
|
|
|
— |
|
|
|
— |
|
|
Expected life of options
|
|
|
5.5 years |
|
|
|
N/A |
|
|
|
5.7 years |
|
|
Valuation methodology:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Options
|
|
Black-Scholes Option Pricing Model |
| |
Restricted stock
|
|
Binomial Pricing Model |
Because the determination of the fair value of all options
granted includes vesting periods over several years, the pro
forma disclosures included in Note 1 are not representative
of pro forma effects of reported net income for future periods.
|
|
| Note 10: |
Earnings Per Share |
Reconciliations of the numerators and denominators used in our
2004, 2003 and 2002 earnings per share calculations are
presented below.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, 2004 | |
| |
|
| |
| |
|
Income | |
|
Shares | |
|
Per Share | |
| |
|
(Numerator) | |
|
(Denominator) | |
|
Amount | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Net income
|
|
$ |
3,787 |
|
|
|
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income available to common shareholders
|
|
$ |
3,787 |
|
|
|
6,011 |
|
|
$ |
0.63 |
|
|
Effect of dilutive securities stock options
|
|
|
— |
|
|
|
119 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income available to common shareholders, assuming dilution
|
|
$ |
3,787 |
|
|
|
6,130 |
|
|
$ |
0.62 |
|
53
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, 2003 | |
| |
|
| |
| |
|
Income | |
|
Shares | |
|
Per Share | |
| |
|
(Numerator) | |
|
(Denominator) | |
|
Amount | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Net income
|
|
$ |
102 |
|
|
|
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income available to common shareholders
|
|
$ |
102 |
|
|
|
5,869 |
|
|
$ |
.02 |
|
|
Effect of dilutive securities stock options
|
|
|
— |
|
|
|
130 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income available to common shareholders, assuming dilution
|
|
$ |
102 |
|
|
|
5,999 |
|
|
$ |
.02 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, 2002 | |
| |
|
| |
| |
|
Income | |
|
Shares | |
|
Per Share | |
| |
|
(Numerator) | |
|
(Denominator) | |
|
Amount | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Net income
|
|
$ |
2,316 |
|
|
|
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income available to common shareholders
|
|
$ |
2,316 |
|
|
|
5,783 |
|
|
$ |
.40 |
|
|
Effect of dilutive securities Stock options
|
|
|
— |
|
|
|
90 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income available to common shareholders, assuming dilution
|
|
$ |
2,316 |
|
|
|
5,873 |
|
|
$ |
.39 |
|
| |
|
|
|
|
|
|
|
|
|
Performance based restricted stock of 136,000, 0 and
53,334 shares for the years ended December 31, 2004,
2003 and 2002, respectively, was not included in the above
computations. Such shares could be issued in the future subject
to the occurrence of certain events as described in Note 9,
“Stock Option and Stock Award Plans.”
|
|
| Note 11: |
Commitments and Contingencies |
Our rent expense for office equipment, facilities and vehicles
was $2.2 million for 2004, $1.8 million for 2003 and
$1.6 million for 2002. At December 31, 2004, we are
committed, under non-cancelable operating and capital leases, as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Beyond | |
|
|
| |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
2009 | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Energy-related purchase obligations
|
|
$ |
574 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
574 |
|
|
Capital leases
|
|
|
184 |
|
|
|
84 |
|
|
|
22 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
290 |
|
|
Non-cancelable operating leases
|
|
|
626 |
|
|
|
505 |
|
|
|
460 |
|
|
|
346 |
|
|
|
149 |
|
|
|
166 |
|
|
|
2,252 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
1,384 |
|
|
$ |
589 |
|
|
$ |
482 |
|
|
$ |
346 |
|
|
$ |
149 |
|
|
$ |
166 |
|
|
$ |
3,116 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2004, we had a $5.4 million obligation
under standby letters of credit with LaSalle Bank, NA and Fleet
National Bank.
In August and September 1996, two individual plaintiffs filed
lawsuits in the Circuit Court of Cook County, Illinois against
us, Cerion Technologies, Inc., certain directors and officers of
Cerion, and our underwriter, on behalf of all persons who
purchased the common stock of Cerion between May 24, 1996
54
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
and July 9, 1996. These two complaints were consolidated.
In March 1997, the same individual plaintiffs joined by a third
plaintiff filed a Consolidated Amended Class Action
Complaint. The consolidated complaint alleged that, in
connection with Cerion’s initial public offering, the
defendants issued materially false and misleading statements and
omitted the disclosure of material facts regarding, in
particular, certain significant customer relationships. In
October 1997, the Circuit Court, on motion by the defendants,
dismissed the consolidated complaint. The plaintiffs filed a
Second Amended Consolidated Complaint alleging similar claims as
the first consolidated complaint seeking damages and injunctive
relief. On May 6, 1998, the Circuit Court, on motion by the
defendants, dismissed with prejudice the Second Amended
Consolidated Complaint. The plaintiffs filed with the Appellate
Court an appeal of the Circuit Court’s ruling. On
November 19, 1999, the Appellate Court reversed the Circuit
Court’s ruling that dismissed the Second Amended
Consolidated Complaint. The Appellate Court ruled that the
Second Amended Consolidated Complaint represented a valid claim
and sent the case back to the Circuit Court for further
proceedings. On December 27, 1999, we filed a Petition with
the Supreme Court of Illinois. In that Petition, we asked the
Supreme Court of Illinois to determine whether the Circuit Court
or the Appellate Court is correct. Our Petition was denied and
the case was sent to the Circuit Court for trial. Discovery has
been completed, but no date has been set for trial and pre-trial
motions. On October 8, 2003, the Circuit Court heard
motions on a summary judgment motion and a class action
certification motion. The Circuit Court is expected to rule on
these motions at any time. We believe that the lawsuit is
without merit and will continue to defend ourselves in this
matter. We also believe that we will receive the value of our
37.1 percent ownership in the Cerion Liquidating Trust
which was valued at $.9 million on an after-tax basis at
December 31, 2004. Our investment in Cerion is included
under other assets in our Consolidated Balance Sheet.
During the third quarter of 2001, we entered into supply
agreements for laminated and coated products with The Fasson
Roll North America division of Avery Dennison. Under the terms
of the agreements, we are committed to purchase a significant
portion of the laminated materials we use in our Label Products
segment from Avery Dennison through December 31, 2005. If
we fail to meet the minimum purchase volumes specified in the
agreements, we are subject to financial penalties. We acquired
the required quantities and were in compliance with the
agreements for 2003 and 2004.
In December 2002, we eliminated the availability of certain
postretirement health benefits to union and non-union employees
of Nashua who had at least 10 years of service and chose to
retire between age 60 to 65 which provided access to health
benefits until age 65. The unions in New Hampshire objected
to the action and filed a grievance. The final step of the
grievance process is arbitration by the American Arbitration
Association. The subject of the Arbitration was the
interpretation of the collective bargaining contract language
which we believe allows modification of the eligibility of those
postretirement health benefits. The unions’ position is
that regardless of the contract wording, these benefits cannot
be eliminated without bargaining with the unions. The
Arbitration hearing occurred on July 28, 2003 and the
arbitrator ruled in favor of the unions on October 24,
2003. On November 24, 2003, we filed an appeal of the
arbitration decision with the U.S. District Court for the
District of New Hampshire. We believe the arbitrator erred in
his decision process and in December 2004 we filed briefs
supporting our position with the U.S. District Court. We
anticipate the complete appeals process could take years.
On May 30, 2003, Ricoh Company, Ltd. and affiliated
companies filed a suit in the U.S. District Court for the
District of New Jersey against several defendants, including the
largest customer of our Imaging Supplies segment and another
company who is a supplier to the Imaging Supplies segment. The
Complaint alleged multiple counts of patent infringement,
trademark infringement, and unfair competition by the
defendants. On October 17, 2003, Ricoh amended the
Complaint and added us as an additional co-defendant in the
suit. The allegations arose from the sale and distribution of
Ricoh compatible toner products. We filed an answer to the
Complaint in December 2003. The suit is in the discovery phase.
The parties have filed various motions, including summary
judgment motions, and are awaiting rulings from the
55
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
court. No trial date has been set. We believe we have valid
defenses and potential recourse against certain other
co-defendants in this matter.
On November 5, 2004, Océ North America Inc. and
Océ Printing Systems GmbH filed a Complaint for patent
infringement against us in the U.S. District Court for the
Northern District of Illinois. Océ did not serve the
initial Complaint on us. On March 3, 2005, Océ filed
the First Amended Complaint in the U.S. District Court for the
Northern District of Illinois. The First Amended Complaint was
served on us on March 3, 2005. With our outside counsel, we
are reviewing the First Amended Complaint and will respond
appropriately. Our attorneys continue to evaluate the matter and
develop our legal defenses.
On November 12, 2004, Sandra Hook, a former employee filed
suit in Chancery Court for Jefferson County, Tennessee claiming
discrimination related to the ending of her employment with us
in November 2003 and seeking damages in excess of
$1.2 million. We believe Ms. Hook’s claims to be
without merit and intend to defend the case vigorously.
We are involved in certain environmental matters and have been
designated by the Environmental Protection Agency, referred to
as the EPA, as a potentially responsible party for certain
hazardous waste sites. In addition, we have been notified by
certain state environmental agencies that some of our 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, our
ultimate cost of remediation is difficult to estimate.
Accordingly, estimates could either increase or decrease in the
future due to changes in such factors. At December 31,
2004, based on the facts currently known and our prior
experience with these matters, we have concluded that it is
probable that site assessment, remediation and monitoring costs
will be incurred. We have estimated a range for these costs of
$.4 million to $1.0 million for continuing operations.
These estimates could increase if other potentially responsible
parties or our insurance carriers are unable or unwilling to
bear their allocated share and cannot be compelled to do so. At
December 31, 2004, our accrual balances relating to
environmental matters were $.4 million for continuing
operations. Based on information currently available, we believe
that it is probable that the major potentially responsible
parties will fully pay the costs apportioned to them. We believe
that our remediation expense is not likely to have a material
adverse effect on our consolidated financial position or results
of operations.
We are involved in various other lawsuits, claims and inquiries,
most of which are routine to the nature of our business. In the
opinion of our management, the resolution of these matters will
not materially affect us.
|
|
| Note 12: |
Postretirement Benefits |
Defined Contribution Plan
Eligible employees may participate in the Nashua Corporation
Employees’ Savings Plan, a defined contribution 401k plan.
We match participating employee contributions at 50 percent
for the first 6 percent of base compensation that a
participant contributes to the Plan. Contributions can be
increased or decreased at the option of our Board of Directors.
For 2004, 2003 and 2002 our contributions to this Plan were
$.9 million, $1.0 million and $1.0 million,
respectively. Participants are immediately vested in all
contributions, plus actual earnings thereon.
The Plan also provides that eligible employees not covered under
our defined benefit pension plans may receive a profit sharing
contribution. This contribution, which is normally based on our
profitability, is discretionary and not defined. Profit sharing
contributions were $0 million for both 2004 and 2003 and
$.2 million for 2002.
56
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Pension Plans
We have three pension plans, which cover portions of our regular
full-time employees. Benefits under these plans are generally
based on years of service and the levels of compensation during
those years. Our policy is to fund the minimum amounts specified
by regulatory statutes. Assets of the plans are invested in
common stocks, fixed-income securities and interest-bearing cash
equivalent instruments. As of December 31, 2002, we froze
benefits under two of these pension plans: the Nashua
Corporation Retirement Plan for Salaried Employees and the
Supplemental Executive Retirement Plan.
Retiree Health Care and Other Benefits
We also provide certain postretirement health care and death
benefits to eligible retired employees and their spouses.
Salaried participants generally became eligible for retiree
health care benefits after reaching age 60 with ten years
of service and retired prior to January 1, 2003. Benefits,
eligibility and cost-sharing provisions for hourly employees
vary by location or bargaining unit. Generally, the medical
plans are fully insured managed care plans. 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. During 2002, we eliminated these
benefits for active employees retiring after December 31,
2002. The unions in New Hampshire filed a grievance on the
termination of the postretirement medical benefits. The
arbitration hearing was held on July 28, 2003 and the
arbitrator ruled in favor of the unions on October 24,
2003. On November 24, 2003, we filed an appeal of the
arbitrator’s decision in the U.S. District Court for
the District of New Hampshire. In December 2004, we filed briefs
supporting our position with the court.
57
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Postretirement | |
| |
|
Pension Benefits | |
|
Benefits | |
| |
|
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$ |
81,721 |
|
|
$ |
70,917 |
|
|
$ |
4,791 |
|
|
$ |
3,893 |
|
|
Service cost
|
|
|
834 |
|
|
|
771 |
|
|
|
58 |
|
|
|
60 |
|
|
Interest cost
|
|
|
4,877 |
|
|
|
4,624 |
|
|
|
215 |
|
|
|
289 |
|
|
Curtailment/ Settlement
|
|
|
(274 |
) |
|
|
— |
|
|
|
(1,820 |
) |
|
|
944 |
|
|
Actuarial loss (gain)
|
|
|
2,082 |
|
|
|
7,651 |
|
|
|
(508 |
) |
|
|
204 |
|
|
Benefits paid
|
|
|
(2,547 |
) |
|
|
(2,242 |
) |
|
|
(451 |
) |
|
|
(599 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$ |
86,693 |
|
|
$ |
81,721 |
|
|
$ |
2,285 |
|
|
$ |
4,791 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$ |
64,659 |
|
|
$ |
55,368 |
|
|
|
— |
|
|
|
— |
|
|
Actual return on plan assets
|
|
|
6,420 |
|
|
|
11,249 |
|
|
|
— |
|
|
|
— |
|
|
Employer contribution
|
|
|
458 |
|
|
|
— |
|
|
|
2,695 |
|
|
|
599 |
|
|
Settlement
|
|
|
(172 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Benefits paid
|
|
|
(2,547 |
) |
|
|
(1,958 |
) |
|
|
(2,695 |
) |
|
|
(599 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$ |
68,818 |
|
|
$ |
64,659 |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of funded status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$ |
(17,875 |
) |
|
$ |
(17,062 |
) |
|
$ |
(2,285 |
) |
|
$ |
(4,790 |
) |
|
Unrecognized net actuarial (gain)/loss
|
|
|
21,512 |
|
|
|
21,005 |
|
|
|
(1,038 |
) |
|
|
(2,171 |
) |
|
Unrecognized prior service cost
|
|
|
1,615 |
|
|
|
1,883 |
|
|
|
(382 |
) |
|
|
(448 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$ |
5,252 |
|
|
$ |
5,826 |
|
|
$ |
(3,705 |
) |
|
$ |
(7,409 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount recognized in our consolidated balance sheet
consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension/postretirement liability
|
|
$ |
(17,875 |
) |
|
$ |
(17,062 |
) |
|
$ |
(3,705 |
) |
|
$ |
(7,409 |
) |
|
Accumulated other comprehensive loss
|
|
|
21,512 |
|
|
|
21,005 |
|
|
|
— |
|
|
|
— |
|
|
Intangible asset
|
|
|
1,615 |
|
|
|
1,883 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$ |
5,252 |
|
|
$ |
5,826 |
|
|
$ |
(3,705 |
) |
|
$ |
(7,409 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits | |
|
Postretirement Benefits | |
| |
|
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Weighted-average assumptions used to determine net benefit
costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.0 |
% |
|
|
6.5 |
% |
|
|
7.25 |
% |
|
|
6.0 |
% |
|
|
6.5 |
% |
|
|
7.25 |
% |
|
Expected return on plan assets
|
|
|
8.5 |
% |
|
|
8.5 |
% |
|
|
9.00 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Average rate of compensation increase
|
|
|
N/A |
|
|
|
3.0 |
% |
|
|
3.50 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Weighted-average assumptions used to determine benefit
obligations at year end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.0 |
% |
|
|
6.0 |
% |
|
|
6.5 |
% |
|
|
6.0 |
% |
|
|
6.0 |
% |
|
|
6.5 |
% |
|
Average rate of compensation increase
|
|
|
N/A |
|
|
|
N/A |
|
|
|
3.0 |
% |
|
|
N/A |
|
|
|
— |
|
|
|
— |
|
The most significant elements in determining our pension income
or expense in accordance with FAS 87 are the expected
return on plan assets and the discount rate. We assumed an
expected long-term
58
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
rate of return on plan assets of 8.5 percent for the years
ended December 31, 2004 and December 31, 2003. The
assumed long-term rate of return on assets was developed after
evaluating input from our third party pension plan investment
advisor. The evaluation included their review of asset return
expectations and long-term inflation assumptions. This long-term
rate of return on assets is applied to a calculated value of
plan assets, which recognizes changes in the fair value of plan
assets. This produces the expected return on plan assets that is
included in the determination of our pension income or expense.
The difference between this expected return and the actual
return on plan assets is deferred. The net deferral of past
asset gains or losses affects the calculated value of plan
assets and, ultimately, our future pension income or expense.
Should our long-term return on plan assets either fall below or
increase above 8.5 percent, our future pension expense
would either increase or decrease. The historic rate of returns
for our pension plan assets are as follows:
| |
|
|
|
|
|
One year
|
|
|
11.5 |
% |
|
Five years
|
|
|
5.3 |
% |
|
Ten years
|
|
|
11.0 |
% |
Our pension plan asset and our target allocation are as follows:
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2005 Target | |
| |
|
| |
|
| |
|
Asset Category
|
|
|
|
|
|
|
|
|
|
Equity Securities
|
|
|
57 |
% |
|
|
55 |
% |
|
Fixed Income
|
|
|
43 |
% |
|
|
45 |
% |
Our pension plan investment strategy includes the maximization
of return on pension plan investment, at an acceptable level of
risk, assuring the fiscal health of the plan and achieving a
long-term real rate of return which will equal or exceed the
expected return on plan assets. To achieve these objectives, we
invest in a diversified portfolio of asset classes consisting of
U.S. domestic equities, international equities, and high
quality and high yield domestic fixed income funds.
As of December 31, 2004, our pension plan investments were
diversified as follows:
| |
|
|
|
|
| |
|
(In millions) | |
|
Investments
|
|
|
|
|
|
Large cap equities
|
|
$ |
21.6 |
|
|
Small cap equities
|
|
|
10.9 |
|
|
International equities
|
|
|
6.5 |
|
|
High yield bonds
|
|
|
5.3 |
|
|
Fixed income/bond investments
|
|
|
24.3 |
|
|
Cash
|
|
|
.2 |
|
| |
|
|
|
|
Total
|
|
$ |
68.8 |
|
| |
|
|
|
59
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
As of December 31, 2004, our estimated future benefit
payments reflecting future service for the fiscal years ending
December 31 were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Retirement Plan | |
|
Hourly | |
|
Supplemental | |
|
|
| |
|
for Salaried | |
|
Employees | |
|
Executive | |
|
|
| |
|
Employees | |
|
Retirement Plan | |
|
Retirement Plan | |
|
Postretirement | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
2005
|
|
$ |
1.5 |
|
|
$ |
1.0 |
|
|
$ |
.3 |
|
|
$ |
.4 |
|
|
2006
|
|
|
1.7 |
|
|
|
1.1 |
|
|
|
.3 |
|
|
|
.3 |
|
|
2007
|
|
|
1.9 |
|
|
|
1.3 |
|
|
|
.3 |
|
|
|
.3 |
|
|
2008
|
|
|
2.1 |
|
|
|
1.4 |
|
|
|
.3 |
|
|
|
.2 |
|
|
2009
|
|
|
2.3 |
|
|
|
1.6 |
|
|
|
.3 |
|
|
|
.2 |
|
|
2010-2014
|
|
|
15.3 |
|
|
|
11.3 |
|
|
|
1.6 |
|
|
|
1.1 |
|
Net periodic pension and postretirement benefit (income) costs
from continuing operations for the plans, exclusive of gains and
losses from freezing and curtailing pension and postretirement
plans, includes the following components:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits | |
|
Postretirement Benefits | |
| |
|
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Components of net periodic (income) cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$ |
834 |
|
|
$ |
771 |
|
|
$ |
1,473 |
|
|
$ |
58 |
|
|
$ |
60 |
|
|
$ |
120 |
|
|
Interest cost
|
|
|
4,877 |
|
|
|
4,624 |
|
|
|
4,459 |
|
|
|
215 |
|
|
|
289 |
|
|
|
432 |
|
|
Expected return on plan assets
|
|
|
(5,832 |
) |
|
|
(5,760 |
) |
|
|
(5,715 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Amortization of prior service cost
|
|
|
268 |
|
|
|
268 |
|
|
|
836 |
|
|
|
(65 |
) |
|
|
(65 |
) |
|
|
(106 |
) |
|
Recognized net actuarial (gain)
|
|
|
858 |
|
|
|
159 |
|
|
|
— |
|
|
|
(246 |
) |
|
|
(246 |
) |
|
|
(195 |
) |
|
Amortization of transition obligation
|
|
|
— |
|
|
|
(107 |
) |
|
|
(123 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic (income) cost
|
|
$ |
1,005 |
|
|
$ |
(45 |
) |
|
$ |
930 |
|
|
$ |
(38 |
) |
|
$ |
38 |
|
|
$ |
251 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our projected benefit obligation or PBO, accumulated benefit
obligation or ABO and fair value of plan assets for our plans
that have accumulated benefit obligations in excess of plan
assets are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
PBO | |
|
ABO | |
|
Plan Assets | |
|
PBO | |
|
ABO | |
|
Plan Assets | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Supplemental Executive Retirement Plan
|
|
$ |
3.1 |
|
|
$ |
3.1 |
|
|
$ |
— |
|
|
$ |
3.4 |
|
|
$ |
3.4 |
|
|
$ |
— |
|
|
Hourly Employees Retirement Plan of Nashua Corporation
|
|
$ |
36.3 |
|
|
$ |
36.3 |
|
|
$ |
31.0 |
|
|
$ |
33.7 |
|
|
$ |
33.7 |
|
|
$ |
29.0 |
|
|
Retirement Plan for Salaried Employees of Nashua Corporation
|
|
$ |
47.3 |
|
|
$ |
47.3 |
|
|
$ |
37.8 |
|
|
$ |
44.7 |
|
|
$ |
44.7 |
|
|
$ |
35.6 |
|
Assumed health care cost trend rates for us have a significant
effect on the amounts reported for our health care plan. Our
assumed health care cost trend rate is 7 percent for 2005
and ranges from 7 percent to 4 percent for future
years. A one percentage-point change in assumed health care cost
trend rates would have the following effects:
| |
|
|
|
|
|
|
|
|
| |
|
1-Percentage | |
|
1-Percentage | |
| |
|
Point Increase | |
|
Point Decrease | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Effect on total of service and interest cost components
|
|
$ |
11 |
|
|
$ |
(10 |
) |
|
Effect on accumulated postretirement benefit obligation
|
|
$ |
118 |
|
|
$ |
(109 |
) |
60
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Our annual measurement dates for our pension benefits and
postretirement benefits are December 31.
Approximately $17.9 million and $17.1 million of our
accrued pension cost and $3.7 million and $7.4 million
of our accrued postretirement benefits for 2004 and 2003,
respectively, are included in other long-term liabilities in our
accompanying consolidated balance sheet. Intangible pension
assets of $1.6 million and $1.9 million for 2004 and
2003, respectively, are included in other assets in our
accompanying consolidated balance sheet. We do not expect to
make a contribution to either our hourly or salaried pension
plans in 2005.
During the fourth quarters of 2004 and 2003, we recorded
non-cash charges of $.3 million and $1.3 million,
respectively, to shareholders’ equity because as of
December 31, 2004 and December 31, 2003, the
accumulated benefit obligations exceeded the fair value of plan
assets of company-sponsored pension plans due to increases in
our benefit obligation exceeding the increase in fair value of
plan assets in 2004 and decreases in our expected return on plan
assets and discount rate resulting from current economic trends
in 2003. The charges for 2004 and 2003 were net of
$.2 million and $.9 million, respectively, in taxes
which are included in other assets and reflect increases in our
deferred tax assets.
In October 2004, we made a $2.4 million premium payment to
Minnesota Life, a subsidiary of Securian Financial Group, for it
to assume the liability for, and the administration of, our
death benefit payments related to approximately 580 of our
retirees. During the third quarter of 2004, we recognized a
$.9 million non-cash pretax gain related to the transfer to
Minnesota Life.
In October 2002, our Board of Directors approved changes to The
Nashua Corporation Retirement Plan for Salaried Employees, The
Supplemental Executive Retirement Plan and retiree medical and
death benefit plans. As a result of these changes, we recognized
a gain of $2.7 million related to the elimination of
certain benefits related to our retiree medical and death
benefit plans and a gain of $.2 million from the buy out of
a portion of existing retirees’ death benefits, partially
offset by a loss of $2.7 million related to freezing
benefits of the salaried pension plans. During 2003, the unions
in New Hampshire objected to the elimination of the availability
of certain postretirement health benefits to certain union
employees. A grievance was filed by the unions and an
arbitration hearing was held. The arbitrator ruled in favor of
the unions and we have appealed the arbitrator’s decision.
In December 2003, we recognized a loss of $1.6 million
related to our union retiree medical plans.
|
|
| Note 13: |
Information About Operations |
We have three reportable segments:
|
|
| |
(1) Label Products: which converts, prints and sells
pressure sensitive labels and tags to distributors and end-users. |
| |
| |
(2) Specialty Paper Products: which coats and converts
various converted paper products sold primarily to domestic
converters and resellers, end-users and private-label
distributors. Our Specialty Paper segment’s product scope
includes thermal papers, bond papers, carbonless paper,
specialty printed papers, such as financial receipts and
point-of-sale receipts, wide-format media papers, dry-gum
papers, heat seal papers, small rolls and ribbons. |
| |
| |
(3) Imaging Supplies: which produces and sells copier
supplies (primarily toner and developer) to distributors,
value-added resellers and end-users. |
The accounting policies of our segments are the same as those
described in Note 1: “Summary of Significant
Accounting Policies”. Segment data does not include
restructuring and other unusual items, and we do not allocate
all corporate costs and assets to our divisions. We evaluate the
performance of our segments and allocate resources to them based
on pretax income before restructuring and other unusual items.
61
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Our Specialty Paper Products segment was a major supplier of
thermal roll stock to our Label Products segment through the
third quarter of 2001. Eliminations represent sales between our
Specialty Paper Products and Label Products segments. Excluding
sales between segments, reflected as eliminations in the table
below, external sales for our Specialty Paper Products segment
were $162.8 million, $163.6 million and
$158.3 million for the years ended December 31, 2004,
2003 and 2002, respectively. Sales between segments and between
geographic areas are negotiated based on what we believe to be
market pricing.
We have one group of customers under common control that
represents ten percent or more of our consolidated revenues.
Combined sales to Wal-Mart and Sam’s Club totaled
$33.1 million in 2004, or 11 percent of total sales
for 2004, representing sales of $20.5 million for our
Specialty Paper Products segment and $12.6 million for our
Label Products segment. While no other customer represented ten
percent of our consolidated revenues, each of our segments has
significant customers. The loss of a significant customer could
have a material adverse effect on us or our segments.
Our reportable segments are strategic business units grouped by
product class. We manage them separately because each business
requires different technology and marketing strategies.
The table below presents information about our reported segments
for the years ended December 31:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Income (Loss) Before | |
|
|
| |
|
Net Sales | |
|
Income Taxes | |
|
Identifiable Assets | |
| |
|
| |
|
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
By Reportable Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Label Products
|
|
$ |
104.3 |
|
|
$ |
101.8 |
|
|
$ |
100.8 |
|
|
$ |
7.6 |
|
|
$ |
5.8 |
|
|
$ |
5.5 |
|
|
$ |
48.5 |
|
|
$ |
48.2 |
|
|
$ |
41.3 |
|
|
Specialty Paper Products
|
|
|
168.0 |
|
|
|
169.0 |
|
|
|
160.7 |
|
|
|
6.2 |
|
|
|
4.4 |
|
|
|
6.5 |
|
|
|
67.5 |
|
|
|
63.9 |
|
|
|
66.7 |
|
|
Imaging Supplies
|
|
|
22.1 |
|
|
|
23.5 |
|
|
|
24.0 |
|
|
|
(.2 |
) |
|
|
.4 |
|
|
|
.9 |
|
|
|
11.0 |
|
|
|
12.5 |
|
|
|
13.5 |
|
|
Reconciling Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Eliminations
|
|
|
(5.2 |
) |
|
|
(5.4 |
) |
|
|
(2.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Other(1)
|
|
|
— |
|
|
|
— |
|
|
|
.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Unallocated corporate expenses and assets
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7.4 |
) |
|
|
(7.6 |
) |
|
|
(7.9 |
) |
|
|
24.0 |
|
|
|
27.1 |
|
|
|
24.7 |
|
| |
Interest expense, net
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.0 |
) |
|
|
(1.3 |
) |
|
|
(1.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Net gain on curtailment/freeze of pension/postretirement plans
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.0 |
|
|
|
(1.6 |
) |
|
|
.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Restructuring and other unusual items
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
.1 |
|
|
|
.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Consolidated
|
|
$ |
289.2 |
|
|
$ |
288.9 |
|
|
$ |
283.2 |
|
|
$ |
6.2 |
|
|
$ |
.2 |
|
|
$ |
3.8 |
|
|
$ |
151.0 |
|
|
$ |
151.7 |
|
|
$ |
146.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Includes activity from operations which falls below the
quantitative thresholds for a reportable segment. |
62
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Capital expenditures and depreciation and amortization by
reportable segment are set forth below for the years ended
December 31:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Depreciation & | |
| |
|
Capital Expenditures | |
|
Amortization | |
| |
|
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2002 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
|
|
Label Products
|
|
$ |
2.1 |
|
|
$ |
2.2 |
|
|
$ |
1.8 |
|
|
$ |
2.5 |
|
|
$ |
2.4 |
|
|
$ |
2.2 |
|
|
Specialty Paper Products
|
|
|
3.9 |
|
|
|
1.0 |
|
|
|
1.6 |
|
|
|
3.7 |
|
|
|
3.8 |
|
|
|
3.6 |
|
|
Imaging Supplies
|
|
|
.4 |
|
|
|
.4 |
|
|
|
.5 |
|
|
|
1.3 |
|
|
|
1.4 |
|
|
|
1.5 |
|
|
Reconciling Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Corporate
|
|
|
.2 |
|
|
|
.7 |
|
|
|
.4 |
|
|
|
.4 |
|
|
|
.3 |
|
|
|
.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Consolidated
|
|
$ |
6.6 |
|
|
$ |
4.3 |
|
|
$ |
4.3 |
|
|
$ |
7.9 |
|
|
$ |
7.9 |
|
|
$ |
7.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is information by geographic area as of and for
the years ended December 31:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net Sales from | |
|
|
| |
|
Continuing Operations | |
|
Long-Lived Assets | |
| |
|
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
By Geographic Area
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
289.2 |
|
|
$ |
288.9 |
|
|
$ |
283.2 |
|
|
$ |
75.3 |
|
|
$ |
79.0 |
|
|
$ |
78.7 |
|
|
Reconciling Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Discontinued Operations
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
.9 |
|
|
|
.9 |
|
|
|
.9 |
|
| |
Deferred tax assets
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9.5 |
|
|
|
11.4 |
|
|
|
10.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Consolidated
|
|
$ |
289.2 |
|
|
$ |
288.9 |
|
|
$ |
283.2 |
|
|
$ |
85.7 |
|
|
$ |
91.3 |
|
|
$ |
89.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales from continuing operations by geographic area are
based upon the geographic location from which the goods were
shipped and not the customer location.
63
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| Note 14: |
Quarterly Operating Results (Unaudited) |
Our quarterly operating results based on our use of 13-week
periods are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
1st | |
|
2nd | |
|
3rd | |
|
4th | |
|
|
| |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Year | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except per share data) | |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net sales
|
|
$ |
71,232 |
|
|
$ |
72,625 |
|
|
$ |
72,120 |
|
|
$ |
73,240 |
|
|
$ |
289,217 |
|
| |
Gross margin
|
|
|
13,945 |
|
|
|
13,613 |
|
|
|
13,780 |
|
|
|
12,534 |
|
|
|
53,872 |
|
| |
Net income
|
|
|
931 |
|
|
|
941 |
|
|
|
1,669 |
|
|
|
246 |
|
|
|
3,787 |
|
| |
Earnings per common share
|
|
|
.16 |
|
|
|
.16 |
|
|
|
.28 |
|
|
|
.04 |
|
|
|
.63 |
|
| |
Market price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
High
|
|
|
9.04 |
|
|
|
9.75 |
|
|
|
11.20 |
|
|
|
11.65 |
|
|
|
11.65 |
|
| |
|
Low
|
|
|
8.20 |
|
|
|
8.25 |
|
|
|
9.09 |
|
|
|
10.23 |
|
|
|
8.20 |
|
|
2003(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net sales
|
|
$ |
67,193 |
|
|
$ |
72,431 |
|
|
$ |
74,075 |
|
|
$ |
75,207 |
|
|
$ |
288,906 |
|
| |
Gross margin
|
|
|
12,598 |
|
|
|
13,421 |
|
|
|
14,024 |
|
|
|
13,762 |
|
|
|
53,805 |
|
| |
Net income (loss)(2)
|
|
|
176 |
|
|
|
118 |
|
|
|
697 |
|
|
|
(889 |
) |
|
|
102 |
|
| |
Earnings (loss) per common share(2)
|
|
|
.03 |
|
|
|
.02 |
|
|
|
.12 |
|
|
|
(.15 |
) |
|
|
.02 |
|
| |
Market price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
High
|
|
|
9.02 |
|
|
|
9.48 |
|
|
|
9.50 |
|
|
|
9.08 |
|
|
|
9.50 |
|
| |
|
Low
|
|
|
8.65 |
|
|
|
8.73 |
|
|
|
6.75 |
|
|
|
7.93 |
|
|
|
6.75 |
|
|
|
| (1) |
We acquired the operations assets of The Label Company from
Bunzl Distribution in February 2003, as described in
Note 2. The operations of The Label Company have been
included in our quarterly operating results since the date of
acquisition. |
| |
| (2) |
Our fourth quarter includes restructuring income of $68,000
resulting from a net reduction to previously established
reserves and a loss of $1.6 million resulting from the
adjustment to the curtailment of postretirement plans of our
union employees located in New Hampshire, as described in
Notes 2 and 12, respectively. |
Note 15: Common Stock
Information
Our stock is traded on the New York Stock Exchange under the
trading symbol “NSH.” At December 31, 2004, there
were 887 record holders of our common stock.
Leases with Related Parties
We rent property and did lease equipment under leases with
entities partially owned by either a family partnership of which
our Chief Executive Officer and his family have total interest
or by our Chief Executive Officer. Associated with these leases,
we incurred rent expense of approximately $.2 million
during 2004, 2003 and 2002. We also pay taxes and utilities and
insure property occupied under these leases.
In December 2003, our Board of Directors approved the purchase
of equipment previously leased from a related party.
Subsequently, we purchased the equipment and will no longer
incur lease expense on the equipment.
64
NASHUA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Notes Payable to Related Parties
We have a note payable to one of our executive officers and two
notes payable to Nashua employees as discussed in detail in
Note 6.
Loans to Related Parties
We had loans to our Chief Executive Officer and have a loan to a
former owner of Rittenhouse Paper Company and current consultant
to Nashua relating to life insurance premiums paid on their
behalf. These loans are partially collateralized by the cash
surrender value of related life insurance policies and fully
covered by the death benefit payable under these policies. These
loans do not incur interest and are due upon death, settlement
or termination of related life insurance policies. At
December 31, 2004 and 2003, loans of $1.0 million and
$1.2 million, respectively, are included in other assets in
our Consolidated Balance Sheet. Below is a summary of related
party loan activity:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Chief | |
|
Other | |
|
|
| |
|
Executive | |
|
Related | |
|
|
| |
|
Officer | |
|
Party | |
|
Total | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Acquired upon acquisition of Rittenhouse Paper Company on
April 17, 2000
|
|
$ |
160 |
|
|
$ |
195 |
|
|
$ |
355 |
|
|
Net premiums paid in 2001
|
|
|
154 |
|
|
|
214 |
|
|
|
368 |
|
|
Net premiums paid in 2002
|
|
|
— |
|
|
|
250 |
|
|
|
250 |
|
|
Net premiums paid in 2003
|
|
|
— |
|
|
|
235 |
|
|
|
235 |
|
|
Net premiums paid in 2004
|
|
|
— |
|
|
|
63 |
|
|
|
63 |
|
|
Settlement of obligation (see below)
|
|
|
(314 |
) |
|
|
— |
|
|
|
(314 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$ |
0 |
|
|
$ |
957 |
|
|
$ |
957 |
|
| |
|
|
|
|
|
|
|
|
|
|
Collateralized cash surrender value of life insurance policies
|
|
$ |
0 |
|
|
$ |
813 |
|
|
$ |
813 |
|
| |
|
|
|
|
|
|
|
|
|
In the fourth quarter of 2003, we incurred a one-time $330,000
charge related to the settlement of future obligations under an
employment contract in which we were required to fund a split
dollar life insurance policy on behalf of our Chief Executive
Officer, Andrew Albert. As part of the agreement,
Mr. Albert repaid $313,679 for insurance premiums
previously paid by us.
65
SCHEDULE II
NASHUA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance at | |
|
|
|
|
|
|
| |
|
Previous | |
|
|
|
|
|
Balance at | |
| |
|
End of Year | |
|
Additions | |
|
Deductions | |
|
End of Year | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
DECEMBER 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
861 |
|
|
$ |
105 |
(a) |
|
$ |
(312 |
)(b) |
|
$ |
654 |
|
| |
Valuation allowance on state net operating loss carryforwards
|
|
$ |
600 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
600 |
|
|
DECEMBER 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
677 |
|
|
$ |
432 |
(a) |
|
$ |
(248 |
)(b) |
|
$ |
861 |
|
| |
Valuation allowance on state net operating loss carryforwards
|
|
$ |
600 |
|
|
|
— |
|
|
|
— |
|
|
$ |
600 |
|
|
DECEMBER 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
1,241 |
|
|
$ |
411 |
(a) |
|
$ |
(975 |
)(b) |
|
$ |
677 |
|
| |
Valuation allowance on state net operating loss carryforwards
|
|
$ |
1,885 |
|
|
$ |
— |
|
|
$ |
(1,285 |
) |
|
$ |
600 |
|
|
|
| (a) |
Includes recoveries and amounts charged to costs and expenses. |
|
|
|
|
(b) |
|
Includes accounts deemed uncollectible. |
66
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Nashua Corporation:
We have audited the accompanying consolidated balance sheets of
Nashua Corporation as of December 31, 2004 and 2003 and the
related consolidated statements of operations,
shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2004. Our audits
also included the financial statement schedule listed in the
Index at Item 15(a). These financial statements and
schedule are the responsibility of the company’s
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards 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 consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the company’s internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also 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 our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Nashua Corporation at December 31,
2004 and 2003, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the
information set forth therein.
Manchester, New Hampshire
February 4, 2005
67
|
|
| Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. |
None.
|
|
| Item 9A. |
Controls and Procedures |
1. Our Company’s management, with the participation of
our chief executive officer and chief financial officer,
evaluated the effectiveness of our disclosure controls and
procedures as of December 31, 2004. The term
“disclosure controls and procedures,” as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means
controls and other procedures of a company that are designed to
ensure that information required to be disclosed by the Company
in the reports that it files or submits under the Exchange Act
is recorded, processed, summarized and reported, within the time
periods specified in the SEC’s rules and forms. Disclosure
controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to
be disclosed by a company in the reports that it files or
submits under the Exchange Act is accumulated and communicated
to the company’s management, including its principal
executive and principal financial officers, as appropriate to
allow timely decisions regarding required disclosure. Management
recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies
its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based on their evaluation, our
chief executive officer and chief financial officer concluded
that as of December 31, 2004, our disclosure controls and
procedures were effective at the reasonable assurance level.
2. No change in our internal controls over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) occurred during the fiscal quarter ended
December 31, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
Item 9B. Other
Information
None.
PART III
|
|
| Item 10. |
Directors and Executive Officers of the Registrant |
Directors
The information required by this Item with respect to directors
will be included in our definitive Proxy Statement for our
Annual Meeting of Stockholders to be held on May 4, 2005,
and is incorporated herein by reference.
Executive Officers of the Registrant
The information required by this Item with respect to our
executive officers is contained in Part I of this
Form 10-K.
Code of Ethics
The information required by this Item with respect to code of
ethics will be included in our definitive Proxy Statement for
our Annual Meeting of Stockholders to be held on May 4,
2005, and is incorporated herein by reference. In accordance
with Item 406 of Regulation S-K, a copy of our code of
ethics is available on our website at www.nashua.com under the
“Corporate Governance” section of the “Investor
Relations” web page. We intend to make all required
disclosures concerning any amendments to, or waivers from, our
Code of Business Conduct and Ethics on our Internet website.
68
NYSE Corporate Governance Listing
As of May 2004, we have filed our annual certification to the
NYSE that our CEO is not aware of any violation by us of the
NYSE corporate governance listing standards.
|
|
| Item 11. |
Executive Compensation |
The information required by this Item will be included in our
definitive Proxy Statement for our Annual Meeting of
Stockholders to be held on May 4, 2005, and is incorporated
herein by reference. The information specified in
Item 402(k) and (l) of Regulation S-K and set
forth in our definitive Proxy Statement for our Annual Meeting
of Stockholders to be held on May 4, 2005 is not
incorporated by reference.
|
|
| Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
The information required by this Item will be included in our
definitive Proxy Statement for our Annual Meeting of
Stockholders to be held on May 4, 2005, and is incorporated
herein by reference.
|
|
| Item 13. |
Certain Relationships and Related Transactions |
The information required by this Item will be included in our
definitive Proxy Statement for our Annual Meeting of
Stockholders to be held on May 4, 2005, and is incorporated
herein by reference.
|
|
| Item 14. |
Principal Accountant Fees and Services |
The information required by this Item will be included in our
definitive Proxy Statement for our Annual Meeting of
Stockholders to be held on May 4, 2005, and is incorporated
herein by reference.
PART IV
|
|
| Item 15. |
Exhibits and Financial Statement Schedules |
(a) The following documents are included in Item 8 of
Part II of this Form 10-K:
(1) Financial statements:
|
|
|
| |
• |
Consolidated Statements of Operations for each of the three
years ended December 31, 2004, 2003 and 2002 |
| |
| |
• |
Consolidated Balance Sheets at December 31, 2004 and
December 31, 2003 |
| |
| |
• |
Consolidated Statements of Shareholders’ Equity for each of
the three years ended December 31, 2004, 2003 and 2002 |
| |
| |
• |
Consolidated Statements of Cash Flows for each of the three
years ended December 31, 2004, 2003 and 2002 |
| |
| |
• |
Notes to Consolidated Financial Statements |
| |
| |
• |
Report of Independent Auditors |
(2) Financial statement schedule:
|
|
|
| |
• |
Schedule II — Valuation and qualifying accounts
for each of the three years ended December 31, 2004, 2003
and 2002 |
The financial statement schedule should be read in conjunction
with our financial statements included in Item 8 of
Part II of this Form 10-K. All other schedules have
been omitted as they are not applicable,
69
not required, or the information is included in the consolidated
financial statements or notes to the consolidated financial
statements.
(3) Exhibits:
| |
|
|
|
|
| |
2 |
.01 |
|
Agreement and Plan of Merger, dated as of March 25, 2002,
between Nashua Corporation and Nashua MA Corporation.
Incorporated by reference to our Definitive Proxy Statement
filed on March 27, 2002. |
| |
| |
3 |
.01 |
|
Articles of Organization, as amended. Incorporated by reference
to our Quarterly Report on Form 10-Q for the quarter ended
June 28, 2002. |
| |
| |
3 |
.02 |
|
By-laws, as amended. Incorporated by reference to our Quarterly
Report on Form 10-Q for the quarter ended June 28, 2002. |
| |
| |
4 |
.01 |
|
Credit Agreements, dated March 1, 2002 by and among Nashua
Corporation, LaSalle Bank, NA and Fleet National Bank.
Incorporated by reference to our Current Report on Form 8-K
dated March 14, 2002. |
| |
| |
4 |
.02 |
|
First Amendment to Credit Agreement, dated as of July 15,
2003, by and among Nashua Corporation, Fleet National Bank and
LaSalle Bank National Association. Incorporated by reference to
our Quarterly Report on Form 10-Q for the quarter ended
June 27, 2003. |
| |
| |
4 |
.03 |
|
Waiver and Second Amendment to Credit Agreement, dated as of
July 24, 2003, by and among Nashua Corporation, Fleet
National Bank and LaSalle Bank National Association.
Incorporated by reference to our Quarterly Report on Form 10-Q
for the quarter ended June 27, 2003. |
| |
| |
4 |
.04 |
|
Third Amendment to Credit Agreement, dated as of
September 25, 2003, by and among Nashua Corporation, Fleet
National Bank and LaSalle Bank National Association.
Incorporated by reference to our Quarterly Report on Form 10-Q
for the quarter ended September 26, 2003. |
| |
| |
4 |
.05 |
|
Fourth Amendment to Credit Agreement, dated as of
December 30, 2003, by and among Nashua Corporation, Fleet
National Bank and LaSalle Bank National Association.
Incorporated by reference to our Annual Report on Form 10-K for
the year ended December 31, 2003. |
| |
| |
4 |
.06 |
|
Fifth Amendment to Credit Agreement dated as of March 31,
2004 by and among Nashua Corporation, Fleet National Bank and
LaSalle Bank National Association. Incorporated by reference to
our current report on Form 8-K dated March 31, 2004 and
filed April 2, 2004. |
| |
| |
4 |
.07 |
|
Sixth Amendment to Credit Agreement dated as of December 1,
2004 by and among Nashua Corporation, Fleet National Bank and
LaSalle Bank National Association. Incorporated by reference to
our current report on Form 8-K dated December 9, 2004 and
filed December 15, 2004. |
| |
| |
+10 |
.01 |
|
Amended and Restated 1987 Stock Option Plan. Incorporated by
reference to our Annual Report on Form 10-K for the year ended
December 31, 1997. |
| |
| |
+10 |
.02 |
|
Amended and Restated 1996 Stock Incentive Plan. Incorporated by
reference to our Quarterly Report on Form 10-Q for the quarter
ended April 2, 1999. |
| |
| |
+10 |
.03 |
|
1999 Shareholder Value Plan. Incorporated by reference to
our Quarterly Report on Form 10-Q for the quarter ended
April 2, 1999. |
| |
| |
+10 |
.04 |
|
2004 Value Creation Incentive Plan. Incorporated by reference to
our Proxy Statement dated March 23, 2004. |
| |
| |
+10 |
.05* |
|
Change of Control and Severance Agreement, dated as of
June 15, 2004 between Nashua Corporation and Andrew B.
Albert. |
| |
| |
+10 |
.06* |
|
Change of Control and Severance Agreement, dated as of
June 15, 2004 between Nashua Corporation and John L.
Patenaude. |
| |
| |
+10 |
.07* |
|
Change of Control and Severance Agreement, dated as of
June 15, 2004 between Nashua Corporation and Thomas R.
Pagel. |
| |
| |
+10 |
.08* |
|
Change of Control and Severance Agreement, dated as of
June 15, 2004 between Nashua Corporation and Margaret S.
Adams. |
| |
| |
+10 |
.09 |
|
Change of Control and Severance Agreement, dated as of
December 15, 2000 between Nashua Corporation and Robert S.
Amrein. Incorporated by reference to our Annual Report on Form
10-K for the year ended December 31, 2000. |
70
| |
|
|
|
|
| |
| |
+10 |
.10 |
|
Change of Control and Severance Agreement, dated as of
February 25, 2000 between Nashua Corporation and Donna J.
DiGiovine. Incorporated by reference to our Annual Report on
Form 10-K for the year ended December 31, 1999. |
| |
| |
+10 |
.11 |
|
Management Incentive Plan. Incorporated by reference to our
Annual Report on Form 10-K for the year ended December 31,
2003. |
| |
| |
+10 |
.12 |
|
Form of Indemnification Agreement between Nashua Corporation and
its directors and executive officers. Incorporated by reference
to our Quarterly Report on Form 10-Q for the quarter ended
September 27, 2002. |
| |
| |
+10 |
.13 |
|
Deferred Compensation Agreement dated as of December 23,
1996 between Rittenhouse Paper Company and Thomas R. Pagel.
Incorporated by reference to our Annual Report on Form 10-K for
the year ended December 31, 2000. |
| |
| |
10 |
.14 |
|
Master Agreement dated as of July 2, 2001, between Nashua
Corporation and the Fasson Roll North America division of Avery
Dennison Corporation. Incorporated by reference to our Current
Report on Form 8-K dated July 9, 2001 and filed on
July 12, 2001. |
| |
| |
10 |
.15* |
|
Named executive 2005 salaries. |
| |
| |
10 |
.16* |
|
Non-employee director compensation. |
| |
| |
14 |
.01 |
|
Code of Ethics. Incorporated by reference to our Annual Report
on Form 10-K for the year ended December 31, 2003. |
| |
| |
21 |
.01* |
|
Subsidiaries of the Registrant. |
| |
| |
23 |
.01* |
|
Consent of Ernst & Young LLP. |
| |
| |
31 |
.01* |
|
Certificate of Chief Executive Officer pursuant to
Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, dated
March 15, 2005. |
| |
| |
31 |
.02* |
|
Certificate of Chief Financial Officer pursuant to
Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, dated
March 15, 2005. |
| |
| |
32 |
.01* |
|
Certificate of the Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, dated
March 15, 2005. |
| |
| |
32 |
.02* |
|
Certificate of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, dated
March 15, 2005. |
|
|
| * — |
Filed herewith. |
| |
| + — |
Identifies exhibits constituting management contracts or
compensatory plans or other arrangements required to be filed as
an exhibit to this Annual Report on Form 10-K. |
71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
|
| |
By: |
/s/ John L. Patenaude
|
|
|
| |
|
| |
John L. Patenaude
|
| |
Vice President-Finance and |
| |
Chief Financial Officer |
Date: March 18, 2005
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
| |
|
|
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ Andrew B. Albert
Andrew
B. Albert |
|
Chairman, President and
Chief Executive Officer
(principal executive officer) |
|
March 18, 2005 |
| |
/s/ John L. Patenaude
John
L. Patenaude |
|
Vice President-Finance and
Chief Financial Officer
(principal financial officer) |
|
March 18, 2005 |
| |
/s/ Margaret M. Callan
Margaret
M. Callan |
|
Corporate Controller and
Chief Accounting Officer
(principal accounting officer) |
|
March 18, 2005 |
| |
/s/ AVRUM GRAY
Avrum
Gray |
|
Director |
|
March 18, 2005 |
| |
/s/ MARK E. SCHWARZ
Mark
E. Schwarz |
|
Director |
|
March 18, 2005 |
| |
/s/ L. SCOTT BARNARD
L.
Scott Barnard |
|
Director |
|
March 18, 2005 |
| |
/s/ GEORGE R. MRKONIC, JR.
George
R. Mrkonic, Jr. |
|
Director |
|
March 18, 2005 |
| |
/s/ JAMES F. ORR III
James
F. Orr III |
|
Director |
|
March 18, 2005 |
72