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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission File Number 1-5492-1
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NASHUA CORPORATION
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(Exact name of registrant as specified in its Charter)
Delaware 02-0170100
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(State of incorporation) (I.R.S. Employer Identification Number)
44 Franklin Street
P.O. Box 2002
Nashua, New Hampshire 03061-2002
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code (603) 880-2323
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par value $1.00 New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K ( ).
Continued
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The aggregate market value of voting stock held by non-affiliates of
the registrant as of March 15, 1995 was approximately $124,287,150. The number
of shares outstanding of the registrant's Common Stock as of March 15, 1995 was
6,373,700 (excluding 23,870 shares held in treasury).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement dated March 24, 1995 for
the annual meeting of stockholders to be held on April 28, 1995 are
incorporated by reference into Part III of this report.
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PART I
ITEM 1. BUSINESS
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GENERAL
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Nashua Corporation conducts business in three segments: Commercial
Products, Photofinishing and Precision Technologies. Foreign sales and export
sales from the United States totaled $102.4 million and represented 21 percent
of the Company's total sales in fiscal 1994.
Nashua was incorporated in Massachusetts in 1904 and changed its state
of incorporation to Delaware in 1957. The Company has its principal executive
offices at 44 Franklin Street, P.O. Box 2002, Nashua, New Hampshire 03061-2002
(Telephone: (603) 880- 2323). References to the "Company" or to "Nashua" refer
to Nashua Corporation and its consolidated subsidiaries, unless the context
otherwise requires.
In the fourth quarter of 1993, the Company recorded restructuring and
other unusual charges totaling $48.5 million. Approximately $36.7 million of
this amount related to management's decision to sell or otherwise liquidate the
thin-film, oxide and diskette manufacturing operations of the Computer Products
Group. The 1993 charge also included approximately $11.8 million related to
the integration and streamlining of the Commercial Products Group, including
workforce reductions, as well as consolidation of facilities and the write-down
of certain assets. As part of the restructuring plan, the Company offered
certain of its employees an early retirement program and recorded an additional
pretax charge in the first quarter of 1994 of $5.7 million, of which $2.6
million related to the Company's continuing operations and $3.1 million related
to discontinued operations.
During the second quarter of 1994, the Company sold substantially all
of its Computer Products businesses for total cash proceeds of $11.1 million,
subordinated notes of $4.9 million and future royalty payments based on sales
of the oxide disk and head- disk assembly operations. In addition, the Company
will receive cash proceeds of approximately $2.0 million based on the 1994
operating results of the thin-film disk operation. The amounts received were
not materially different from the estimates included in the 1993 charge. As a
result of the sale of the businesses, the related results of operations were
reclassified as discontinued operations.
On January 13, 1995, the Company acquired certain photofinishing
operations from Nexus Photo Ltd. The acquisition includes mail-order
photofinishing operations in France, Belgium, the Netherlands and Spain, and a
wholesale film-processing business in Northern Ireland. The annual sales of
the acquired businesses are approximately $43 million. The total purchase
price was approximately $25.6 million, plus an additional payment based on
certain future sales volume in the Northern Ireland operation. Management
estimates that the additional payment will not exceed $1.3 million.
Approximately $20.7 million of the purchase price was provided by a new $75
million revolving credit agreement dated January 5, 1995.
The Note entitled "Information About Operations" to the Company's Consolidated
Financial Statements, which appears on page 33 of this Form 10-K, contains
financial information concerning Nashua's business segments.
COMMERCIAL PRODUCTS
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In 1994, the Company consolidated the Office Supplies and Coated
Products Groups into the Commercial Products Group. The objective of the
reorganization was to improve service levels, leverage
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selling capabilities and reduce costs by offering the full breadth of products
to all customers through available distribution channels. The Commercial
Products Group manufactures and sells office and industrial imaging supplies
and industrial and commercial tape products to several customer types,
including: resellers (dealers, distributors and paper merchants), merchant
retailers, industrial end-users, third-party converters, original equipment
manufacturers and private label distributors.
Imaging Supplies. The Company's imaging supplies consist of a variety
of consumable products used in the process of reproducing readable images on
plain or specially treated papers and labels. Nashua's imaging supplies are
comprised of toners, developers, remanufactured laser printer cartridges,
facsimile paper, copy paper, labels and label papers, carbonless papers and
thermal papers. Imaging supply sales were $259.5 million for 1994, $264.8
million for 1993 and $261.1 million for 1992.
Nashua markets its toners, developers, facsimile paper, copy paper and
remanufactured laser printer cartridges to its national and government accounts
through a network of approximately 150 dealers located throughout the United
States. These dealers also purchase Nashua's imaging supplies for resale
directly to end-users. The Company also sells certain of these products
through its own sales force to office supply distributors, and to original
equipment manufacturers and private label distributors.
Nashua's competitors for toners and developers include Xerox
Corporation, Canon, Inc., Ricoh Corporation and Eastman Kodak Company, which
sell supplies for use in machines manufactured by them. The Company also
competes with other smaller independent manufacturers of toner and developer
products. This market segment is competitive, with more sophisticated toner
formulas and shorter product life cycles requiring timely product development
and marketing.
The Company's primary competitor for its remanufactured laser printer
cartridges is Canon, Inc. which manufactures both new and remanufactured laser
printer cartridges principally for sale to large original equipment
manufacturers, including Hewlett Packard Company, for resale under their brand
names. In addition, there are several thousand small laser printer cartridge
rechargers who provide low volumes to small customers. In order to reduce
manufacturing costs and maintain competitive pricing, the Company announced in
January, 1995 its intention to relocate remanufactured laser printer cartridge
production from its leased facility in Exeter, New Hampshire to Mexico.
The Company's label and label paper products consist of
thermosensitive label papers, dry-gummed label papers and pressure- sensitive
labels and label roll stock.
Nashua's thermosensitive label papers are coated with an adhesive
which is activated when heat is applied. These products are usually sold
through fine paper merchants who, in turn, resell these products to printers
who convert the papers into labels for use primarily in the pharmaceutical
industry. Nashua's thermosensitive label papers are also used in the bakery
industry and the meat packaging industry.
DavacR dry-gummed label paper is a paper which is coated with a
moisture-activated adhesive. DavacR dry-gummed label paper is sold primarily
to fine paper merchants and business forms manufacturers. It is ultimately
converted into various types of labels and stamps.
Nashua's competitors in the thermosensitive and dry-gummed label
industries include Brown- Bridge Company (a division of Spinnaker Industries,
Inc.) and Ivex Corporation.
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Nashua manufactures pressure-sensitive labels and roll stock using
both plain and thermal imaging papers. Nashua sells labels through
distributors and directly to end-users and sells roll stock to the label
converting industry. Significant uses of such labels include grocery scale
marking, inventory control and address labels. Nashua is a major supplier of
labels to the supermarket industry and labels for use in the distribution and
transportation of products. Nashua's label business is price sensitive and
competitive, and includes competitors such as Avery/Dennison Corporation and
Uarco, Inc., plus numerous small regional competitors.
Nashua's carbonless paper is a coated paper used in the production of
multi-part business forms which produce multiple copies without carbon paper.
The product is sold in sheet form through fine paper merchants and in roll form
directly to the printing industry, where it is converted into multi-part
business forms. Within the carbonless paper market, Nashua generally competes
with large integrated manufacturers including Appleton Papers, Inc., The Mead
Corporation and 3M.
Nashua's thermal papers develop an image upon contact with either a
heated stylus or a thermal print head. A major application for these papers is
for use in thermal facsimile machines. This application is expected to be
adversely affected in the future by the increased use of plain paper facsimile
machines. Thermal papers are also used in point of sale printers, airline and
package identification systems, gaming and ticketing systems, medical and
industrial recording charts and for conversion to labels. Nashua markets
facsimile paper primarily to dealers and distributors for resale. Other
thermal papers are sold to printers, office equipment dealers, small-roll
converters, original equipment manufacturers and converted into
pressure-sensitive thermal labels. The thermal paper industry is competitive
and price sensitive. Nashua's competitors include major integrated companies
such as Appleton Papers, Inc., Kanzaki Paper Mfg. Co., Ltd., Jujo Paper Co.,
Ltd., Ricoh Corporation, as well as several other manufacturers in Japan and
Europe.
Tape. Nashua's tape products include duct tape and masking tape for
various industrial and consumer uses. Additionally, Nashua sells foil and
strapping tape which it acquires from other manufacturers.
Nashua sells both duct and foil tapes through distributors for use in
a variety of applications in many different markets. The heating, ventilating
and air conditioning and asbestos remediation markets are large consumers of
Nashua duct and foil tapes. Nashua has a prominent market position in the sale
of duct tapes. The masking tape market is highly competitive and Nashua sells
its products through distributors for resale in many applications and markets.
Duct and masking tapes are also sold to large retail chains for resale to
consumers and general industrial users. Nashua's key competitors are Anchor,
Tesa/Tuck, American Tape, Polyken Technologies, 3M and Shuford Mills, Inc.
Supplies and Materials. Nashua depends on outside suppliers for most
of the raw materials used to produce toners and developers, labels and label
papers, carbonless papers, thermal papers and tapes, including paper to be
converted and chemicals to be used in producing the various coatings Nashua
applies. The Company purchases these materials from several suppliers and
believes that adequate supplies are available. The Company experienced
significantly higher raw material prices across many product lines in the
latter half of 1994, and management anticipates this trend will continue into
the first half of 1995. Products purchased in finished form (including certain
toners and developers, papers and foil and strapping tapes) are readily
available from a variety of sources.
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PHOTOFINISHING
Nashua traditionally has provided mail-order photofinishing services
to amateur photographers under the tradenames York Photo Labs in the United
States, Truprint and York Photo Labs in the United Kingdom and Scot Foto and
York Photo in Canada. Nashua develops and prints films received by mail at its
processing facilities in the United States, the United Kingdom and Canada, and
also sells film, cameras and associated products to its base of customers.
Nashua is the market leader in the mail-order photofinishing business in all
three countries.
The January 1995 acquisition of certain Continental European and
Northern Ireland photofinishing operations will allow the Company to leverage
its existing marketing, processing and system capabilities to expand into the
mail-order photofinishing markets in France, Belgium, the Netherlands and
Spain, and the wholesale market in Northern Ireland. Nashua will continue to
operate the businesses under the tradenames Maxicolor and Trifica in France,
Belgium and the Netherlands, Labopost in Spain and Belmont in Northern Ireland.
Nashua expects to continue to be the market leader in the France, Belgium and
the Netherlands mail-order businesses, and the Northern Ireland wholesale
photofinishing business.
In both the mail-order and wholesale businesses, demand is generally
strongest during the third quarter due to increased picture taking by amateur
photographers during the summer months.
SUPPLIES AND MATERIALS. The principal materials used by Nashua's
photofinishing business include color print paper, photo developing chemicals
and color print films, all of which are available from several manufacturers.
COMPETITION. The Company's major mail-order photofinishing
competitors include District Photo, Inc., Mystic Color Labs Inc. and Seattle
Film Works, Inc. in the United States, Grunwick Processing Laboratories Limited
in the United Kingdom, Chas Abel Photo Services, Ltd. in Canada, Extra Film in
France and Colorado in the Netherlands, as well as numerous other national,
regional and local processors in countries in which the Company operates. The
proliferation of minilabs and retail stores offering reduced price processing
could adversely impact the mail-order segment of the photofinishing market,
which has typically relied on its lower prices as a competitive advantage over
retail services.
PRECISION TECHNOLOGIES
Precision Technologies primarily manufactures precision machined parts
used as substrates in the manufacture of magnetic computer disks. Precision
Technologies had previously been a captive supplier to the Company's Computer
Products Group.
Aluminum substrates are sold to computer disk manufacturers who supply
a limited number of large disk-drive manufacturers. Sales in 1994 were
primarily to the company which acquired Nashua's thin-film disk operation in
the second quarter of 1994, though by year end the dependence on this customer
had dropped to approximately 50%. The physical differences among product types
of substrates are dictated by the different disk manufacturers. The Company
works closely with disk manufacturers to improve compatibility and to meet
evolving product specifications. Significant efforts are often required to
become qualified as an approved supplier; at the same time product life cycles
are becoming increasingly shorter. Precision Technologies' competitors include
Kobe Precision, Inc. and International Components Technology Corporation.
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The Company has expended considerable effort to extend its
precision-machining capabilities to applications involving a variety of
materials with the objective of entering new markets with additional products.
SUPPLIES AND MATERIALS. Precision Technologies depends on outside
suppliers for the continued availability of materials, primarily aluminum. The
Company purchases these parts from several suppliers and believes adequate
future supplies are available.
RESEARCH AND DEVELOPMENT
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Nashua's research and development efforts have been instrumental in
the development of many of the products it markets. The increase in
expenditures in 1994 reflects increased focus on new product development.
Nashua's research and development expenditures were $9.6 million in 1994, $7.4
million in 1993 and $6.6 million in 1992.
During 1994, the Company acquired MicrosharpTM display technology and
is working to develop applications for the flat screen display market including
projection screens, televisions and computer monitors.
ENVIRONMENTAL MATTERS
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The Company (and its competitors) are subject to various environmental
laws and regulations. These include the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act ("CERCLA"), the Resource Conservation and Recovery Act
("RCRA"), the Clean Water Act and other state and local counterparts of these
statutes. The Company believes that its operations have been and continue to
be operating in compliance in all material respects with the applicable
environmental laws and regulations. (Violation of these laws and regulations
could result in substantial fines and penalties.) Nevertheless, in the past
and potentially in the future, the Company has and could receive notices of
alleged environmental violations. The Company has endeavored to promptly
remedy any such violations upon notification.
For the past three years the Company has spent approximately $1
million per year in order to keep its operations in compliance with pertinent
environmental laws and regulations. In addition, for those sites which the
Company has received notification of the need to remediate, the Company has
assessed its liability and accrued what it considers to be the most likely
amount within the estimated range of remediation costs. At December 31, 1993
the accrual for potential environmental liabilities was $.9 million. Liability
of "potentially responsible parties" (PRP) under CERCLA and RCRA, however, is
joint and several, and actual remediation expenses at sites where the Company
is a PRP may exceed current estimates. The Company believes that based on the
facts currently known, and the environmental accrual recorded, its remediation
expense with respect to those sites and on-going costs of compliance are not
likely to have a material adverse effect on its liquidity, consolidated
financial position or results of operations.
EMPLOYEES
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Nashua and its subsidiaries had approximately 3,100 full-time
employees at March 1, 1995. Most of the hourly employees of Nashua's
Commercial Products segment are members of one of several unions, principally
the United Paperworkers International Union.
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FOREIGN OPERATIONS
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During 1994, Nashua had Photofinishing subsidiaries in Canada and the
United Kingdom. In connection with the 1995 acquisition of certain Continental
European and Northern Ireland photofinishing operations, the Company has
established subsidiaries in Northern Ireland, France and the Netherlands.
Nashua had export sales of approximately $41.0 million in 1994, $46.9 million
in 1993 and $50.2 million in 1992.
Nashua includes revenues and other financial data from its foreign
operations in its business segment reporting according to the nature of the
product sold. The Note to the Company's Consolidated Financial Statements
entitled "Information About Operations," which appears on page 33 of this Form
10-K, contains additional information regarding Nashua's foreign operations
during the last three years, including identifiable assets, net sales and
operating income by geographic area.
Nashua's international sales are subject to risks that generally do
not affect businesses operating wholly within a single country. These include
political risks associated with doing business in foreign countries, exchange
control and import limitations which may impede the free movement of goods and
funds from one country to another and currency exchange rate risks. Nashua's
foreign business generally is adversely affected as the United States dollar
strengthens against the foreign currencies of the countries in which it does
business. From time-to-time Nashua enters into various foreign exchange
contracts to mitigate the risk of foreign currency fluctuations with respect to
foreign currency denominated transactions.
ITEM 2. PROPERTIES
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Nashua's manufacturing facilities are located in the United States,
Canada, United Kingdom and Northern Ireland. Nashua considers its properties
to be in good operating condition and suitable for the production of its
products.
The principal manufacturing facilities of the Company are listed by
industry segment, location and principal products produced. Except as
otherwise noted, each of these facilities is owned by the Company.
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PRINCIPAL PROPERTIES
SQUARE PRINCIPAL
LOCATION FOOTAGE PRODUCTS PRODUCED
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COMMERCIAL PRODUCTS
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Merrimack, New Hampshire 435,000 carbonless paper, facsimile paper,
thermosensitive and dry-gummed label
papers, chemicals
Omaha, Nebraska 170,000 pressure-sensitive labels and laminate
paper
Watervliet, New York 422,000 pressure-sensitive tapes
Nashua, New Hampshire 198,000 dry toners and developers, chemicals
Exeter, New Hampshire 77,000 (1)(3) remanufactured laser printer cartridges
Chelmsford, Massachusetts 35,000 (1) liquid toners
PHOTOFINISHING
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Parkersburg, West Virginia 81,000 (1) photofinishing
Newton Abbot, United Kingdom 46,000 (1) photofinishing
Telford, United Kingdom 38,000 (1) photofinishing
Saskatoon, Saskatchewan, Canada 15,000 photofinishing
Deal, United Kingdom 12,000 (1)(2) photofinishing
Belfast, Northern Ireland 24,000 (1)(2) photofinishing
PRECISION TECHNOLOGIES
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Champaign, Illinois 32,000 aluminum substrates for computer disks
_____________________
(1) Leased facilities
(2) Acquired by the Company on January 13, 1995.
(3) The Company has announced its intention to relocate remanufactured laser
printer cartridge production from its Exeter, New Hampshire facility to
Mexico.
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ITEM 3. LEGAL PROCEEDINGS
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In April 1994, Ricoh Company, Ltd. and Ricoh Corporation ("Ricoh")
filed a Complaint with the United States District Court, District of New
Hampshire, alleging Nashua's infringement of U.S. patents 4,611,730 and
4,878,603 relating to certain toner cartridges for Ricoh copiers. The
Complaint seeks damages and injunctive relief. The products involved
constitute an insignificant amount of Nashua's sales. The Company believes it
has substantial defenses and intends to defend the action vigorously.
During 1994, the Internal Revenue Service (IRS) completed an
examination of the Company's corporate income tax returns for the years 1988
through 1991. As a result of the IRS' findings, the Company agreed to and paid
additional taxes and interest of $7.8 million in January 1995 in connection
with adjustments related mainly to the tax treatment of certain items
associated with the 1990 sale of the International Office Systems business. On
January 13, 1995, the IRS issued a Notice of Deficiency in the amount of $8.7
million in connection with the tax years 1990 and 1991. The tax deficiency
relates to the tax treatment of income recognized in connection with the 1990
sale of the Office Systems business. The major issues relate to foreign tax
credits, foreign earnings and profits computation, and the treatment of the
disposition of preferred stock of a foreign subsidiary. The Company disagrees
with the position taken by the IRS and filed a formal protest of the deficiency
on February 9, 1995. In management's opinion, the ultimate disposition of this
matter will not have a material adverse effect on the financial position or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
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Set forth below are the present executive officers of the Company,
their ages and their positions held with the Company:
NAME AGE POSITION
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William E. Mitchell 51 President and Chief Executive Officer
Francis J. Lunger 49 Vice President and Chief Administrative Officer
William Luke 47 Vice President-Finance and Chief Financial Officer
Mr. Mitchell has been Chief Executive Officer of Nashua since July
1994 and President since September 1993. He was Chief Operating Officer of
Nashua from September 1993 to July 1994. Prior to September 1993, he was a
Senior Vice President of Raychem Corporation.
Mr. Lunger has been Vice President, Chief Administrative Officer of
Nashua since February 1994. Prior to February 1994, he was Vice President of
Raychem Corporation.
Mr. Luke has been Vice President-Finance and Chief Financial Officer
since prior to 1989.
Executive officers are generally elected to their offices each year by
the Board of Directors shortly after the Annual Meeting of Shareholders.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
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Reference is made to the Note entitled "Quarterly Operating Results
and Common Stock Information (Unaudited)" to the Company's Consolidated
Financial Statements, which appears on page 35 of this Form 10-K.
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ITEM 6. SELECTED FINANCIAL DATA
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Nashua Corporation and Subsidiaries
FIVE YEAR FINANCIAL REVIEW
(In thousands, except per share data, price
range, number of employees and percentages)
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
OPERATIONS
Net sales $478,571 $479,838 $491,738 $479,127 $502,754
Gross margin percentage 24.4% 25.2% 26.1% 26.0% 25.9%
Selling, distribution and administrative
expenses as a percentage of sales 19.9% 20.1% 20.7% 20.1% 19.3%
Income before interest expense and
taxes as a percentage of sales* 2.1% 1.2% 4.2% 5.0% 6.1%
Income before taxes as a percentage of sales* 1.6% 0.8% 3.6% 4.6% 5.7%
Income as a percentage of sales* 0.9% 0.5% 2.1% 2.7% 3.5%
Effective tax rate 40.5% 31.0% 41.5% 40.9% 39.5%
Income before income taxes* $7,467 $3,647 $17,836 $22,221 $28,678
Income after taxes* 4,442 2,516 10,434 13,133 17,350
Income (loss) from discontinued operations (2,295) (21,685) (5,126) (12,581) 3,445
Cumulative effect of accounting
principle changes - - (10,131) - -
Net income (loss) 2,147 (19,169) (4,823) 552 20,795
Earnings (loss) per share:
Income (loss)* $.70 $.40 $1.65 $2.07 $2.28
Discontinued operations (.36) (3.42) (.81) (1.98) .45
Cumulative effect of accounting
principle changes - - (1.60) - -
Net income (loss) .34 (3.02) (.76) .09 2.73
FINANCIAL POSITION
Working capital $46,789 $ 23,728 $ 40,630 $ 35,974 $ 17,207
Total assets 227,825 219,065 236,699 243,200 239,474
Long-term debt 49,166 20,342 27,865 25,386 10,404
Total debt 49,816 25,742 31,065 30,386 10,404
Total capital employed 142,512 118,865 148,217 160,098 144,330
Total debt as a percentage of capital employed 35.0% 21.7% 21.0% 19.0% 7.2%
Shareholders' equity $92,696 $ 93,123 $117,152 $129,712 $133,926
Shareholders' equity per common share 14.55 14.74 18.57 20.64 21.32
OTHER SELECTED DATA
Investment in plant and equipment $16,835 $ 15,050 $12,604 $12,720 $16,069
Depreciation and amortization 15,270 14,569 14,050 13,387 11,588
Dividends per common share .72 .72 .72 .72 .69
Return on average shareholders' equity 2.3% (18.2)% (3.9%) 0.4% 11.2%
Common stock price range:
High $30-3/4 $ 31-3/4 $ 31-1/4 $ 37 $ 44-7/8
Low 19-3/4 25-1/4 21 18-1/8 30-1/2
Year-end closing price 20-1/2 27-1/2 28-3/8 23-1/8 34-3/8
Number of employees 3,054 4,011 4,145 3,869 4,506
Average common and common
equivalent shares 6,360 6,343 6,325 6,332 7,617
See Discontinued Operations and Restructuring Activities, Income Taxes and
Postretirement Benefits Notes to Consolidated Financial Statements for a
description of certain matters relevant to this data.
* Income is from continuing operations and before the cumulative effect of
accounting principle changes.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
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RESULTS OF CONTINUING OPERATIONS - 1994 COMPARED TO 1993
Net sales of $478.6 million declined slightly from 1993. The Company generated
after-tax income from continuing operations of $4.4 million which included a
pretax restructuring charge of $2.6 million. This compared to after-tax income
from continuing operations of $2.5 million in 1993 which included a pretax
restructuring charge of $11.8 million. Net sales for the year increased in the
Commercial Products Group, decreased in the Photofinishing Group, and were
substantially unchanged for Precision Technologies. Pretax income from
continuing operations, excluding restructuring charges, was $10.1 million
compared to $15.4 million in 1993 primarily due to the decline in operating
income in the Commercial Products Group and expenses related to the development
of the new Microsharp business.
In 1994, the Company created the Commercial Products Group by combining the
former Office Supplies and Coated Products Groups. The objective of this
reorganization was to improve service levels, leverage selling capabilities and
reduce costs by offering the full breadth of Nashua products to all customers.
In connection with these changes, the Company's office supplies catalog
business was merged with existing sales and marketing operations of the new
Commercial Products Group. In addition, the Company spent approximately $1
million in 1994 on professional fees associated with the development of
customer interface systems.
Net sales for the Commercial Products Group increased $2.2 million, or 1
percent, driven by strong volume gains for tape, thermal labels, heat seal and
copy paper, partially offset by reduced diskette and laser printer cartridge
volume. However, operating income before restructuring charges compares
unfavorably to 1993 by $3.0 million, primarily due to extremely competitive
toner pricing, a shift to lower margin toners and tapes, lower laser printer
cartridge volume, and significantly higher raw material prices across many
product lines. Realized selling price increases only partially offset the
impact of higher raw material costs. Management anticipates that the raw
material price trend evidenced in the second half of 1994 will continue into
the first half of 1995.
Net sales in the Photofinishing Group decreased $3.3 million, approximately 2
percent, from the prior year. Continued competitive pressure resulted in lower
volume in the U.S. compared to the prior year, partially offset by higher
volume in the U.K. operation. In addition, U.S. sales in 1994 were depressed
by lower prices in the first quarter compared to the comparable period of the
prior year, partially offset by improvements in price throughout the year,
especially the fourth quarter. While volume and pricing pressures adversely
impacted gross margin, operating income, excluding restructuring charges, was
substantially unchanged year over year due to lower administrative costs.
Precision Technologies transitioned in 1994 from a captive supplier of
substrates to an independent supplier. Net sales were substantially unchanged
year to year. Operating income declined $.8 million, primarily due to
manufacturing changeover costs and market introduction costs associated with
new products being offered to an expanded customer base.
Administrative expenses decreased approximately 8 percent, primarily as a
result of efficiencies resulting from the restructuring actions taken in 1994.
Selling and distribution expenses as a percentage of sales were essentially
unchanged. Research and development expenses increased $2.3 million as a
result of the Company's investment in MicrosharpTM display technology and new
product development for the Commercial Products Group.
-12-
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In the fourth quarter of 1993, the Company recorded restructuring and other
unusual charges totaling $48.5 million. Approximately $36.7 million of this
amount related to management's decision to sell or otherwise liquidate the
thin-film, oxide and diskette manufacturing operations of the Computer Products
Group. The 1993 charge also included approximately $11.8 million related to
the integration and streamlining of the operations of the Commercial Products
Group, including workforce reductions, as well as consolidation of facilities
and the write-down of certain assets. As part of the restructuring plan, the
Company offered certain of its employees an early retirement program and
recorded an additional pretax charge in the first quarter of 1994 of $5.7
million, of which $2.6 million related to the Company's continuing operations
and $3.1 million related to discontinued operations.
During the second quarter of 1994, the Company sold substantially all of its
Computer Products businesses for total cash proceeds of $11.1 million,
subordinated notes of $4.9 million and future royalty payments based on sales
of the oxide disk and head disk assembly operations. In addition, the Company
will receive cash proceeds of approximately $2.0 million based on the 1994
operating results of the thin-film disk operation. The amounts received were
not materially different from the estimates included in the 1993 charge. As a
result of the sale of these businesses, the related results of operations were
reclassified as discontinued operations.
The details of the Company's 1993 restructuring charge related to continuing
operations and the activity recorded during 1994, are as follows:
Balance Balance
Dec. 31, 1994 1994 Dec. 31,
(In thousands) 1993 Provision Charges 1994
-------- --------- -------- ------
Provisions related to workforce reductions:
Severance costs $ 3,850 $ 700 $ 3,000 $1,550
Pension and OPEB costs 900 2,600 3,500 -
Provisions related to employees not terminated 1,100 - 950 150
Provisions for assets to be sold or discarded 5,100 (1,100) 2,750 1,250
Other 850 400 1,250 -
------- ------ ------- ------
Total $11,800 $2,600 $11,450 $2,950
======= ====== ======= ======
The 1993 restructuring charge included provisions for salary and benefit
continuation costs for approximately 170 employees. The 1994 provision
represents a revision in the Company's original estimate of severance costs
primarily as a result of approximately 20 additional employee terminations from
the Company's Commercial Products Group rather than from discontinued
operations. As of December 31, 1994, substantially all planned employee
reductions have taken place, and the remaining accrual represents payments to
be made to these former employees in the first half of 1995. Pension and OPEB
costs recorded in 1993 relate to curtailment charges recognized in connection
with the planned workforce reductions. The provision recognized in 1994 was
recorded in connection with the Company's early retirement program based upon
the actual number of employee acceptances. Provisions for employees not
terminated relate primarily to relocation costs.
The provisions for assets to be sold or discarded included a charge of
approximately $1.8 million to write down certain corporate and manufacturing
facilities to their estimated net realizable value, as well as the costs
associated with holding certain vacated portions of these facilities during the
period until the property can be sold or otherwise disposed. During the year,
the Company commissioned an appraisal of its corporate
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and manufacturing facilities, and as a result of the appraisal revised upward
its estimate of proceeds to be realized upon disposal. Other than as described
above, there were no material changes during the year to the Company's original
estimate of the costs associated with the restructuring actions. Management
anticipates all remaining actions will be completed by the end of 1995. As a
result of these restructuring actions, the Company anticipates savings in
personnel and facility related costs of approximately $8 million in 1995.
The effective tax rate for continuing operations was 40.5 percent compared to
31.0 percent in 1993. The effective tax rate is higher than the U.S. statutory
rate in 1994 primarily due to the impact of non-deductible goodwill.
On January 13, 1995, the Company acquired certain photofinishing operations
from Nexus Photo Ltd. The acquisition includes mail- order photofinishing
operations in France, Belgium, the Netherlands and Spain, and a wholesale film
processing business in Northern Ireland. The annual sales of the acquired
businesses are approximately $43 million. The total purchase price was
approximately $25.6 million, plus an additional payment based on certain future
volume in the Northern Ireland operation. Approximately $20.7 million of the
purchase price was provided by a new $75 million revolving credit agreement
dated January 5, 1995.
RESULTS OF CONTINUING OPERATIONS - 1993 COMPARED TO 1992
Net sales were $479.8 million in 1993, a decrease of 2 percent from 1992, as a
result of reduced Photofinishing sales. The Company recorded after-tax income
from continuing operations of $2.5 million, which included pretax restructuring
charges of $11.8 million. Pretax income from continuing operations, excluding
restructuring charges, decreased 13 percent to $15.4 million, primarily due to
Commercial Products. In 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and SFAS No. 109, "Accounting for Income Taxes"
which resulted in a net charge of $10.1 million.
Net sales for the Commercial Products Group increased 1 percent compared to
1992, as higher label and facsimile paper volumes more than offset the decline
in toner, developer and copier paper sales. Operating profit, before pretax
restructuring charges of $3.5 million, decreased 32 percent from 1992 as lower
margins on toner, developer and laser toner cartridges more than offset the
impact of higher facsimile paper volume, lower carbonless paper manufacturing
costs and reduced postretirement benefit expense resulting from changes to the
Company's postretirement benefit plans.
Net sales in the Photofinishing Group decreased 8 percent from 1992 due to a
decline in the value of the British pound, and lower prices and volume in the
United States. Operating income, before pretax restructuring charges of $.8
million, increased 8 percent as higher volume in the United Kingdom more than
offset the effect of lower sales in the United States and a weaker exchange
rate.
Precision Technologies experienced a decrease in sales of 15 percent, resulting
in a reduction of operating profit of 63 percent from 1992.
Administrative expenses increased moderately in 1993 compared to 1992 due
primarily to overall wage increases. Selling and distribution expense as a
percentage of sales was lower than 1992 due to lower marketing expense in the
United Kingdom and lower sales of toner products which generally have a higher
associated selling and distribution expense. Research and development expense
for 1993 increased 11 percent, primarily in the Commercial Products Group.
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The effective tax rate for continuing operations was 31.0 percent in 1993
versus 41.5 percent in 1992. The effective tax rate was less than the U.S.
statutory rate in 1993, primarily due to the benefit of state tax loss
carrybacks and the revaluation of tax assets caused by the increase in the U.S.
statutory rate.
In April 1990, the Company sold the international portion of its Office Systems
and Supplies Group to Gestetner Holdings PLC (Gestetner). Under the terms of
the Purchase Agreement, Gestetner raised certain objections to the purchase
price totaling $15.3 million, excluding interest, which were submitted to
arbitration. In January 1994, the arbitrator issued a final ruling which
resulted in a total payment by Nashua of $1.8 million, including interest, to
Gestetner. Resolution of the purchase price allowed the Company to recognize
an after-tax gain from discontinued operations of $2.5 million.
EFFECT OF INFLATION AND CHANGING PRICES
The Company believes that results of operations as reported in its historical
cost financial statements reasonably match current costs, except for
depreciation, with revenues generated in the period. Depreciation expense
based on the current costs of plant and equipment would be significantly higher
than depreciation expense reported in the historical financial statements;
however, such expense would not affect cash provided by operating activities.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Working capital increased approximately $23 million in 1994. This increase was
comprised primarily of reductions in accrued restructuring charges, increased
inventories and receivables in the Commercial Products Group, and increased
receivables in Precision Technologies as it transitioned to an independent
supplier. At year end the ratio of total debt to equity increased to 54
percent from 28 percent at December 31, 1993. The ratio of long-term debt to
equity increased to 53 percent from 22 percent a year ago. The Company
generated $7.1 million in cash from continuing operations before using cash of
$6.7 million to fund restructuring activities in 1994. For 1994, cash
dividends were $.72 per share reflecting an $.18 per share dividend each
quarter.
The Company relies primarily on cash provided by operating activities to fund
its normal additions to plant and equipment. Investments in plant and
equipment in 1994 were approximately $17 million. Borrowings of $28 million
against the Company's revolving credit agreement were primarily used to repay
the Company's senior notes, increase working capital and fund restructuring
activities. In January 1995, the Company replaced its existing $40 million
revolving credit facility with a similar $75 million facility. This new
agreement provided $20.5 million of the purchase price for the photofinishing
businesses acquired on January 13, 1995. Management believes that available
borrowing capacity will provide sufficient resources to meet liquidity needs.
The Company had $28.2 million of deferred tax assets and $4.4 million of
deferred tax liabilities at December 31, 1994. The deferred tax assets include
$10.7 million of loss and tax credit carryforwards which expire as follows:
$3.1 million in 1996, $.7 million in 1997, $.1 million in 1998, $.6 million in
1999, $.1 million in 2000, $2.4 million in 2001, $.2 million in 2002, and $3.5
million thereafter. These carryforwards relate primarily to the U.S. and will
require a minimum of approximately $31 million in cumulative U.S. taxable
income prior to the carryforwards' expiration in order to be fully utilized.
The remainder of the deferred tax assets pertain to net deductible temporary
differences between financial and taxable bases of assets and
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liabilities such as accruals not yet paid or reserves not yet deductible for
tax purposes. In the past, taxable income has generally been higher than
income for financial reporting purposes. The Company expects this relationship
to continue in the future. The Company had $7.2 million of tax receivables at
December 31, 1994, generated primarily from the carryback of the 1994 tax loss
of approximately $31 million.
During 1994, the Internal Revenue Service (IRS) completed an examination of the
Company's corporate income tax returns for the years 1988 through 1991. As a
result of the IRS' findings, the Company agreed to and paid additional taxes
and interest of $7.8 million in January 1995 in connection with adjustments
related mainly to the tax treatment of certain items associated with the 1990
sale of the International Office Systems business. On January 13, 1995, the
IRS issued a Notice of Deficiency in the amount of $8.7 million in connection
with the tax years 1990 and 1991. The tax deficiency relates to the tax
treatment of income recognized in connection with the 1990 sale of the Office
Systems business. The major issues relate to foreign tax credits, foreign
earnings and profits computation, and the treatment of the disposition of
preferred stock of a foreign subsidiary. The Company disagrees with the
position taken by the IRS and filed a formal protest of the deficiency on
February 9, 1995. In management's opinion, the ultimate disposition of this
matter will not have a material adverse effect on the financial position or
results of operations of the Company.
The Company (and its competitors) are subject to various environmental laws and
regulations. These include the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act (CERCLA), the Resource Conservation and Recovery Act
(RCRA), the Clean Water Act and other state and local counterparts of these
statutes. The Company believes that its operations have been and continue to
be operating in compliance in all material respects with the applicable
environmental laws and regulations. (Violation of these laws and regulations
could result in substantial fines and penalties.) Nevertheless, in the past
and potentially in the future, the Company has and could receive notices of
alleged environmental violations. The Company has endeavored to promptly
remedy any such violations upon notification.
For the past three years the Company has spent approximately $1 million per
year in order to keep its operations in compliance with pertinent environmental
laws and regulations. In addition, for those sites which the Company has
received notification of the need to remediate, the Company has assessed its
liability and accrued what it considers to be the most likely amount within the
estimated range of remediation costs. At December 31, 1994 the accrual for
potential environmental liability was $.9 million. Liability of "potentially
responsible parties" (PRP) under CERCLA and RCRA, however, is joint and
several, and actual remediation expenses at sites where the Company is a PRP
may exceed current estimates. The Company believes that based on the facts
currently known, and the environmental accrual recorded, its remediation
expense with respect to those sites and on-going costs of compliance are not
likely to have a material adverse effect on its liquidity, consolidated
financial position or results of operations.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
Year Ended December 31,
1994 1993 1992
(In thousands, except per share data) -------- -------- -------
Net sales $478,571 $479,838 $491,738
Cost of products sold 361,933 358,954 363,531
Selling, distribution and administrative expenses 95,101 96,221 101,888
Research and development expense 9,604 7,351 6,625
Restructuring charges 2,600 11,800 -
Interest expense 2,451 2,179 2,811
Interest income (585) (314) (953)
-------- -------- --------
Total costs and expenses 471,104 476,191 473,902
Income from continuing operations before income taxes
and cumulative effect of accounting principle changes 7,467 3,647 17,836
Income taxes 3,025 1,131 7,402
-------- -------- --------
Income from continuing operations before cumulative
effect of accounting principle changes 4,442 2,516 10,434
-------- -------- --------
Loss from discontinued operations (2,295) (21,685) (5,126)
-------- -------- --------
Cumulative effect on prior years of changes in
accounting principles for:
Postretirement health care and other benefits, net - - (9,367)
Income taxes - - (764)
-------- -------- --------
Net income (loss) 2,147 (19,169) (4,823)
Retained earnings, beginning of year 82,166 105,880 129,055
Dividends (4,569) (4,545) (4,537)
Retirement of treasury shares - - (13,815)
-------- -------- --------
Retained earnings, end of year $ 79,744 $ 82,166 $105,880
======== ======== ========
Earnings (loss) per common and common equivalent share:
Income from continuing operations before cumulative
effect of accounting principle changes $ .70 $ .40 $ 1.65
Loss from discontinued operations (.36) (3.42) (.81)
Cumulative effect on prior years of changes in
accounting principles for:
Postretirement health care and other benefits, net - - (1.48)
Income taxes - - (.12)
-------- -------- --------
Net income (loss) $ .34 $ (3.02) $ (.76)
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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CONSOLIDATED BALANCE SHEET
December 31,
(In thousands, except share data) 1994 1993
---- ----
ASSETS
Current Assets
Cash and cash equivalents $ 10,219 $ 5,883
Accounts receivable 40,811 47,657
Inventories
Materials and supplies 15,713 11,793
Work in process 4,942 4,875
Finished goods 13,506 17,000
-------- --------
34,161 33,668
Other current assets 22,971 22,573
-------- --------
108,162 109,781
-------- --------
Plant and Equipment
Land 1,441 1,447
Buildings and improvements 36,638 39,492
Machinery and equipment 84,827 110,439
Construction in progress 6,684 13,364
-------- --------
129,590 164,742
Accumulated depreciation (58,733) (93,509)
-------- --------
70,857 71,233
-------- --------
Other Assets 48,806 38,051
-------- --------
Total Assets $227,825 $219,065
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes and loans payable $ 200 $ 2,900
Current maturities of long-term debt 450 2,500
Accounts payable 27,374 29,951
Accrued expenses 22,107 48,669
Income taxes payable 11,242 2,033
-------- --------
61,373 86,053
-------- --------
Long-Term Debt
Borrowings under revolving credit agreement 33,000 5,000
Senior notes 15,000 15,000
Other long-term debt 1,166 342
-------- --------
49,166 20,342
-------- --------
Other Long-Term Liabilities 24,590 19,547
Shareholders' Equity
Preferred stock, par value $1.00: 2,000,000 shares authorized and unissued - -
Common stock, par value $1.00: Authorized 40,000,000 shares
Issued 6,396,570 shares in 1994 and 6,340,430 shares in 1993 6,397 6,340
Additional capital 12,270 11,246
Retained earnings 79,744 82,166
Cumulative translation adjustment (4,928) (5,844)
Treasury stock, at cost (787) (785)
-------- --------
92,696 93,123
-------- --------
Commitments and Contingencies
Total Liabilities and Shareholders' Equity $227,825 $219,065
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31,
(In thousands) 1994 1993 1992
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS:
Net income (loss) $ 2,147 $(19,169) $(4,823)
Adjustments to reconcile net income to cash provided by
continuing operating activities:
Depreciation and amortization 15,270 14,569 14,050
Deferred income taxes (293) (3,790) (8)
Write-down of fixed assets to net realizable value - 2,000 -
Loss from discontinued operations 2,295 21,685 5,126
Cumulative effect on prior years of changes in
accounting principles - - 10,131
Change in operating assets and liabilities, net of effects
from acquisition and disposal of businesses:
Accounts receivable (6,707) 3,561 (4,344)
Inventories (6,270) (92) 567
Other assets (3,939) 6,173 511
Accounts payable 215 (2,398) (1,441)
Accrued expenses (13,526) 11,108 (3,228)
Other long-term liabilities 2,144 (1,289) (1,444)
Income taxes payable 9,029 (149) (218)
-------- ------- ------
Cash provided by operating activities 365 32,209 14,879
CASH FLOWS FROM INVESTING ACTIVITIES OF CONTINUING OPERATIONS
Investment in plant and equipment (16,835) (15,050) (12,604)
Acquisition of business - (4,286) -
------- ------- ------
Cash used in investing activities (16,835) (19,336) (12,604)
CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Proceeds from borrowings 52,900 9,900 15,910
Repayment of borrowings (28,826) (15,223) (15,231)
Dividends paid (4,569) (4,545) (4,537)
Proceeds and tax benefits from shares issued under stock option plans 1,081 122 487
Purchase and reissuance of treasury stock (2) 14 13
------- ------ ------
Cash provided by (used in) financing activities 20,584 (9,732) (3,358)
Proceeds from sale of discontinued operations 11,115 - -
Cash applied to activities of discontinued operations (11,108) (9,405) (16,148)
Effect of exchange rate changes on cash 215 (65) (572)
------- ------- --------
Increase (decrease) in cash and cash equivalents 4,336 (6,329) (17,803)
Cash and cash equivalents at beginning of year 5,883 12,212 30,015
------- ------- --------
Cash and cash equivalents at end of year $ 10,219 $ 5,883 $ 12,212
======== ======= ========
Interest paid $ 2,457 $ 2,051 $ 2,891
======== ======= ========
Income taxes paid $ 1,171 $ 5,355 $ 3,560
========= ======= ========
The accompanying notes are an integral part of the consolidated financial
statements.
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NOTES TO CONSOLIATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of Nashua Corporation and its subsidiaries (the Company),
all of which are wholly-owned.
CASH EQUIVALENTS: The Company considers all highly liquid investment
instruments purchased with a maturity of three months or less to be cash
equivalents. At December 31, 1994 and 1993, the Company held $5.9 million and
$1.9 million, respectively, of various money market instruments carried at
cost, which approximated market. .
ACCOUNTS RECEIVABLE: The consolidated balance is net of allowance for doubtful
accounts of $2.6 million and $1.9 million, at December 31, 1994 and 1993,
respectively.
INVENTORIES: Inventories are carried at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method for 80 percent of the
inventories at December 31, 1994 and 1993, and by the last-in, first-out (LIFO)
method for the balance. Had the FIFO method been used to cost all inventories,
the inventory balances would have been approximately $2.7 and $2.5 million
higher at December 31, 1994 and 1993, respectively.
PLANT AND EQUIPMENT: Plant and equipment are stated at cost. Expenditures for
maintenance and repairs are charged to operations as incurred, while additions,
renewals and betterments of plant and equipment are capitalized. Items which
are fully depreciated, sold, retired, or otherwise disposed of, together with
the related accumulated depreciation, are removed from the accounts and, where
applicable, the related gain or loss is recognized.
For financial reporting purposes, depreciation is computed using the
straight-line method over the following estimated useful lives of the assets:
Buildings and improvements 5-40 years
Machinery and equipment 3-20 years
During 1993, the Company recorded charges of $21.2 million related to the
write-down of fixed assets in connection with discontinued operations. See the
Discontinued Operations and Restructuring Activities note.
GOODWILL: Included in "Other Assets" is the excess of cost over the fair value
of net assets acquired (goodwill), which is being amortized on a straight-line
basis over periods ranging from 5 to 20 years. Goodwill amounted to $14.5
million and $14.7 million at December 31, 1994 and 1993, respectively, which is
net of accumulated amortization of $5.2 million and $4.5 million, respectively.
During 1993, the Company wrote-off goodwill of $6.3 million associated with
discontinued operations, and $.4 million associated with continuing operations.
See the Discontinued Operations and Restructuring Activities note.
INCOME TAXES: Prepaid or deferred income taxes result principally from the use
of different methods of depreciation and amortization for income tax 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.
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FOREIGN CURRENCY TRANSLATION: The functional currency of the Company's foreign
subsidiaries is the local currency. Accordingly, assets and liabilities of
these subsidiaries have been translated using exchange rates prevailing at the
appropriate balance sheet date, and income statement items have been translated
using average monthly exchange rates.
FINANCIAL INSTRUMENTS: The Company enters into foreign exchange contracts as
hedges against exposure to fluctuations in exchange rates associated with
certain transactions denominated in foreign currencies, principally
receivables. Market value gains or losses on these contracts are included in
the results of operations and generally offset gains or losses on the related
transactions. The Company also utilizes forward sales contracts to hedge
market price exposure on anticipated sales of silver alloy, a by-product of its
photofinishing process. The terms of the Company's forward contracts are
generally less than one year. Gains and losses on these contracts are deferred
and recognized as adjustments of carrying amounts when the hedged transaction
occurs. Deferred gains or losses at December 31, 1994 are not significant.
The Company does not hold derivative financial instruments for trading
purposes.
ENVIRONMENTAL EXPENDITURES: Environmental expenditures relating to on-going
operations are expensed when incurred unless the expenditures extend the life,
increase the capacity or improve the safety or efficiency of the property;
mitigate or prevent environmental contamination that has yet to occur and
improve the property compared with its original condition; or are incurred in
preparing for sale that property currently 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. These estimates are based on in-house or third party
studies considering current technologies, remediation alternatives and current
environmental standards. In addition, if there are other participants and the
liability is joint and several, the financial stability of the other
participants is considered in determining the Company's accrual. Insurance and
other recoveries relating to these expenditures are recorded separately once
recovery is probable.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: Earnings per common and
common equivalent share are computed based on the total of the weighted average
number of common shares and the weighted average number of common equivalent
shares outstanding during the period presented.
DISCONTINUED OPERATIONS AND RESTRUCTURING ACTIVITIES
In the fourth quarter of 1993, the Company recorded restructuring and other
unusual charges totaling $48.5 million. Approximately $36.7 million of this
amount related to management's decision to sell or otherwise liquidate the
thin-film, oxide and diskette manufacturing operations of the Computer Products
Group. The 1993 charge also included approximately $11.8 million related to
the integration and streamlining of the operations of the Commercial Products
Group, including workforce reductions, as well as consolidation of facilities
and the write-down of certain assets.
Discontinued Operations
During the second quarter of 1994, the Company sold substantially all of its
Computer Products businesses for total cash proceeds of $11.1 million,
subordinated notes of $4.9 million and future royalty payments based on sales
of the oxide disk and head disk assembly operations. In addition, the Company
will receive cash proceeds of approximately $2.0 million based on the 1994
operating results of the thin-film disk operation.
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23
The amounts received were not materially different from the estimates included
in the 1993 charge. As a result of the sale of these businesses, the related
results of operations were reclassified as discontinued operations.
During the first quarter of 1994, the Company offered its employees an early
retirement program, and recorded an additional pretax charge of $3.1 million to
discontinued operations related to the program.
The results of operations of the discontinued thin-film disk, oxide disk and
head disk assembly operations, are reported as discontinued operations in the
accompanying consolidated statement of operations, and are summarized as
follows:
Year Ended
---------------------------------------------------
December 31, December 31, December 31,
(In thousands) 1994 1993 1992
----------- ------------ ------------
Net sales $19,243 $ 88,704 $73,409
Loss before income taxes (3,279) (35,049) (7,384)
Income tax benefit (984) (10,852) (2,258)
Loss from discontinued operations $(2,295) $(24,197) $(5,126)
======= ======== =======
In April 1990, the Company sold the international portion of its Office Systems
and Supplies Group to Gestetner Holdings PLC (Gestetner). Under the terms of
the Purchase Agreement, Gestetner raised certain objections to the purchase
price totaling $15.3 million, excluding interest, which were submitted to
arbitration. In January 1994, the arbitrator issued a final ruling which
resulted in a total payment by Nashua of $1.8 million, including interest, to
Gestetner. Resolution of the purchase price allowed the Company to recognize
an after-tax gain from discontinued operations of $2.5 million in 1993.
Restructuring Activities
The details of the Company's 1993 restructuring charge related to continuing
operations and the activity recorded during 1994, are as follows:
Balance Balance
Dec. 31, 1994 1994 Dec. 31,
(In thousands) 1993 Provision Charges 1994
-------- ----------- ------- --------
Provisions related to workforce reductions:
Severance costs $ 3,850 $ 700 $ 3,000 $1,550
Pension and OPEB costs 900 2,600 3,500 -
Provisions related to employees not terminated 1,100 - 950 150
Provisions for assets to be sold or discarded 5,100 (1,100) 2,750 1,250
Other 850 400 1,250 -
------- ------ ------- ------
Total $11,800 $2,600 $11,450 $2,950
======= ====== ======= ======
The 1993 restructuring charge included provisions for salary and benefit
continuation costs for approximately 170 employees. The 1994 provision
represents a revision in the Company's original estimate of severance costs
primarily as a result of approximately 20 additional employee terminations from
the Company's Commercial Products Group rather than from discontinued
operations. As of December 31, 1994, substantially all planned employee
reductions have taken place, and the remaining accrual represents payments to
be made to these former employees in the first half of 1995. Pension and OPEB
costs recorded
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in 1993 relate to curtailment charges recognized in connection with the planned
workforce reductions. The provision recognized in 1994 was recorded in
connection with the Company's early retirement program based upon the actual
number of employee acceptances. Provisions for employees not terminated relate
primarily to relocation costs.
The provisions for assets to be sold or discarded included a charge of $1.8
million to write-down certain corporate and manufacturing facilities to their
estimated net realizable value, as well as the costs associated with holding
certain vacated portions of these facilities during the period until the
property can be sold, or otherwise disposed. During the year, the Company
commissioned an appraisal of its corporate and manufacturing facilities, and as
a result of the appraisal revised upward its estimate of proceeds to be
realized upon disposal. Other than as described above, there were no material
changes during the year to the Company's original estimate of the costs
associated with the restructuring actions. Management anticipates all the
remaining actions will be completed by the end of 1995. As a result of these
restructuring actions, the Company anticipates savings in personnel and
facility related costs of approximately $8 million in 1995.
INDEBTEDNESS
At December 31, 1994, the Company maintained an unsecured $40 million revolving
credit facility under an agreement dated July 29, 1994. Borrowings of $33
million were outstanding under the terms of this facility at December 31, 1994,
compared with $5 million outstanding under a similar facility at December 31,
1993.
On January 5, 1995, the Company replaced the $40 million revolving credit
facility with a similar $75 million revolving credit facility. The facility
expires on December 31, 1997 unless otherwise extended. Interest on amounts
outstanding is payable at either LIBOR plus .75 to 1.125 percent, based on
amounts outstanding, or at the agent bank's "Reference Rate" at the Company's
election, or, if amounts outstanding are borrowed under competitive bid,
interest is payable at the quoted rate. The Company is required to pay an
annual commitment fee of .3125 percent on the unused portion of the facility
and .25 percent on any loans advanced under competitive bids. The agreement
contains restrictive covenants which relate primarily to interest coverage,
leverage and tangible net worth. The Company is in compliance with these
covenants.
On September 13, 1991, the Company entered into a senior note agreement, as
amended, with an insurance company under which the Company borrowed $20 million
at a fixed rate of 9.17 percent. In connection with the Company's
renegotiation of its revolving credit facility, the interest rate applicable to
the senior notes was increased to 9.67 percent as of January 1, 1995.
Mandatory payments of $2.5 million were made in 1993 and 1994. The remaining
balance of the notes will become due beginning in 1997 with the final payment
due in 2001. The senior notes contain restrictive covenants which relate
principally to additional debt, tangible net worth and fixed charges coverage.
The Company is in compliance with these covenants.
The Company maintains short term money market lines with commercial banks on an
"as offered" basis. The borrowings and repayments occur daily and contain no
specific terms other than due dates and interest rates. The due dates are
generally overnight and interest rates are based on current market rates.
There were no borrowings outstanding under these lines at December 31, 1994,
and approximately $2.5 million at December 31, 1993.
The fair value of the Company's total debt was approximately $.4 and $2.5
million higher than the carrying amount at December 31, 1994 and 1993,
respectively. The fair value is based on management's estimate of current
rates available to the Company for similar debt with the same remaining
maturity.
-23-
25
Following is the combined aggregate amount of minimum principal payments for
each of the five years subsequent to December 31, 1994, for all long-term
indebtedness: 1995 - $.5 million; 1996 - $.6 million; 1997 - $36.3 million;
1998 - $3.0 million; 1999 - $3.0 million; thereafter - $6.2 million.
INCOME TAXES
The domestic and foreign components of income from continuing operations before
income taxes and cumulative effect of accounting principle changes are as
follows:
(In thousands) 1994 1993 1992
---- ---- ----
Domestic $1,661 $(2,933) $12,951
Foreign 5,806 6,580 4,885
------ ------- -------
Consolidated $7,467 $ 3,647 $17,836
====== ======= =======
Income tax expense (benefit) charged to continuing operations consists of the
following:
(In thousands) 1994 1993 1992
---- ---- ----
Current
United States $ - $ 2,424 $6,002
Foreign 3,303 2,640 1,055
State and local 15 82 353
------- -------- ------
Total current 3,318 5,146 7,410
Deferred:
United States 592 (3,873) (1,137)
Foreign (885) 83 1,129
------- -------- ------
Total deferred (293) (3,790) (8)
------- -------- ------
Changes in statutory rates - (225) -
Income tax expense $ 3,025 $ 1,131 $7,402
======= ======== ======
Deferred tax liabilities (assets) are comprised of the following:
Dec. 31,
(In thousands) 1994 1993
---- ----
Depreciation $ 4,393 $ 5,468
Other - 85
--------- ---------
Gross deferred tax liabilities 4,393 5,553
--------- ---------
Restructuring (1,033) (16,783)
Pension and postretirement benefits (11,505) (7,531)
Loss and credit carryforwards (10,675) (3,349)
Workers compensation accrual (1,372) (1,536)
Inventory reserve (875) (1,526)
Bad debt reserve (1,261) (1,183)
Other (1,460) (2,379)
--------- ---------
Gross deferred tax assets (28,181) (34,287)
Deferred tax assets valuation allowance - -
--------- ---------
$(23,788) $(28,734)
========= =========
-24-
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Reconciliations between income taxes from continuing operations computed using
the United States statutory income tax rate and the Company's effective tax
rate are as follows:
1994 1993 1992
---- ---- ----
United States statutory rate (benefit) 35.0% 35.0% 34.0%
Goodwill 4.4 13.7 2.3
Dividend income - 6.4 4.1
State and local income taxes, net of
federal tax benefit .1 (13.3) .9
Rate revaluation - (8.1) -
Rate difference-foreign subsidiaries (1.7) (3.2) .8
Other, net 2.7 .5 (.6)
---- ---- ----
Effective tax rate (benefit) 40.5% 31.0% 41.5%
==== ==== ====
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," in 1992 which changed the Company's method of
accounting for income taxes from the deferred method to an asset and liability
approach. The asset and liability approach requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities and of tax carryforwards. The Company adopted this statement
prospectively on January 1, 1992, and the adjustments to the balance sheet
resulted in a net charge of $.8 million. This amount is reflected in net
income for 1992 as the cumulative effect of a change in accounting principle.
It primarily represents the impact of adjusting prepaid and deferred taxes to
reflect the 1992 statutory tax rate as opposed to the tax rates that were in
effect when the prepaid and deferred taxes originated. The adoption of this
statement had no effect on pretax operating income for 1992.
At December 31, 1994, $6.3 million and $17.5 million of tax assets were
included in "Other current assets" and "Other Assets," respectively. At
December 31, 1993, $14.0 million and $14.7 million of tax assets were included
in "Other current assets" and "Other Assets," respectively.
At December 31, 1994, the Company had $10.7 million of net operating loss and
tax credit carryforwards, which are primarily limited to offset certain future
domestic taxable earnings. The carryforwards expire as follows: $3.1 million
in 1996, $.7 million in 1997, $.1 million in 1998, $.6 million in 1999, $.1
million in 2000, $2.4 million in 2001, $.2 million in 2002 and $3.5 million
thereafter.
During 1994 the Internal Revenue Service (IRS) completed an examination of the
Company's corporate income tax returns for the years 1988 through 1991. As a
result of the IRS' findings, the Company agreed to and paid additional taxes
and interest of $7.8 million in January 1995 in connection with adjustments
related mainly to the tax treatment of certain items associated with the 1990
sale of the International Office Systems business. On January 13, 1995, the
IRS issued a Notice of Deficiency in the amount of $8.7 million in connection
with the tax years 1990 and 1991. The tax deficiency relates to the tax
treatment of income recognized in connection with the 1990 sale of the Office
Systems business. The major issues relate to foreign tax credits, foreign
earnings and profits computation, and the treatment of the disposition of
preferred stock of a foreign subsidiary. The Company disagrees with the
position taken by the IRS and filed a formal protest of the deficiency on
February 9, 1995. In management's opinion, the ultimate disposition of this
matter will not have a material adverse effect on the financial position or
results of operations of the Company.
-25-
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It is management's intention to reinvest undistributed earnings of foreign
subsidiaries which aggregate approximately $25 million, based on exchange rates
at December 31, 1994. These earnings could become subject to additional tax if
they were remitted as dividends, if foreign earnings were lent to the Company
or if the Company should sell its stock in the subsidiaries. It is not
practicable to estimate the amount of additional tax that might be payable on
undistributed foreign earnings.
SHAREHOLDERS' EQUITY
The Company is authorized to issue up to 200,000 shares of Series A
Participating Preferred Stock in connection with its Rights Agreement under
which holders of the Company's common stock received a dividend of one
preferred stock purchase right for each outstanding share of common stock.
Each Right entitles the registered holder to purchase from the Company one
one-hundredth share of the Company's Series A Participating Preferred Stock, at
a price of $90.00. The Rights do not detach or become exercisable until the
tenth business day following the public announcement that a person has
acquired, or obtained the right to acquire, 10 percent or more of the
outstanding common stock of the Company, or the commencement of a tender or
exchange offer which would result in the acquisition of beneficial ownership of
10 percent or more of the Company's common stock. The Rights Agreement
provides that if any person or group were to acquire 10 percent or more of the
Company's common stock, then shareholders other than the acquiring person would
be entitled to purchase, at the Rights' then-current exercise price, a number
of additional Company shares having a market value of twice the Rights'
exercise price, unless the acquiring person purchases at least 85 percent of
Nashua's common stock in a cash tender offer for all shares. The Company's
Board of Directors may, at their option, exchange one Company share of common
stock for each Right (other than the Rights held by the acquiring person) if
the acquiring person has acquired more than 10 percent but less than 50 percent
of the Company's common stock. The Rights Agreement further provides that,
upon the occurrence of certain events including transactions in which the
Company is acquired and certain self-dealing transactions with the Company by
an acquirer, each Right entitles the holder thereof (other than the acquirer)
to purchase shares of capital stock of either the Company or of the acquirer
having a value equal to twice the then-current exercise price of the Rights.
At any time prior to a person's acquiring beneficial ownership of 10 percent or
more of the Company's common stock, the Continuing Directors, by a two-thirds
vote, may authorize the Company to redeem the Rights at any time at a
redemption price of five cents per Right. The Rights will expire on September
2, 1996, unless earlier redeemed by the Company. In addition to the Rights
attaching to the common stock outstanding, Rights will be issued with each
common share that is issued prior to the time the Rights become exercisable or
expire.
In 1989, the Board of Directors authorized the Company to repurchase up to
1,000,000 shares of its common stock. As of December 31, 1994, the Company had
purchased approximately 435,000 shares under this program.
-26-
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The following summarizes the changes in selected shareholders' equity accounts
for each of the three years in the period ended December 31, 1994:
Common Stock Cumulative
Par Additional Translation Treasury Stock
(In thousands, except share data) Shares Value Capital Adjustment Shares Cost
------ ----- ---------- ----------- ------ ----
BALANCE, DECEMBER 31, 1991 6,681,763 $6,682 $10,668 $(1,693) (398,149) $(15,000)
Stock options exercised and related tax benefit 24,610 25 462 - - -
Translation adjustments and gains and losses
from certain inter-company balances - - - (3,700) - -
Purchase of treasury shares - - - - (44) (1)
Reissuance of treasury shares - - - - 510 14
Retirement of treasury shares (372,683) (373) - - 372,683 14,188
--------- ------ ------- ------- -------- --------
BALANCE, DECEMBER 31, 1992 6,333,690 6,334 11,130 (5,393) (25,000) (799)
Stock options exercised and related tax benefit 6,740 6 116 - - -
Translation adjustments and gains and losses
from certain inter-company balances - - - (451) - -
Purchase of treasury shares - - - - (120) (3)
Reissuance of treasury shares - - - - 530 17
--------- ------ ------- ------- -------- --------
BALANCE, DECEMBER 31, 1993 6,340,430 6,340 11,246 (5,844) (24,590) (785)
Stock options exercised and related tax benefit 56,140 57 1,024 - - -
Translation adjustments and gains and losses
from certain inter-company balances - - - 916 - -
Purchase of treasury shares - - - - (60) (2)
--------- ------ ------- ------- -------- --------
BALANCE, DECEMBER 31, 1994 6,396,570 $6,397 $12,270 $(4,928) (24,650) $ (787)
========= ====== ======= ======= ======= ========
STOCK OPTION AND STOCK AWARD PLANS
The Company has three stock compensation plans at December 31, 1994: the 1980
Stock Award Plan (1980 plan), the 1987 Stock Option Plan (1987 plan) and the
1993 Stock Incentive Plan (1993 plan). Awards can no longer be granted under
the 1980 plan. Awards under the 1987 plan and 1993 plan are made at the
discretion of the Executive Salary Committee of the Board of Directors.
Stock options awarded under the 1980 plan which are outstanding at December 31,
1994, are currently exercisable and expire on the tenth anniversary of the date
of grant.
Under the 1987 plan, nonqualified stock options and incentive stock options may
be awarded. Stock options under the 1987 plan become exercisable either (a) 50
percent on the first anniversary of grant, and the remainder on the second
anniversary of grant, (b) 100 percent at six months from the date of grant, or
(c) 100 percent at one year from the date of grant. Nonqualified stock options
expire 10 years and one day from the date of grant, and incentive stock options
expire 10 years from the date of grant.
Under the 1993 plan, non-statutory stock options and incentive stock options
may be awarded. Stock options under the 1993 plan become exercisable either
(a) 50 percent on the first anniversary of grant and the remainder on the
second anniversary of grant, or (b) 100 percent at one year from the date of
grant. Non-statutory stock options expire 10 years and one day from the date
of grant, and incentive stock options expire 10 years from the date of grant.
-27-
29
In the event of a change of control, as defined in the 1987 plan and the 1993
plan, the option holder may, with respect to stock option agreements which so
provide, have a limited right with respect to options under the plans to elect
to surrender the options and receive cash or shares equal in value to the
difference between the option price and the larger of either the highest
reported price per share on the New York Stock Exchange during the sixty-day
period before the change in control or, if the change in control is the result
of certain defined transactions, the highest price per share paid in such
defined transactions.
Because the exercise price of all stock options awarded under these plans has
been equal to the quoted market price of the Company's common stock at date of
grant, no compensation expense has been recorded for these awards.
A summary of the status of the Company's stock option plans follows:
Outstanding Option Price Exercisable
Options Per Share Options
----------- ------------ -----------
December 31, 1991 429,170 $ 5.13-38.38 381,920
Options granted 43,600 28.13 -
Options that became exercisable - 25.50-34.63 45,850
Options exercised (24,646) 5.13-19.38 (24,646)
Options lapsed and cancelled (52,734) 25.50-34.63 (45,134)
-------- ------------ -------
December 31, 1992 395,390 $11.81-38.38 357,990
Options granted 113,800 25.75-30.25 -
Options that became exercisable - 25.50-34.63 25,350
Options exercised (6,740) 11.81-25.50 (6,740)
Options lapsed and cancelled (6,380) 25.75-34.63 (2,900)
-------- ------------ -------
December 31, 1993 496,070 $11.81-38.38 373,700
Options granted 103,950 22.63-29.50 -
Options that became exercisable - 25.75-28.13 62,406
Options exercised (56,140) 11.81-28.13 (56,140)
Options lapsed and cancelled (158,046) 25.75-38.38 (151,981)
-------- ------------ -------
December 31, 1994 385,834 $13.75-34.63 227,985
======== ============ =======
COMMITMENTS AND CONTINGENCIES
Rent expense for office equipment, facilities and vehicles was $2.1 million,
$1.8 million and $2.0 million for 1994, 1993 and 1992, respectively. At
December 31, 1994, the Company was committed, under non-cancelable operating
leases, to minimum annual rentals as follows: 1995 - $1.8 million; 1996 - $1.7
million; 1997 - $1.6 million; 1998 - $1.3 million; 1999 - $1.3 million;
thereafter - $9.5 million.
At December 31, 1994, the Company was obligated under approximately $6.0
million in standby letters of credit.
The Company is involved in certain environmental matters and has been
designated by the Environmental Protection Agency (EPA) as a "potentially
responsible party" (PRP) for certain hazardous waste sites. In addition, the
Company has been notified by certain state environmental agencies that some of
the Company sites not addressed by the EPA require remedial action. These
sites are in various stages of investigation and remediation. Due to the
unique physical characteristics of each site, the technology employed, the
extended timeframes of each remediation, the interpretation of applicable laws
and regulations and the financial viability
-28-
30
of other potential participants, the ultimate cost to the Company of
remediation for each site is difficult to determine. At December 31, 1994,
based on the facts currently known and the Company's prior experience with
these matters, the Company has concluded that there is at least a reasonable
possibility that site assessment, remediation and monitoring costs will be
incurred by the Company with respect to those sites which can be reasonably
estimated in the aggregate range of $.8 million to $1.0 million. This range is
based, in part, on an allocation of certain sites' costs which, due to the
joint and several nature of the liability, could increase if the other PRP's
are unable to bear their allocated share. At December 31, 1994, the Company
has accrued $.9 million which represents, in management's view, the most likely
amount within the range stated above. Based on information currently available
to the Company, management believes that it is probable that the major
responsible parties will fully pay the costs apportioned to them. Management
believes that, based on its financial position and the estimated environmental
accrual recorded, its remediation expense with respect to those sites is not
likely to have a material adverse effect on its consolidated financial position
or results of operations.
POSTRETIREMENT BENEFITS
PENSION PLANS: The Company and its subsidiaries have several pension plans
which cover substantially all of its regular full-time employees. Benefits
under these plans are generally based on years of service and the levels of
compensation during those years. The Company's policy is to fund amounts
deductible for income tax purposes. Assets of the plans are invested in
interest-bearing cash equivalent instruments, fixed-income securities and
common stocks.
Net periodic pension cost from continuing operations for the plans, exclusive
of enhanced early retirement and curtailment pension costs, includes the
following components:
(In thousands) 1994 1993 1992
---- ---- ----
Service cost-benefits earned during the period $ 2,771 $ 2,884 $ 2,929
Interest cost on projected benefit obligation 7,916 7,196 6,749
Actual return on plan assets 1,826 (17,554) (10,814)
Net amortization and deferral (9,491) 10,839 4,754
------- -------- -------
Net periodic pension cost $ 3,022 $ 3,365 $ 3,618
======= ======== =======
In February 1994, the Company offered certain of its United States employee
groups an enhanced early retirement pension benefit. The cost of the enhanced
pension benefit was $4.2 million, $2.2 million of which was attributable to
discontinued operations. In 1993, the Company recognized a curtailment expense
of $1.2 million, approximately $.6 million of which related to discontinued
operations.
-29-
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The following sets forth the funded status of the plans and the amounts
recognized in the Company's consolidated balance sheet at December 31, 1994:
Accumulated
Benefit Obligation
-------------------------
Less Than Exceeds
(In thousands) Assets Assets
--------- -------
Actuarial present value of:
Vested benefit obligation $41,052 $ 58,035
------- --------
Accumulated benefit obligation $41,863 $ 58,158
------- --------
Projected benefit obligation $42,189 $ 62,046
------- --------
Market value of plan assets $47,117 $ 53,137
------- --------
Plan assets in excess of (less than) projected benefit obligation $ 4,928 $ (8,909)
Unrecognized transition (asset) obligation (2,196) 2,363
Unrecognized prior service costs 1,452 5,568
Unrecognized net gain (1,390) (7,731)
Additional liability - (143)
------- --------
Prepaid (accrued) pension cost $ 2,794 $ (8,852)
======= ========
The following sets forth the funded status of the plans and the amounts
recognized in the Company's consolidated balance sheet at December 31, 1993:
Accumulated
Benefit Obligation
-------------------------
(In thousands) Less Than Exceeds
Assets Assets
--------- -------
Actuarial present value of:
Vested benefit obligation $41,286 $ 58,490
------- --------
Accumulated benefit obligation $41,519 $ 58,686
------- --------
Projected benefit obligation $41,837 $ 60,759
------- --------
Market value of plan assets $47,992 $ 55,695
------- --------
Plan assets in excess of (less than) projected benefit obligation $ 6,155 $ (5,064)
Unrecognized transition (asset) obligation (2,389) 3,324
Unrecognized prior service costs 448 3,712
Unrecognized net gain (1,199) (7,029)
Additional liability - (1,027)
------- --------
Prepaid (accrued) pension cost $ 3,015 $ (6,084)
======= ========
During 1994, the Company updated the definition of average annual compensation,
the effect of which increased the unrecognized prior service liability by $1.8
million. Approximately $7.5 million and $4.2 million of the accrued pension
cost for 1994 and 1993, respectively, are included in "Other Long-Term
Liabilities" in the accompanying consolidated balance sheet.
The significant actuarial assumptions used for the plans' valuations were:
1994 1993
---- ----
Weighted-average discount rate 8.2% 7.3%
Expected long-term rate of return on plan assets 9.7% 9.1%
Rate of increase in future compensation levels 5.0% 4.7%
-30-
32
RETIREE HEALTH CARE AND OTHER BENEFITS: The Company provides certain health
care and other benefits to eligible retired employees and spouses. Salaried
participants generally become eligible for retiree health care benefits after
reaching age 60 with ten years of service. Benefits, eligibility and
cost-sharing provisions for hourly employees vary by location or bargaining
unit. Generally, the medical plans pay a stated percentage of most medical
expenses, reduced for any deductibles and payments made by government programs
and other group coverage.
In 1992, the cost of providing most of these benefits was shared with retirees,
except for a group of retirees at one manufacturing facility. In 1993, the
plan was changed to share the cost of these benefits with all retirees,
resulting in an unrecognized benefit which is being amortized over the future
service period of the active employees.
The following table sets forth the funded status of the plans, reconciled to
the accrued postretirement benefit cost recognized in the Company's balance
sheet:
(In thousands) 1994 1993
---- ----
Accumulated postretirement benefit obligation:
Retirees $ 7,264 $ 5,864
Fully eligible active plan participants 1,668 2,400
Other active participants 2,453 2,918
--------- --------
Market value of plan assets - -
Accumulated postretirement benefit obligation in excess of plan assets (11,385) (11,182)
Unrecognized prior service benefit (5,221) (4,821)
Unrecognized net (gain) loss (1,232) 70
--------- --------
Accrued postretirement benefit cost $ (17,838) $(15,933)
========= ========
Approximately $17.1 million and $15.1 million of accrued postretirement
benefits for 1994 and 1993, respectively, are included in "Other Long-Term
Liabilities" in the accompanying consolidated balance sheet.
Net periodic postretirement benefit cost of continuing operations, exclusive of
enhanced early retirement and curtailment costs, included the following
components:
(In thousands) 1994 1993 1992
---- ---- ----
Service cost of benefits earned $ 133 $ 162 $ 284
Interest cost on accumulated postretirement
benefit obligation 942 791 1,208
Amortization of prior service benefit (554) (554) -
----- ----- ------
Net periodic postretirement benefit cost $ 521 $ 399 $1,492
===== ===== ======
As part of the 1994 early retirement program, the Company offered certain of
its United States employee groups an enhanced early retirement health care
benefit. The cost of the enhanced health care benefit was $1.5 million, $.9
million of which was attributable to discontinued operations. At December 31,
1994, the postretirement benefit plans were amended to transfer the cost of
health supplement benefit payments to the Company's pension plan. In 1993, the
Company recognized a curtailment expense of $.8 million, approximately half of
which related to discontinued operations, in connection with its decision to
dispose of certain operations and reduce personnel in the remaining businesses.
-31-
33
For measurement purposes, an 8.0 percent annual rate of increase in the per
capita claims cost of medical benefits was assumed for the various plans in
1995. These rates were assumed to decrease gradually to 5.5 percent in 1999
and remain at that level thereafter. The discount rate used in determining the
accumulated postretirement benefit obligation was 8.25 percent.
If the health care cost trend rate were increased 1 percent in each future
year, the accumulated postretirement benefit obligation as of December 31, 1994
would have increased by 2 percent. The effect of this assumed change on the
aggregate of service and interest cost for 1994 would have been an increase of
4 percent.
The Company adopted Financial Accounting Standard No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," in 1992 which
requires the accrual of the cost of providing non-pension postretirement
benefits ("postretirement benefits"), primarily medical coverage, during the
employee's active service period. The Company elected to immediately recognize
the accumulated liability, measured as of January 1, 1992. This resulted in a
one-time charge of $9.4 million, after reduction for income taxes of $6.3
million. The pro forma effect of the change on years prior to 1992 was not
determinable. Prior to 1992, the Company recognized expense in the year the
benefits were provided.
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34
INFORMATION ABOUT OPERATIONS
The Company conducts business in three segments: Commercial Products,
Photofinishing and Precision Technologies. In 1994, the Company combined its
Coated Products and Office Supplies business segments to form Commercial
Products. Commercial Products produces and sells facsimile and thermal papers,
pressure sensitive labels, specialty papers and tapes, and copier and laser
printer supplies. Photofinishing provides mail-order photofinishing services.
Precision Technologies manufactures precision metallic parts primarily for the
computer industry, and was previously included in the discontinued Computer
Products segment. Net sales, operating income and identifiable assets of the
Company's three business segments and the geographic areas in which they
operate are set forth below:
Net Sales From Income From
Continuing Operations Continuing Operations Identifiable Assets
(In millions) 1994 1993 1992 1994 1993(b) 1992(c) 1994 1993 1992
BY BUSINESS
Commercial Products $319.2 $317.0 $313.3 $(.6)(a) $ 1.5 $ 7.4 $121.5 $106.7 $106.7
Photofinishing 145.4 148.7 161.9 16.4 15.9 15.4 58.1 47.5 54.3
Precision Technologies 14.0 14.1 16.5 (.2) .6 1.6 7.4 4.3 3.0
Corporate expenses,
including interest and assets - - - (8.1) (14.4) (6.6) 40.8 33.4 19.6
Discontinued Operations - - - - - - - 27.2 53.1
------ ------ ------ ---- ------ ----- ------ ------ ------
Consolidated $478.6 $479.8 $491.7 $7.5 $ 3.6 $17.8 $227.8 $219.1 $236.7
====== ====== ====== ==== ====== ===== ====== ====== ======
BY GEOGRAPHIC AREA
United States $417.2 $418.5 $420.7 $9.7 $ 7.5 $19.5 $150.1 $125.8 $130.0
Europe 53.6 52.3 60.8 5.0 8.6 2.4 33.3 26.7 29.2
Other 7.8 9.0 10.2 .9 1.9 2.5 3.6 6.0 4.8
Eliminations, corporate
expenses, including interest
and assets - - - (8.1) (14.4) (6.6) 40.8 33.4 19.6
Discontinued Operations - - - - - - - 27.2 53.1
------ ------ ------ ---- ------ ----- ------ ------ ------
Consolidated $478.6 $479.8 $491.7 $7.5 $ 3.6 $17.8 $227.8 $219.1 $236.7
====== ====== ====== ==== ====== ===== ====== ====== ======
Sales between business segments are insignificant. Intrasegment sales between geographic areas are generally priced at the lowest
price offered to unaffiliated customers.
(a) Includes restructuring charges of $2.6 million.
(b) Includes restructuring charges of $3.5 million, $.8 million, and $7.5 million, for Commercial Products, Photofinishing and
Corporate, respectively.
(c) Before the cumulative effect of changes in accounting principles.
-33-
35
Capital expenditures and depreciation and amortization by business segment are
set forth below:
Depreciation and
Capital Expenditures Amortization
1994 1993 1992 1994 1993 1992
---- ---- ---- ---- ---- ----
Commercial Products $12.0 $10.4 $ 8.9 $ 9.1 $ 8.0 $ 7.2
Photofinishing 3.8 2.9 3.2 5.4 5.9 6.0
Precision Technologies 1.0 1.8 .5 .8 .7 .8
----- ----- ----- ----- ----- -----
Consolidated $16.8 $15.1 $12.6 $15.3 $14.6 $14.0
===== ===== ===== ===== ===== =====
SUBSEQUENT EVENTS
On January 13, 1995, the Company acquired certain photofinishing operations
from Nexus Photo Ltd. The acquisition includes mail- order photofinishing
operations in France, Belgium, the Netherlands and Spain, and a wholesale film
processing business in Northern Ireland. The total purchase price was
approximately $25.6 million, plus an additional payment based on certain volume
in the Northern Ireland operation. The acquisition will be accounted for as a
purchase business combination and, accordingly, operating results of this
business subsequent to the date of acquisition will be included in the
Company's Consolidated Statement of Income.
The unaudited pro forma combined condensed balance sheet of the Company and the
acquired businesses as of December 31, 1994, after giving effect to certain pro
forma adjustments, is as follows:
(In thousands)
Current assets $109,136
Property and equipment, net 79,474
Other assets 66,312
--------
$254,922
========
Current liabilities $ 67,788
Non-current liabilities 94,438
Shareholder's equity 92,696
--------
$254,922
========
The unaudited combined condensed pro forma results listed below reflect
purchase price accounting adjustments assuming the acquisition occurred
at the beginning of 1994.
(In thousands, except per share data)
Net sales $521,769
========
Income from continuing operations $ 5,322
========
Earnings per common and common equivalent share $ .84
========
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36
QUARTERLY OPERATING RESULTS AND COMMON STOCK INFORMATION (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA) 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ------
1994
Net sales $112.8 $122.7 $127.9 $115.2 $478.6
Gross profit 26.2 31.9 33.3 25.2 116.6
Income (loss) from continuing operations(1) (1.2) 2.9 2.4 .3 4.4
Income (loss) from discontinued operations (2.3) - - - (2.3)
Net income (loss)(1) (3.5) 2.9 2.4 .3 2.1
Earnings (loss) per common and common
equivalent share:
Continuing operations(1) (.18) .46 .37 .05 .70
Discontinued operations (.36) - - - (.36)
Net income (loss)(1) (.54) .46 .37 .05 .34
Dividends .18 .18 .18 .18 .72
Market price:
High 30 3/4 27 3/8 29 1/4 23 1/8 30 3/4
Low 26 1/4 24 3/8 22 7/8 19 3/4 19 3/4
1993
Net sales $116.2 $120.3 $133.3 $110.0 $479.8
Gross profit 28.3 31.8 36.0 24.8 120.9
Income (loss) from continuing operations(2) 1.0 2.5 4.9 (5.9) 2.5
Income (loss) from discontinued operations 1.6 1.4 (.5) (24.2) (21.7)
Net income (loss)(2) 2.6 3.9 4.4 (30.1) (19.2)
Earnings (loss) per common and common
equivalent share:
Continuing operations(2) .17 .40 .76 (.93) .40
Discontinued operations .25 .21 (.07) (3.81) (3.42)
Net income (loss)(2) .42 .61 .69 (4.74) (3.02)
Dividends .18 .18 .18 .18 .72
Market price:
High 29 7/8 29 5/8 31 3/4 31 3/4 31 3/4
Low 25 1/4 25 3/8 27 3/8 25 3/8 25 1/4
------ ------ ------ ------ ------
(1)The first quarter includes restructuring charges of $2.6 million.
(2)The fourth quarter includes restructuring charges of $11.8 million.
The Company's stock is traded on the New York Stock Exchange. At December 31,
1994, there were 1,599 record holders of Nashua's common stock.
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Report of Independent Accountants
To the Board of Directors and Shareholders of Nashua Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Nashua
Corporation and its subsidiaries at December 31, 1994 and 1993 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in the Income Taxes and Postretirement Benefits notes to the
financial statements, the Company changed its method of accounting for income
taxes by adopting Financial Accounting Standards Board ("FASB") Statement No.
109, "Accounting for Income Taxes," and its accounting for non-pension benefit
plans by adopting FASB Statement No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," in 1992.
Price Waterhouse LLP
Boston, Massachusetts
February 1, 1995
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section entitled "Nominees for Election as Directors", which
appears on pages 2 through 3 of the Company's Proxy Statement dated March 24,
1995, is incorporated by reference in this Form 10-K. See also the section
entitled "Executive Officers of the Registrant" appearing in Part I hereof.
-36-
38
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Compensation of Directors" and "Compensation of
Executive Officers," which appears on pages 4 through 9 of the Company's Proxy
Statement dated March 24, 1995, is incorporated by reference in this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The sections entitled "Security Ownership of Management" and
"Security Ownership of Certain Beneficial Owners," which appear on pages 11
through 12 of the Company's Proxy Statement dated March 24, 1995, are
incorporated by reference in this Form 10- K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The section entitled "Certain Transactions and Indebtedness,"
which appears on page 8 of the Company's Proxy Statement dated March 24, 1995,
is incorporated by reference in this Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements
Report of Independent Accountants (See page 36)
Consolidated Balance Sheet at December 31, 1994 and 1993 (See page 18)
Consolidated Statement of Operations and Retained Earnings for
each of the three years in the period ended December 31, 1994
(See page 17)
Consolidated Statement of Cash Flows for each of the three years in
the period ended December 31, 1994 (See page 19).
Notes to Consolidated Financial Statements (See pages 20 through 35)
(2) Financial Statement Schedules:
Report of Independent Accountants on Financial Statement Schedule
For the three years ended December 31, 1994:
Schedule II - Valuation and Qualifying Accounts
-37-
39
All other schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements or the
Notes thereto.
(3) Exhibits:
2.01 Purchase and Sale Agreement, by and among Nashua
Corporation and subsidiaries and Nexus Photo Limited and
subsidiaries. Exhibit to the Company's Form 8-K dated
January 13, 1995, and incorporated herein by reference.
3.01 Composite Certificate of Incorporation of the Company, as
amended. Exhibit to the Company Annual Report on Form 10-K
for the year ended December 31, 1989, and incorporated
herein by reference.
3.02 By-laws of the Company, as amended. Exhibit to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1989, and incorporated herein by reference.
4.01 Note Agreement dated as of September 13, 1991. Exhibit to
the Company's Form 10-K for the year ended December 31,
1991, and incorporated herein by reference.
4.02 Amendment No. 1 dated as of December 31, 1991 to the Note
Agreement dated September 13, 1991. Exhibit to the
Company's Form 10-K for the year ended December 31, 1993,
and incorporated herein by reference.
4.03 Amendment No. 2 dated as of January 27, 1994 to the Note
Agreement dated September 13, 1991. Exhibit to the
Company's Form 10-K for the year ended December 31, 1993,
and incorporated herein by reference.
4.04 Amendment No. 3 dated as of May 12, 1994 to the Note
Agreement dated September 13, 1991.
4.05 Amendment No. 4 dated as of December 31, 1994 to the Note
Agreement dated September 13, 1991.
4.06 Allonge dated December 31, 1994 to the Note Agreement dated
September 13, 1991.
4.07 Credit Agreement dated July 29, 1994. Exhibit to the
Company's Form 10-Q dated July 1, 1994, and incorporated
herein by reference.
4.08 Credit Agreement dated as of January 5, 1995.
4.09 Rights Agreement dated as of August 22, 1986 between the
Company and The First National Bank of Boston. Exhibit to
the Company's Form 8-K dated August 22, 1986, and
incorporated herein by reference.
4.10 Amendment No. 1, dated April 22, 1988 to the Rights
Agreement dated as of August 22, 1986 between the Company
and The First National Bank of Boston. Exhibit to the
Company's Form 8-K dated May 3, 1988, and incorporated
herein by reference.
-38-
40
4.11 Amendment No. 2, dated May 17, 1989 to the Rights Agreement
dated as of August 22, 1986 between the Company and the
First National Bank of Boston. Exhibit to the Company's
Form 8-K dated May 17, 1989 and incorporated herein by
reference.
4.12 Amendment No. 3, dated October 27, 1989 to the Rights
Agreement dated as of August 22, 1986 between the Company
and the First National Bank of Boston. Exhibit to the
Company's Form 8-K dated October 31, 1989 and incorporated
herein by reference.
4.13 Amendment No. 4, dated March 22, 1993 to the Rights
Agreement dated as of August 22, 1986 between the Company
and the First National Bank of Boston. Exhibit to the
Company's Form 8-K dated March 22, 1993 and incorporated
herein by reference.
10.01 Management Incentive Compensation Program of the Company, as
amended 1993. Exhibit to the Company's Form 10-K for the
year ended December 31, 1992 and incorporated herein by
reference.
10.02 Nashua Corporation Supplemental Compensation Plan (as
amended February 24, 1994). Exhibit to the Company's Form
10-K for the year ended December 31, 1994 and
incorporated herein by reference.
10.03 1980 Stock Award Plan of the Company, as amended. Exhibit
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1981, and incorporated
herein by reference.
10.04 1987 Stock Option Plan of the Company. Exhibit to the
Company's Proxy Statement dated March 24, 1987, and
incorporated herein by reference.
10.05 Amendments to Nashua Corporation 1987 Stock Option Plan
effective as of April 28, 1989. Exhibit to the Company's
Form 10-Q for the quarterly period ended June 30, 1989, and
incorporated herein by reference.
10.06 1993 Stock Option Plan of the Company. Exhibit to the
Company's Proxy Statement dated March 19, 1993, and
incorporated herein by reference.
10.07 Severance Agreement dated March 8, 1988 between the Company
and William Luke. Exhibit to the Company's Annual Report
on Form 10-K for the year ended December 31, 1987, and
incorporated herein by reference.
10.08 Employment Agreement dated as of April 28, 1989 between the
Company and William Luke. Exhibit to the Company's Form
10-Q for the quarterly period ended June 30, 1989, and
incorporated herein by reference.
10.09 Employment Agreement dated as of February 6, 1994 between
the Company and Francis J. Lunger. Exhibit to the
Company's Form 10-K for the year ended December 31, 1993,
and incorporated herein by reference.
10.10 Letter agreement dated July 21, 1993 between the Company
and William E. Mitchell. Exhibit to the Company's Form
10-Q for the quarterly period ended October 1, 1993, and
incorporated by reference.
-39-
41
10.11 Employment Agreement dated as of September 1, 1993 between
the Company and William E. Mitchell. Exhibit to the
Company's Form 10-Q for the quarterly period ended October
1, 1993, and incorporated by reference.
10.12 Promissory Note dated January 31, 1995 from William E.
Mitchell to Nashua Corporation.
10.13 Continuing Corporate Guarantee dated January 20, 1995 by
Nashua Corporation of residential loan to William E.
Mitchell by Boston Safe Deposit and Trust Company.
10.14 Stock Appreciation Right Agreement dated March 20, 1992
between the Company and Charles E. Clough with respect
to 15,000 shares of the Company. Exhibit to the Company's
Form 10-K for the year ended December 31, 1991, and
incorporated herein by reference.
10.15 Consulting Agreement dated August 12, 1994 between the
Company and Charles E. Clough.
11.01 Statement regarding Computation of Earnings Per Share and
Common Equivalent Share.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Independent Accountants.
24.01 Powers of Attorney.
27.01 Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed or required to be filed by the
Company during the fourth quarter of the fiscal year ended December
31, 1994.
-40-
42
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NASHUA CORPORATION
Date: March 28, 1995 By William Luke
---------------------------
William Luke
Vice President-Finance
and Chief Financial Officer
SIGNATURE TITLE DATE
William E. Mitchell President and March 28, 1995
- --------------------
William E. Mitchell Chief Executive Officer
William Luke Vice President-Finance March 28, 1995
- --------------------
William Luke and Chief Financial Officer
Joseph R. Matson Corporate Controller and March 28, 1995
- --------------------
Joseph R. Matson Chief Accounting Officer
Joseph A. Baute* Director
- --------------------
Joseph A. Baute
Sheldon A. Buckler* Director
- --------------------
Sheldon A. Buckler
Richard E. Carter* Director
- --------------------
Richard E. Carter
Charles E. Clough* Director
- --------------------
Charles E. Clough
Thomas W. Eagar* Director
- --------------------
Thomas W. Eagar
John M. Kucharski* Director
- --------------------
John M. Kucharski
*By /s/ William Luke March 28, 1995
------------------
William Luke
Attorney-In-Fact
-41-
43
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
TO THE BOARD OF DIRECTORS OF
NASHUA CORPORATION
Our audits of the consolidated financial statements referred to in our report
dated February 1, 1995, appearing on page 36 of this Annual Report on Form
10-K also included an audit of the Financial Statement Schedule listed in Item
14(a) of this Form 10-K. In our opinion, the Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
Price Waterhouse LLP
Boston, Massachusetts
February 1, 1995
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44
SCHEDULE II
===========
NASHUA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(In Thousands)
Deductions-
Additions Uncollectible
Balance at Charged to Accounts Balance at
Beginning Costs and Charged to End of
of Period Expenses Reserves Period
--------- ---------- ------------- ----------
Year ended December 31, 1994 $1,883 $1,374 $ (629) $2,628
====== ====== ======= ======
Year ended December 31, 1993 $2,433 $ 836 $(1,386) $1,883
====== ====== ======= ======
Year ended December 31, 1992 $2,634 $ 654 $ (855) $2,433
====== ====== ======= ======