UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number 1-05492
NASHUA CORPORATION
(Exact name of registrant as
specified in its charter)
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Massachusetts
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02-0170100
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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11 Trafalgar Square, Suite 201,
Nashua, New Hampshire
(Address of principal
executive offices)
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03063
(Zip Code)
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Registrants
telephone number, including area code
(603) 880-2323
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $1.00 par value
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NASDAQ Global Market
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Securities registered pursuant to Section 12(g) of the
Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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No
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Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
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No
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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
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No
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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 registrants 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.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2
of the
Exchange Act. (Check one):
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Large
accelerated
filer
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Accelerated
filer
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Non-accelerated
filer
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Smaller
reporting
company
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes:
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No
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The aggregate market value of the registrants voting
shares of common stock held by non-affiliates of the registrant
on June 27, 2008, based on $9.63 per share, the last
reported sale price on the NASDAQ Global Market on that date,
was $26,801,783.
The number of shares outstanding of each of the
registrants classes of common stock, as of March 23,
2009:
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Class
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Number of Shares
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Common Stock, $1.00 par value
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5,599,642
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The following documents are incorporated by reference into the
Annual Report on
Form 10-K:
Portions of the registrants definitive Proxy Statement for
its 2009 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Report.
PART I
General
Nashua Corporation is a manufacturer, converter and marketer of
labels and specialty papers. Our primary products include
thermal and other coated papers, wide-format papers,
pressure-sensitive labels, tags, and transaction and financial
receipts.
Our company is incorporated in Massachusetts. Our principal
executive offices are located at 11 Trafalgar Square,
Suite 201, Nashua, New Hampshire 03063, and our telephone
number is
(603) 880-2323.
Our Internet address is
www.nashua.com
. Copies of our
reports, including this annual report on
Form 10-K,
our quarterly reports on
Form 10-Q,
our current reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, or the Exchange Act, can all be accessed from
our website free of charge and immediately after filing with the
Securities and Exchange Commission. We are subject to the
informational requirements of the Exchange Act, and,
accordingly, file reports, proxy statements and other
information with the Securities and Exchange Commission. Such
reports, proxy statements and other information can be read and
copied at the public reference facilities maintained by the
Securities and Exchange Commission at the Public Reference Room,
100 F Street, NE, Washington, D.C. 20549.
Information regarding the operation of the Public Reference Room
may be obtained by calling the Securities and Exchange
Commission at
1-800-SEC-0330.
The Securities and Exchange Commission maintains a website
(http://www.sec.gov)
that contains reports, proxy and information statements and
other information regarding issuers that file electronically
with the Securities and Exchange Commission. References in this
Form 10-K
to us, we, ours, the
company or to Nashua refer to Nashua
Corporation and our consolidated subsidiaries, unless the
context requires otherwise.
Recent
Developments
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In the third quarter of 2008, we closed our Cranbury, New Jersey
facility in our Specialty Paper Products segment.
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For the third quarter ended September 28, 2008, we
recognized a goodwill impairment charge of $14.1 million
related to our Specialty Paper Products segment.
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During 2008, we replaced certain leased distribution centers
with public warehouses.
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In December 2008, we closed our Jacksonville, Florida label
converting facility and consolidated operations into our
Tennessee and Nebraska facilities in our Label Products segment.
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During 2008, we streamlined our workforce and eliminated 25
positions in our selling, general and administrative areas. We
recognized $1.1 million of severance expense associated
with the reduction in workforce.
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In addition, in March 2009, we entered into an amendment to our
credit facility with Bank of America that, among other things,
changed the termination date of the agreement to March 29,
2010 from March 30, 2012, reduced the amount of the
revolving credit facility from $28 million to
$15 million until June 30, 2009 and $17 million
thereafter, increased the interest rate on borrowings to LIBOR
plus 335 basis points or prime plus 110 basis points,
and limited our annual capital expenditures to $2 million.
Pursuant to the amendment, Bank of America waived our
non-compliance with the fixed charge coverage ratio and the
funded debt to adjusted EBITDA ratio financial covenants at
December 31, 2008, and amended the terms of those covenants
for the quarter ending April 3, 2009 and subsequent periods.
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Operating
Segments
Set forth below is a brief summary of each of our two operating
segments together with a description of their more significant
products, competitors and operations. Our two operating segments
are:
(1) Label Products
(2) Specialty Paper Products
Additional financial information regarding our business segments
is contained in Managements Discussion and Analysis of
Financial Condition and Results of Operations in Item 7 of
Part II, and Note 12 to our Consolidated Financial
Statements included in Item 8 of Part II of this
annual report on
Form 10-K.
Label
Products Segment
Our Label Products segment converts, prints and sells
pressure-sensitive labels, radio frequency identification (RFID)
labels and tickets and tags to distributors and end-users. Our
Label Products segments net sales were
$105.1 million, $115.5 million and $109.7 million
for the years ended December 31, 2008, 2007 and 2006,
respectively.
Nashua pressure-sensitive labels and tags are used in a variety
of applications including supermarket weighscale, retail shelf
marking, prescription fulfillment, inventory control and
tracking, automatic identification, event ticketing, and address
labels. We are a major supplier of labels to the grocery,
retail, manufacturing and transportation market segments. We
also supply tickets used in cinema and entertainment venues. Our
RFID products are utilized for inventory control, tracking and
automatic identification.
The label industry is price-sensitive and competitive and
includes competitors such as R. R. Donnelley & Sons
Company and Hobart Corporation, a subsidiary of Illinois
Toolworks, as well as numerous regional converters.
We depend on outside suppliers for most of the raw materials
used by our Label Products segment. Primary materials used in
producing our products include laminated pressure sensitive
materials and tag materials, RFID inlays and inks. Thermal and
non-thermal base papers constitute a large percentage of the raw
material cost for our products. As a result, our costs and
market pricing are heavily impacted by changes in thermal and
other paper costs. We purchase materials from multiple suppliers
and believe that adequate quantities of supplies are available.
However, for some important raw materials, such as certain
laminated papers and inks, we either sole source or obtain
supplies from a few vendors. There is no current or anticipated
supply disruption, but a future supply disruption could
negatively impact our operations until an alternate source of
supply could be qualified. Additionally, there can be no
assurance that our future operating results would not be
adversely affected by either future increases in the cost of raw
materials or the curtailment of supply of raw materials or
sourced products.
Specialty
Paper Products Segment
Our Specialty Paper Products segment coats, converts, prints and
sells papers and films. Products include: thermal papers,
dry-gum papers, heat seal papers, bond papers, wide-format media
papers, small rolls, financial receipts, point-of-sale receipts,
retail consumer products and ribbons. Our Specialty Paper
Products segments net sales were $162.3 million,
$160.3 million and $162.5 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
Thermal papers develop an image upon contact with either a
heated stylus or a thermal print head. Thermal papers are used
in point-of-sale printers, package identification systems,
gaming and airline ticketing systems, facsimile machines,
medical and industrial recording charts and for conversion to
labels. We coat and sell large roll thermal papers primarily to
printers, laminators and converters. Competitors in the large
roll thermal papers market include companies such as Appleton
Papers, Inc. and Ricoh Corporation, as well as other
manufacturers in the United States, Asia and Europe.
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Dry-gum paper is coated with a moisture-activated adhesive. We
sell dry-gum paper primarily to fine paper merchants, business
forms manufacturers and paper manufacturers, who convert it into
various types of labels. Our major competitor in the dry-gum
label market is Troy Laminating and Coating, Inc.
Our heat seal papers are coated with an adhesive that is
activated when heat is applied. We sell these products primarily
to fine paper merchants who, in turn, resell them to printers
who convert the papers into labels for use primarily in the
pharmaceutical industry. Heat seal papers are also used in
bakery, meat packaging and other barcode applications.
Small rolls of bond, carbonless and thermal papers are used for
such applications as point-of-sale receipts for cash registers,
credit card verification systems, financial receipts for ATMs,
teller systems and check processing systems, adding machine
papers, and self-service kiosk applications, such as gas station
pay-at-the-pump,
casino/gambling and thermal facsimile for thermal fax printers.
Certain of our small roll products contain security features
utilized in loss prevention applications. We sell converted
small rolls to paper merchants, paper distributors, superstores,
warehouse clubs, resellers and end-users. Small roll brands
include Perfect Print and IBM. Our major competitors in the
small roll market include NCR Corporation, R. R.
Donnelley & Sons Company, and several regional
converters.
Wide-format media papers are premium quality coated and uncoated
bond and ink jet papers untreated or treated with either resin
or non-resin coatings. We sell wide-format media papers to
merchants, resellers, print-for-pay retailers and end-users for
use in graphic applications, signs, engineering drawings,
posters and for the reproduction of original copies. Our primary
competitors in the wide-format papers market include several
regional converters.
We depend on outside suppliers for the raw materials used by our
Specialty Paper Products segment. Primary raw materials include
paper, chemicals used in producing the various coatings that we
apply, inks and ribbons. Paper constitutes a large percentage of
the raw material cost for our products and our competitors
products. As a result, our costs and market pricing are heavily
impacted by changes in paper costs. Generally, we purchase
materials from multiple suppliers. However, we purchase some raw
materials for specific coated product applications from a single
supplier. While there is no current or anticipated supply
disruption, a future supply disruption could negatively impact
our operations until an alternate source of supply could be
qualified. There can be no assurance that our future operating
results would not be adversely affected by future increases in
either the cost of raw materials or the curtailment of supply of
raw materials or sourced products.
Several of the products in our Specialty Paper Products segment
are in mature and declining markets. These include our dry-gum
papers, heat seal papers, carbonless papers, bond papers and
ribbon products. Future sales and profitability for these
product lines depend on our ability to maintain current prices
and retain and increase our market share in these declining
markets.
Information
About Major Customers and Products
Our 2008 net revenues for the Specialty Paper Products
segment include sales of our thermal point-of-sale (POS) rolls
to Wal-Mart and Sams Club. The Wal-Mart and Sams
Club sales exceeded 10 percent of our consolidated net
revenues in 2008. While no other customer represented
10 percent of our consolidated net revenues in 2008, both
of our segments have significant customers. The loss of Wal-Mart
and Sams Club or any other significant customer or the
loss of sales of our POS rolls could have a material adverse
effect on us or our segments.
Our 2007 net revenues for the Label Products segment
include sales of our automatic identification labels to Federal
Express Corporation (FedEx). FedEx sales exceeded
10 percent of our consolidated net revenues for 2007.
Intellectual
Property
Our ability to compete may be affected by our ability to protect
our proprietary information, as well as our ability to design
products outside the scope of our competitors intellectual
property rights. We hold a
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limited number of U.S. and foreign patents for our
continuing operations, of which one is related to our Label
Products segment and seven are related to our Specialty Paper
Products segment, expiring in various years between 2009 and
2023. There can be no assurance that our patents will provide
meaningful protection, nor can there be any assurance that third
parties will not assert infringement claims against us or our
customers in the future. If one of our products was ruled to be
in violation of a competitors intellectual property
rights, we could be required to expend significant resources to
develop non-infringing alternatives or to obtain required
licenses. There can be no assurance that we could successfully
develop commercially viable alternatives or that we could obtain
necessary licenses. Additionally, litigation relating to
infringement claims could be lengthy or costly and could have an
adverse material effect on our financial condition or results of
operations regardless of the outcome of the litigation.
Manufacturing
Operations
We operate manufacturing facilities in the following locations:
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Merrimack, New Hampshire
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Omaha, Nebraska
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Jefferson City, Tennessee
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Vernon, California
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Our New Hampshire, Nebraska and California facilities are
unionized. We have union contracts with our hourly employees at
the New Hampshire site which expire in 2009. The union contracts
for the California and Nebraska sites expire in 2011 and 2012,
respectively. More information regarding the operating segments
and principal products produced at each location can be found in
Item 2 of Part I of this
Form 10-K.
There can be no assurance that future operating results will not
be adversely affected by changes in either our labor wage rates
or productivity.
Research
and Development
Our research and development efforts have been instrumental in
the development of many of our products. We direct our research
efforts primarily toward developing new products and processes
and improving product performance, often in collaboration with
our customers. Our research and development efforts are focused
primarily on new thermal coating applications for our Specialty
Paper Products and Label Products segments and RFID products for
our Label Products segment. Our research and development
expenditures were $.7 million in 2008, $.8 million in
2007, and $.6 million in 2006.
Environmental
Matters
We and our competitors are subject to various environmental laws
and regulations. These include the Comprehensive Environmental
Response, Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act, commonly known as
CERCLA, the Resource Conservation and Recovery Act,
commonly known as RCRA, the Clean Water Act and
other state and local counterparts of these statutes. We believe
that our operations have operated and continue to operate in
compliance with applicable environmental laws and regulations.
Nevertheless, we have received notices of alleged environmental
violations in the past and we could receive additional notices
of alleged environmental violations in the future. Violations of
these environmental laws and regulations could result in
substantial fines and penalties. Historically, we have addressed
and/or
attempted to remedy any alleged environmental violation upon
notification.
Our pre-tax expenditures for compliance with environmental laws
and regulations for continuing and discontinued operations were
$.2 million in 2008 and $.3 million in 2007.
Additionally, for sites which we have received notification of
the need to remediate, we have assessed our potential liability
and have established a reserve for estimated costs associated
with the remediation. At December 31, 2008, our reserve
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for potential environmental liabilities was $.7 million for
continuing operations. However, liability of potentially
responsible parties under CERCLA and RCRA is joint and several,
and actual remediation expenses at sites where we are a
potentially responsible party could either exceed or be below
our current estimates. We believe, based on the facts currently
known to us, insurance coverage and the environmental reserve
recorded, that our estimated remediation expense and on-going
costs of compliance with environmental laws and regulations are
not likely to have a material adverse effect on our consolidated
financial position, results of operations, capital expenditures
or our competitive place in the market.
Executive
Officers
Listed below are our executive officers as of March 13,
2009. No family relationships exist among our executive officers.
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Name
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Age
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Position
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Thomas G. Brooker
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President and Chief Executive Officer
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John L. Patenaude
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Vice President Finance, Chief Financial Officer and
Treasurer
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Margaret M. Callan
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Corporate Controller and Chief Accounting Officer
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Donald A. Granholm
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Vice President Supply Chain and Human Resources
Management
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Thomas M. Kubis
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Vice President of Operations
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William Todd McKeown
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Vice President of Sales and Marketing
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Michael D. Travis
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Vice President of Marketing
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Mr. Brooker has been our President and Chief Executive
Officer since May 2006. Prior to joining us, Mr. Brooker
was a partner in Brooker Brothers LLC (a real estate development
company) from December 2004 to May 2006. He served as Group
President Forms, Labels and Office Products of Moore
Wallace, a label and printing company and a subsidiary of R.R.
Donnelley & Sons Company, a provider of print and
related services, from January 2004 through November 2004. From
May 2003 to December 2003, Mr. Brooker served as Executive
Vice President of Sales for Moore Wallace Incorporated. From May
1998 through May 2003, Mr. Brooker served as Corporate
Vice President of Sales for Wallace Computer Services, Inc.
Mr. Patenaude has been our Vice President
Finance and Chief Financial Officer since May 1998. In addition,
since August 2000 and from May 1998 to October 1999,
Mr. Patenaude has served as Treasurer.
Ms. Callan has been our Corporate Controller and Chief
Accounting Officer since May 2003. She served as our Director of
Strategic Planning and Analysis from January 2001 to May 2003.
Mr. Granholm has been our Vice President Supply
Chain and Human Resources Management since July 2008 and an
executive officer since May 2007. He served as Vice
President Supply Chain Management from September
2006 to July 2008. From January 1995 to September 2006,
Mr. Granholm was Vice President Transportation
Network Planning for DHL Worldwide Express.
Mr. Kubis has been our Vice President of Operations since
August 2006. From May 2004 to August 2006, he served as Vice
President of Manufacturing for our Label Products segment. From
July 2003 to May 2004, Mr. Kubis served as Vice
President of Manufacturing for our Label Products facility in
Tennessee. From August 1996 to July 2003, Mr. Kubis served
as Plant Manager, Label Manufacturing Division, at Wallace
Computer Services, Inc., a subsidiary of Moore Corporation
Limited (predecessor of R.R. Donnelley & Sons Company).
Mr. McKeown has been Vice President of Sales and Marketing
since September 2006. From February 2005 to June 2006,
Mr. McKeown was Vice President of Sales and Marketing for
Interlake Material Handling, Inc., a manufacturer of storage
rack products. From January 2004 to November 2004,
Mr. McKeown served as Senior Vice President of Sales of
Moore Wallace North America. From 2001 to February 2003, he
served as Vice President of Corporate Accounts for Wallace
Computer Services, Inc.
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Mr. Travis has been Vice President of Marketing since
October 2006. He served as Vice President and General Manager of
manufacturing operations in Jefferson City, Tennessee for our
Label Products division from May 2002 to October 2006.
Our executive officers are generally appointed to their offices
each year by our Board of Directors shortly after the Annual
Meeting of Stockholders.
Employees
We had 659 full-time employees at February 6, 2009.
Approximately 200, or 30.4 percent, of our employees are
members of one of several unions, principally the United
Steelworkers of America. We believe our employee relations are
satisfactory.
Our significant labor agreements include:
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Approximate #
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of Employees
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Union
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Covered
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Location
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Expiration Date
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United Steelworkers of America
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98
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Omaha, NE
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March 31, 2012
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United Steelworkers of America
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69
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Merrimack, NH
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April 5, 2009
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United Commercial Food Workers
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33
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Vernon, CA
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March 7, 2011
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Forward-Looking
and Cautionary Statements
Information we provide in this
Form 10-K
may contain forward-looking statements, as defined in the
Private Securities Litigation Reform Act of 1995. We may also
make forward-looking statements in other reports we file with
the Securities and Exchange Commission, in materials we deliver
to stockholders and in our press releases. In addition, our
representatives may, from time to time, make oral
forward-looking statements. Forward-looking statements provide
current expectations of future events based on certain
assumptions and include any statement that is not directly
related to historical or current fact. Words such as
anticipate, believe, can,
could, estimate, expect,
intend, may, plan,
project, should, will and
similar expressions are intended to identify such
forward-looking statements. Forward-looking statements are
subject to risks and uncertainties which could cause actual
results to differ materially from those anticipated. Such risks
and uncertainties include, but are not limited to, our future
capital needs, stock market conditions, the price of our stock,
fluctuations in customer demand, intensity of competition from
other vendors, timing and acceptance of our new product
introductions, general economic and industry conditions, delays
or difficulties in programs designed to increase sales and
improve profitability and other risks detailed in this
Form 10-K
and our other filings with the Securities and Exchange
Commission. We assume no obligation to update the information
contained in this
Form 10-K
or to revise our forward-looking statements.
The following important factors, among others, could cause our
actual operating results to differ materially from those
indicated or suggested by forward-looking statements made in
this
Form 10-K
or presented elsewhere by management from time to time.
We
face significant competition and may be impacted by the
financial crisis in the global economy.
The markets for our products are highly competitive, and our
ability to effectively compete in those markets is critical to
our future success. Our future performance and market position
depend on a number of factors, including our ability to react to
competitive pricing pressures, our ability to hire qualified
sales personnel, our ability to maintain competitive
manufacturing costs, our ability to introduce new value-added
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products and services to the market and our ability to react to
the commoditization of products. Our performance could also be
impacted by external factors, such as:
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deteriorating general economic conditions, which result in lower
sales or movement of products by our customers causing our sales
to decline;
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the availability of financing due to changes in the banking and
financing industry could cause certain of our customers,
especially in the retail and construction industry, to be
impacted by adverse conditions whereby customer sales decline
and/or
customer reduction in size of their business through either
store closures or the consolidation of warehouses causing our
sales to decline;
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increasing pricing pressures from competitors in the markets for
our products;
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a faster decline than anticipated in the more mature, higher
margin product lines, such as bond, carbonless, ribbons, heat
seal and dry gum products, due to changing technologies and a
decrease in demand due to slowness in the economy;
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natural disasters such as hurricanes, floods, earthquakes and
pandemic events, which could cause our customers to close a
number or all of their stores or operations for an extended
period of time causing our sales to be reduced during the period
of closure;
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our ability to pass on raw material price increases to customers;
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our ability to pass on increased freight cost due to fuel price
fluctuations; and
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our ability to pass on manufacturing cost increases.
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Our Specialty Paper Products segment operates a manufacturing
facility in New Hampshire, which has relatively higher operating
costs compared to manufacturing locations in other parts of the
United States where some of our competitors are located or
operate. Some of our competitors may be larger in size or scope
than we are and have more modern equipment, which may allow them
to achieve greater economies of scale on a global basis or allow
them to better withstand periods of declining prices and adverse
market conditions.
In addition, there has been an increasing trend among our
customers towards either consolidation or exiting businesses due
to the current financial and economic factors. With fewer
customers in the market for our products, the strength of our
negotiating position with customers could be weakened, which
could have an adverse effect on our pricing, margins,
profitability and recoverability of assets including goodwill.
We have a wide diversity of customers but there are a number of
individual customers that could impact our financial condition.
The business risk associated with these customers relates to
potential sales declines due to their individual business needs
or loss of business to competitors and increased credit risk due
to the concentration of these customers.
We may
be required to record a significant impairment charge if the
carrying value of our goodwill exceeds its fair
value.
Our share value and market capitalization have been
significantly impacted by extreme volatility in the United
States equity and credit markets and has recently been
below our net book value. Under accounting principles generally
accepted in the United States, we may be required to record an
impairment charge if changes in circumstances or events indicate
that the carrying values of our goodwill and intangible assets
exceed their fair value and are not recoverable. Any significant
and other than temporary decrease in our market capitalization
could be an indicator that the carrying values of our goodwill
exceed their fair value, which may result in our recording an
impairment charge. In this time of economic uncertainty, we are
unable to predict economic trends, but we continue to monitor
the impact of changes in economic and financial conditions on
our operations and on the carrying value of our goodwill and
intangible assets. Should the value of our goodwill be impaired,
our consolidated earnings and shareholders equity may be
materially adversely affected.
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Our
credit facility contains financial covenants, and our failure to
comply with any of those covenants could materially adversely
impact us.
Our credit facility imposes operating restrictions on us in the
form of financial covenants, including requirements that we
maintain specified fixed charge coverage ratios and funded debt
to adjusted EBITDA ratios. If we fail to comply with these
financial covenants and do not obtain a waiver from our lender,
we would be in default under the credit facility and our lender
could terminate the facility and demand immediate repayment of
all outstanding loans under the credit facility. The declaration
of an event of default under the credit facility could have a
material adverse effect on our financial condition, and we could
find it difficult to obtain other bank lines or credit
facilities on comparable terms.
Although we were not in compliance with the fixed charge
coverage ratio and the funded debt to adjusted EBITDA ratio
financial covenants under our credit facility at
December 31, 2008, in March 2009 our lender waived our
non-compliance in connection with an amendment to our credit
facility. There can be no assurance, however, that we will be
able to obtain a waiver to any non-compliance with the financial
covenants in the credit facility in the future.
In connection with the March 2009 amendment to our credit
facility, the financial covenants in the credit facility were
amended. While we believe that we will be in compliance with the
financial covenants in the amended credit facility, in the event
our results of operations do not meet forecasted results, we may
not be in compliance with those covenants. Alternative forms of
financing may be available to us, however, there can be no
assurance that such financing will be available on terms and
conditions acceptable to us.
If the
financial condition of our customers declines, our credit risk
could increase.
The current challenging economic environment may subject us to
increased risk of non-payment of our accounts receivable. A
significant delay in the collection of funds or a reduction of
funds collected may impact our liquidity or increase bad debts.
These factors could have a material adverse effect on our
business, financial condition and operating results.
Increases
in raw material costs or the unavailability of raw materials may
adversely affect our profitability.
We depend on outside suppliers for the raw materials used in our
business. Although we believe that adequate supplies of the raw
materials we use are available, any significant decrease in
supplies, any increase in costs or a greater increase in
delivery costs for these materials could result in a decrease in
our margins, which could harm our financial condition. Our
Specialty Paper Products and Label Products segments are
impacted by the economic conditions and plant capacity dynamics
within the paper and label industries. In general, the
availability and pricing of commodity paper such as uncoated
facesheet is affected by the capacity of the paper mills
producing the products. Cost increases at paper manufacturers,
or other producers of the raw materials which we use in our
business, and capacity constraints in paper manufacturers
operations could cause increases in the costs of raw materials,
which could harm our financial condition if we are unable to
recover the increased cost from our customers. Conversely, an
excess supply of materials or manufacturing capacity by
manufacturers could result in lower cost to us and lower selling
prices to customers and the risk of lower margins for us.
We have periodically been able to pass on significant raw
material cost increases through price increases to our
customers. Nonetheless, our results of operations for individual
quarters can and have been negatively impacted by delays between
the time of raw material cost increases and price increases for
our products to customers. We may be unable to increase our
prices to offset higher raw material costs due to the failure of
competitors to increase prices and customer resistance to price
increases. Additionally, we rely on our suppliers for deliveries
of raw materials. If any of our suppliers were unable to deliver
raw materials to us for an extended period of time, there is no
assurance that our raw material requirements would be met by
other suppliers on acceptable terms, or at all, which could have
a material adverse effect on our results of operations.
10
A
decline in returns on the investment portfolio of our defined
benefit plans, changes in mortality tables and interest rates
could require us to increase cash contributions to the plans and
negatively impact our financial statements.
Funding for the defined benefit pension plans we sponsor is
determined based upon the funded status of the plans and a
number of actuarial assumptions, including an expected long-term
rate of return on plan assets and the discount rate utilized to
compute pension liabilities. All of our defined benefit pension
plan benefits are frozen. The defined benefit plans were
underfunded as of December 31, 2008 by approximately
$41.4 million after utilizing the actuarial methods and
assumptions for purposes of Financial Accounting Standards (FAS)
No. 87, Employers Accounting for Pensions, and
FAS 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans, an Amendment of
FAS Nos. 87, 88, 106 and 132(R). As a result, we expect to
experience an increase in our future cash contributions to our
defined benefit pension plans. We contributed $5.3 million
in 2007 and $4.9 million in 2008. In the event that actual
results differ from the actuarial assumptions and the credit
crisis in the current financial markets negatively impacts the
valuation of our pension investments, the funded status of our
defined benefit plans may change and any such resulting
deficiency could result in additional charges to equity and
against earnings and increase our required contributions and
thereby impact our liquidity.
We
depend on key personnel and on the retention and recruiting of
key personnel for our future success.
Our future success depends to a significant extent on the
continued service of our key administrative, manufacturing,
sales and senior management personnel. We do not have employment
agreements with most of our executives and do not maintain key
person life insurance on any of these executives. We do have an
employment agreement with Thomas G. Brooker, who has served as
our President and Chief Executive Officer since May 4,
2006. The loss of the services of one or more of our key
employees could significantly delay or prevent the achievement
of our business objectives and could harm our business. While we
have entered into executive severance agreements with many of
our key employees, there can be no assurance that the severance
agreements will provide adequate incentives to retain these
employees. Our future success also depends on our continuing
ability to attract, retain and motivate highly skilled employees
for key positions. There is market competition for qualified
employees. We may not be able to retain our key employees or
attract, assimilate or retain other highly qualified employees
in the future.
We have from time to time in the past experienced, and we expect
to continue to experience from time to time, difficulty in
hiring and retaining highly skilled employees with appropriate
qualifications for certain positions.
New
technologies or changes in consumer preferences may affect our
ability to compete successfully.
We believe that new technologies or novel processes may emerge
and that existing technologies may be further developed in the
fields in which we operate. These technologies or processes
could have an impact on production methods or on product quality
in these fields.
Unexpected rapid changes in employed technologies or the
development of novel processes that affect our operations and
product range could render the technologies we utilize, or the
products we produce, obsolete or less competitive in the future.
Difficulties in assessing new technologies may impede us from
implementing them and competitive pressures may force us to
implement these new technologies at a substantial cost. Any such
development could materially and adversely impact our revenues
or profitability, or both.
Additionally, the preferences of our customers may change as a
result of the availability of alternative products or services
which could impact consumption of our products.
Litigation
relating to our intellectual property rights could have an
adverse impact on our business.
We rely on patent protection, as well as a combination of
copyright, trade secret and trademark laws, nondisclosure and
confidentiality agreements and other contractual restrictions to
protect our proprietary technology. Litigation may be necessary
to enforce these rights, which could result in substantial costs
to us
11
and a substantial diversion of management attention. If we do
not adequately protect our intellectual property, our
competitors or other parties could use the intellectual property
that we have developed to enhance their products or make
products similar to ours and compete more efficiently with us,
which could result in a decrease in our market share.
While we have attempted to ensure that our products and the
operations of our business do not infringe on other
parties patents and proprietary rights, our competitors
and other parties may assert that our products and operations
may be covered by patents held by them. In addition, because
patent applications can take many years to issue, there may be
applications now pending of which we are unaware, which may
later result in issued patents upon which our products may
infringe. If any of our products infringe a valid patent, we
could be prevented from selling them unless we obtain a license
or redesign the products to avoid infringement. A license may
not always be available or may require us to pay substantial
royalties. We also may not be successful in any attempt to
redesign any of our products to avoid infringement. Infringement
and other intellectual property claims, regardless of merit or
ultimate outcome, can be expensive and time-consuming and can
divert managements attention from our core business.
Our
information systems are critical to our business, and a failure
of those systems could materially harm us.
We depend on our ability to store, retrieve, process and manage
a significant amount of information. If our information systems
fail to perform as expected, or if we suffer an interruption,
malfunction or loss of information processing capabilities, it
could have a material adverse effect on our business.
Failure
to maintain effective internal controls over financial reporting
and disclosure controls and procedures could adversely affect
our business and the market price of our common stock, and
impair our ability to timely file our reports with the
Securities and Exchange Commission.
The Sarbanes-Oxley Act requires, among other things, that we
maintain effective internal control over financial reporting and
disclosure controls and procedures. In particular, for the year
ended December 31, 2008, we performed system and process
evaluation and testing of our internal control over financial
reporting to allow management to report on the effectiveness of
our internal control over financial reporting, as required by
Section 404 of the Sarbanes-Oxley Act. Our compliance with
Section 404 will continue to require that we incur
substantial expense and expend significant management time on
compliance-related issues. If we identify deficiencies in our
internal control over financial reporting that are deemed to be
material weaknesses, the market price of our stock could decline
and we could be subject to sanctions or investigations by the
NASDAQ Stock Market, the Securities and Exchange Commission or
other regulatory authorities, which would require additional
financial and management resources.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
12
All of our manufacturing facilities are located in the United
States. We believe that our manufacturing facilities are in good
operating condition and suitable for the production of our
products. We have excess manufacturing space in some locations.
Our corporate headquarters is located in a leased facility in
Nashua, New Hampshire. The lease for our corporate offices
expires on May 31, 2011.
Our principal facilities are listed below by operating segment,
location and principal products produced. Except as otherwise
noted, we own each of the facilities listed.
Principal
Properties
|
|
|
|
|
|
|
|
|
Total Square
|
|
|
|
Location
|
|
Footage
|
|
|
Nature of Products Produced
|
|
Corporate
|
|
|
|
|
|
|
Nashua, New Hampshire (leased)
|
|
|
8,000
|
|
|
none (corporate offices)
|
Park Ridge, Illinois (leased)
|
|
|
11,000
|
|
|
none (administrative offices)
|
Specialty Paper Products Segment
|
|
|
|
|
|
|
Merrimack, New Hampshire (leased)
|
|
|
156,000
|
|
|
paper products
|
Jefferson City, Tennessee
|
|
|
198,000
|
|
|
paper products
|
Vernon, California (leased)
|
|
|
61,000
|
|
|
paper products
|
Label Products Segment
|
|
|
|
|
|
|
Omaha, Nebraska
|
|
|
170,000
|
|
|
label products
|
Jefferson City, Tennessee
|
|
|
60,000
|
|
|
label products
|
Jacksonville, Florida (leased)
|
|
|
42,000
|
|
|
none (unused)
|
|
|
Item 3.
|
Legal
Proceedings
|
Environmental
We are involved in certain environmental matters and have been
designated by the Environmental Protection Agency, referred to
as the EPA, as a potentially responsible party for certain
hazardous waste sites. In addition, we have been notified by
certain state environmental agencies that some of our sites not
addressed by the EPA require remedial action. These sites are in
various stages of investigation and remediation. Due to the
unique physical characteristics of each site, the technology
employed, the extended timeframes of each remediation, the
interpretation of applicable laws and regulations and the
financial viability of other potential participants, our
ultimate cost of remediation is difficult to estimate.
Accordingly, estimates could either increase or decrease in the
future due to changes in such factors. At December 31,
2008, based on the facts currently known and our prior
experience with these matters, we have concluded that it is
probable that site assessment, remediation and monitoring costs
will be incurred. We have estimated a range for these costs of
$.6 million to $.9 million for continuing operations.
These estimates could increase if other potentially responsible
parties or our insurance carriers are unable or unwilling to
bear their allocated share and cannot be compelled to do so. At
December 31, 2008, our accrual balance relating to
environmental matters was $.7 million for continuing
operations. Based on information currently available, we believe
that it is probable that the major potentially responsible
parties will fully pay the costs apportioned to them. We believe
that our remediation expense is not likely to have a material
adverse effect on our consolidated financial position or results
of operations.
State
Street Bank and Trust
On October 24, 2007, the Nashua Pension Plan Committee
filed a Class Action Complaint with the United States
District Court for the District of Massachusetts against State
Street Bank and Trust, State Street Global Advisors, Inc. and
John Does 1-20. On January 14, 2008, the Nashua Pension
Plan Committee filed a revised Complaint with the United States
District Court for the District of New York against the same
13
defendants. The Complaint alleges that the defendants violated
their obligations as fiduciaries under the Employment Retirement
Income Securities Act of 1974, referred to as ERISA.
On February 7, 2008, the Court consolidated our action with
other pending ERISA actions and appointed the Nashua Pension
Plan Committee as one of the lead plaintiffs in the consolidated
action. On August 22, 2008, the lead plaintiffs filed a
consolidated amended complaint. On October 17, 2008,
defendants filed their answer and included a counterclaim
against trustees of the named plaintiff plans, including the
trustees of Nashuas Pension Plan Committee, asserting that
to the extent State Street is liable to the plans, the trustees
are liable to State Street for contribution
and/or
indemnification in the amount of any payment by State Street in
excess of State Streets share of liability. On
December 22, 2008, State Street filed an amended
counterclaim against the trustees maintaining their allegations
concerning contribution/indemnification and adding a claim for
breach of fiduciary duty. On March 3, 2009, the trustees
filed a motion to dismiss the counterclaim. We believe the
counterclaim is without merit and the trustees intend to
vigorously defend against the counterclaim. Discovery commenced
in March 2008 and is ongoing.
Other
We are involved in various other lawsuits, claims and inquiries,
most of which are routine to the nature of our business. In the
opinion of our management, the resolution of these matters will
not materially affect us.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
|
|
(a)
|
Market
Information, Holders and Dividends
|
Our common stock is listed and traded on the NASDAQ Global
Market under the symbol NSHA. As of
December 31, 2008, the number of record holders of our
common stock was 834. The following table sets forth the high
and low sales price per share for our common stock as reported
by the NASDAQ Global Market for each period indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
12.58
|
|
|
$
|
11.50
|
|
|
$
|
10.44
|
|
|
$
|
8.89
|
|
|
$
|
12.58
|
|
Low
|
|
$
|
8.93
|
|
|
$
|
8.51
|
|
|
$
|
7.73
|
|
|
$
|
3.07
|
|
|
$
|
3.07
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
9.38
|
|
|
$
|
10.79
|
|
|
$
|
13.41
|
|
|
$
|
12.40
|
|
|
$
|
13.41
|
|
Low
|
|
$
|
7.27
|
|
|
$
|
8.22
|
|
|
$
|
10.25
|
|
|
$
|
10.30
|
|
|
$
|
7.27
|
|
Our ability to pay dividends is restricted under the provisions
of our debt agreement which allows us to use cash for dividends
to the extent that the availability under the line of credit
exceeds $3.0 million. We did not declare or pay a cash
dividend on our common stock in 2008 or 2007.
14
|
|
(b)
|
Issuer
Purchases of Equity Securities during the Quarter ended December
31, 2008
|
The following table provides information about purchases by us
during the quarter ended December 31, 2008 of equity
securities that are registered by us pursuant to Section 12
of the Exchange Act:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number (or
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Value) of Shares
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
(or Units) that May
|
|
|
|
Total Number
|
|
|
Average
|
|
|
Part of Publicly
|
|
|
Yet Be Purchased
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
|
Announced Plans
|
|
|
Under the
|
|
Period
|
|
Purchased(1)
|
|
|
per Share
|
|
|
or Programs(2)
|
|
|
Plans or Programs
|
|
|
September 27 through October 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
November 1 through November 28
|
|
|
2,029
|
|
|
$
|
5.09
|
|
|
|
2,029
|
|
|
|
997,971
|
|
November 29 through December 31
|
|
|
133,515
|
|
|
$
|
4.78
|
|
|
|
133,515
|
|
|
|
864,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
135,544
|
|
|
|
|
|
|
|
135,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
We repurchased an aggregate of 135,544 shares of our common
stock pursuant to the repurchase program that we publicly
announced on October 30, 2008 (the Program).
|
|
(2)
|
|
Our Board of Directors approved the repurchase by us of up to an
aggregate of 1,000,000 shares of our common stock pursuant
to the Program. The Program does not have a fixed expiration
date.
|
|
|
Item 6.
|
Selected
Financial Data
|
Not required.
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Our Management Discussion and Analysis should be read in
conjunction with Item 1: Business, and Item 8:
Financial Statements and Supplementary Data.
Overview
Our continuing operations include results of our Label Products
and Specialty Paper Products segments.
Our net sales decreased to $264.9 million in 2008 compared
to $272.8 million in 2007. Our gross margin percentage
decreased to 14.9 percent in 2008 compared to
17.7 percent in 2007. Our selling and distribution expenses
increased $1.8 million and our administrative expenses
decreased $2.1 million in 2008. Our results from continuing
operations before income taxes decreased to a loss of
$16.4 million in 2008 compared to income of
$6.5 million in 2007. These financial results are further
discussed in the Consolidated Results of Operations.
During 2008, we had the following developments:
|
|
|
|
|
We closed our Cranbury, New Jersey facility in our Specialty
Paper Products segment.
|
|
|
|
We replaced certain leased distribution centers with public
warehouses.
|
|
|
|
We incurred a $14.1 million goodwill impairment charge in
the third quarter of 2008 related to our Specialty Paper
Products segment.
|
|
|
|
In December 2008, we closed our Jacksonville, Florida facility
and consolidated operations into our Tennessee and Nebraska
facilities in our Label Products segment.
|
|
|
|
We streamlined our workforce and eliminated 25 positions in our
selling, general and administrative areas. We recognized
$1.1 million of severance expense associated with the
reduction in workforce.
|
15
|
|
|
|
|
We incurred a tax charge of $4.3 million in the fourth
quarter as a result of increasing the valuation reserve on
deferred tax assets.
|
|
|
|
We announced to our employees not covered by contractual
agreements that we would suspend matching contributions to our
defined contribution 401(k) plan.
|
In addition, in March 2009, we entered into an amendment to our
credit facility with Bank of America that, among other things,
changed the termination date of the agreement to March 29,
2010 from March 30, 2012, reduced the amount of the
revolving credit facility from $28 million to
$15 million until June 30, 2009 and $17 million
thereafter, increased the interest rate on borrowings to LIBOR
plus 335 basis points or prime plus 110 basis points,
and limited our annual capital expenditures to $2 million.
Pursuant to the amendment, Bank of America waived our
non-compliance with the fixed charge coverage ratio and the
funded debt to adjusted EBITDA ratio on financial covenants at
December 31, 2008, and amended the terms of those covenants
for the quarter ending April 3, 2009 and subsequent periods.
During 2007, we had the following developments:
|
|
|
|
|
We eliminated the position of President of the Coated business
during the first quarter of 2007.
|
|
|
|
In May 2007, we renegotiated our credit agreement which provides
a revolving credit facility of $28 million and established
a $10 million term loan.
|
|
|
|
In May 2007, we commenced a tender offer in which we sought to
acquire up to 1,900,000 shares of our common stock at a
price of $10.50 per share. The tender offer expired on
June 28, 2007 at which time 751,150 shares were
tendered at a price of $10.50 per share for an aggregate of
$7.9 million.
|
|
|
|
During 2007, we added a net of six representatives to our sales
force as we continue to focus on top line growth.
|
|
|
|
In March 2007, the Cerion litigation was favorably concluded. As
a result, under the terms of our officers and directors
insurance policy, the insurance company refunded the litigation
cost that we had previously incurred in the defense of the
matter.
|
|
|
|
The Ricoh patent lawsuit filed against the company and other
defendants was settled.
|
16
Consolidated
Results of Operations
The
consolidated results of operations should be read in conjunction
with the individual segment results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 vs. 2007
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Label Products
|
|
$
|
105.1
|
|
|
$
|
115.5
|
|
|
$
|
(10.4
|
)
|
|
|
(9.0
|
)
|
|
|
|
|
Specialty Paper Products
|
|
|
162.3
|
|
|
|
160.3
|
|
|
|
2.0
|
|
|
|
1.2
|
|
|
|
|
|
Other
|
|
|
4.4
|
|
|
|
4.1
|
|
|
|
.3
|
|
|
|
7.3
|
|
|
|
|
|
Eliminating
|
|
|
(6.9
|
)
|
|
|
(7.1
|
)
|
|
|
.2
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net sales
|
|
|
264.9
|
|
|
|
272.8
|
|
|
|
(7.9
|
)
|
|
|
(2.9
|
)
|
|
|
|
|
Gross margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Label Products
|
|
|
13.3
|
|
|
|
21.0
|
|
|
|
(7.7
|
)
|
|
|
(36.7
|
)
|
|
|
|
|
Specialty Paper Products
|
|
|
25.3
|
|
|
|
26.5
|
|
|
|
(1.2
|
)
|
|
|
(4.5
|
)
|
|
|
|
|
Other
|
|
|
.8
|
|
|
|
.7
|
|
|
|
.1
|
|
|
|
14.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated gross margin
|
|
|
39.4
|
|
|
|
48.2
|
|
|
|
(8.8
|
)
|
|
|
(18.3
|
)
|
|
|
|
|
Gross margin %
|
|
|
14.9
|
%
|
|
|
17.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and distribution expenses
|
|
|
25.9
|
|
|
|
24.1
|
|
|
|
1.8
|
|
|
|
7.5
|
|
|
|
|
|
General and administrative expenses
|
|
|
14.9
|
|
|
|
17.0
|
|
|
|
(2.1
|
)
|
|
|
(12.4
|
)
|
|
|
|
|
Research and development expenses
|
|
|
.7
|
|
|
|
.8
|
|
|
|
(.1
|
)
|
|
|
(12.5
|
)
|
|
|
|
|
Other income
|
|
|
(1.0
|
)
|
|
|
(1.2
|
)
|
|
|
.2
|
|
|
|
16.7
|
|
|
|
|
|
Impairment of goodwill
|
|
|
14.1
|
|
|
|
|
|
|
|
14.1
|
|
|
|
100.0
|
|
|
|
|
|
Loss from equity investments
|
|
|
.2
|
|
|
|
.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
1.0
|
|
|
|
.9
|
|
|
|
.1
|
|
|
|
11.1
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(16.4
|
)
|
|
|
6.5
|
|
|
|
(22.9
|
)
|
|
|
(352.3
|
)
|
|
|
|
|
Income from discontinued operations, net of taxes
|
|
|
|
|
|
|
.3
|
|
|
|
(.3
|
)
|
|
|
(100.0
|
)
|
|
|
|
|
Net income (loss)
|
|
$
|
(19.8
|
)
|
|
$
|
4.1
|
|
|
$
|
(23.9
|
)
|
|
|
(582.9
|
)
|
|
|
|
|
Our net sales decreased $7.9 million to $264.9 million
in 2008, from $272.8 million in 2007.
|
|
|
|
|
The decrease from 2007 to 2008 was primarily due to a
$10.4 million decrease in sales in our Label Products
segment partially offset by a $2.0 million increase in
sales in our Specialty Paper Products segment.
|
|
|
|
Net sales for both of our business segments are discussed in
detail under Results of Operations by Operating
Segment.
|
Our gross margin was $39.4 million in 2008 compared to
$48.2 million in 2007. Our gross margin percentage
decreased to 14.9 percent in 2008 from 17.7 percent in
2007.
|
|
|
|
|
The margin percent in 2008 compared to 2007 decreased in both of
our operating segments. The decreases were primarily
attributable to lower sales volume in our Label Products
segment, the cost of closing our Florida label facility and the
integration of the Florida manufacturing into our Tennessee and
Nebraska label facilities, unfavorable sales mix and higher
manufacturing costs in both of our operating segments.
|
|
|
|
Gross margin changes for both of our business segments are
discussed in detail under Results of Operations by
Operating Segment.
|
Selling and distribution expenses increased to
$25.9 million in 2008 from $24.1 million in 2007. As a
percent of sales, selling and distribution expenses increased to
9.8 percent in 2008 from 8.8 percent in 2007.
17
|
|
|
|
|
The $1.8 million increase was due to an increase in
distribution expenses of $1.9 million partially offset by a
decrease in selling expenses of $.1 million. Distribution
expenses increased primarily due to severance related to the
closure of distribution facilities and the change in our New
Jersey facility from a manufacturing facility to a distribution
facility in January 2008, the subsequent closure of the New
Jersey distribution facility in July 2008 and the subsequent
buyout of our Cranbury, New Jersey lease in December 2008 within
our Specialty Paper Products segment. Selling expenses decreased
primarily due to lower personnel costs as a result of reductions
in workforce.
|
General and administrative expenses decreased $2.1 million
to $14.9 million in 2008 from $17.0 million in 2007.
As a percent of sales, general and administrative expenses were
5.6 percent in 2008 from 6.2 percent in 2007.
|
|
|
|
|
The decrease in general and administrative expenses in 2008 from
2007 was primarily due to lower management incentive cost, as
well as reduced legal and pension expenses partially offset by
severance charges related to a reduction in workforce and higher
stock compensation expenses.
|
Research and development expenses decreased to $.7 million
in 2008 from $.8 million in 2007. As a percent of sales,
research and development expenses remained unchanged at
0.3 percent.
Other income decreased $.2 million to $1.0 million in
2008 from $1.2 million in 2007.
|
|
|
|
|
Other income in 2008 includes amortization of the deferred gain
from the sale of New Hampshire real estate in 2006 and royalty
income related to the 2006 sale of toner formulations.
|
Loss from equity investments remained unchanged at
$.2 million for 2008 and 2007. The losses related to our
investment in Tec Print, LLC.
The current business climate related to the ongoing economic
crisis and our reliance on retail sales, banking activity and
construction activity within our Specialty Paper Products
business caused us to re-evaluate our current projections as
well as expected market multiples during the third quarter. As a
result, we performed an interim impairment test as of
September 26, 2008, using a discounted cash flow model.
Based on our assessment, we determined that the fair value of
the reporting unit did not exceed the carrying value and
therefore an impairment was necessary. The net book value of the
reporting unit exceeded the fair value of the business and,
after performing step 2 of the evaluation, we have recorded the
entire amount of $14.1 million as an impairment charge in
2008.
Net interest expense increased $.1 million to
$1.0 million in 2008 from $.9 million in 2007. Our
weighted average annual interest rate on long-term debt was
3.8 percent in 2008 compared to 5.5 percent in 2007.
Our average balance on long-term debt decreased to
$12.3 million in 2008.
|
|
|
|
|
The $.1 million increase in net interest expense was due to
a $.2 million increase in expense related to the change in
the fair value of our interest rate swap and a $.1 million
decrease in interest income partially offset by a
$.2 million decrease in interest expense. The decrease in
interest expense is the result of a reduction in debt as well as
lower interest rates which also resulted in lower interest
income. Our interest rate swap is discussed in detail under
Liquidity, Capital Resources and Financial Condition.
|
Our loss from continuing operations before income taxes was
$16.4 million in 2008 compared to income of
$6.5 million in 2007.
|
|
|
|
|
The change in our pre-tax income from 2007 to 2008 was primarily
due to the $14.1 million expense for the impairment of
goodwill in our Specialty Paper Products segment in addition to
charges related to the closure of our Florida facility in our
Label Products segment, charges related to closure of our
Cranbury, New Jersey facility and severance charges related to a
reduction in workforce.
|
Our annual effective income tax rate from continuing operations
was an expense of 20.5 percent in 2008 due to the impact of
the goodwill impairment charge, state taxes and the valuation
allowance on deferred tax assets. In the fourth quarter of 2008,
we recorded a valuation allowance in the amount of
$4.3 million due to the uncertainty surrounding the
recovery of our deferred tax assets over the next several years.
The annual
18
effective income tax rate from continuing operations for 2007
was 40.6 percent which is higher than the
U.S. statutory rate of 35 percent due to the impact of
state taxes (4.8%) and an increase in the valuation reserve
(3.0%) partially reduced by the impact of other non-deductible
and deductible items (2.2%).
Our loss from continuing operations, net of income taxes, for
2008 was $19.8 million, or $3.65 per share, compared to
income of $3.9 million, or $0.67 per share, for 2007.
Income from discontinued operations, net of taxes, for 2007 was
$.3 million, or $0.05 per share. The results of our
discontinued operations for 2007 represent the reimbursement of
our legal fees related to the Cerion litigation which was
dismissed by the courts.
Our net loss for 2008 was $19.8 million, or $3.65 per
share, compared to net income of $4.1 million, or $0.72 per
share, for 2007.
Results
of Operations by Operating Segment
Label
Products Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
For the Years Ended
|
|
|
Change
|
|
|
Change
|
|
|
|
December 31,
|
|
|
2008 vs.
|
|
|
2008 vs.
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Net sales
|
|
$
|
105.1
|
|
|
$
|
115.5
|
|
|
$
|
(10.4
|
)
|
|
|
(9.0
|
)
|
Gross margin
|
|
|
13.3
|
|
|
|
21.0
|
|
|
|
(7.7
|
)
|
|
|
(36.7
|
)
|
Gross margin %
|
|
|
12.7
|
%
|
|
|
18.2
|
%
|
|
|
|
|
|
|
|
|
Net sales for our Label Products segment decreased to
$105.1 million in 2008, from $115.5 million in 2007.
|
|
|
|
|
The $10.4 million, or 9.0 percent, decrease in net
sales in 2008 compared to 2007 resulted primarily from an
$8.9 million decrease in our automatic identification
product line, a $2.0 million decrease in our supermarket
scale product line and a $1.6 million decrease in our EDP
product line. The decreases were partially offset by increases
of $.9 million in our ticket product line, $.9 million
in our RFID product line, $.2 million in our pharmacy
product line and $.1 million in our prime label product
line. The decrease in our automatic identification product line
was primarily the result of decreased volume from existing
customers due to the impact of the economic downturn and the
loss of a major customer. The decrease in our supermarket scale
product line was mainly the result of lost business. The
decrease in our EDP product line resulted primarily from lost
business due to our customers conversion to alternate
label technologies. The increase in our ticket product line was
primarily due to increased volume from new and existing
customers.
|
Gross margin for our Label Products segment decreased to
$13.3 million in 2008, from $21.0 million in 2007. The
gross margin percentage decreased to 12.7 percent in 2008
from 18.2 percent in 2007.
|
|
|
|
|
The gross margin decrease of $7.7 million in 2008 compared
to 2007 was partially due to the lower sales volume and
competitive pricing pressure on new business as well as overall
increased spending. The gross margin in 2008 was unfavorably
impacted by the recognition of a lease liability, severance and
other expenses related to the closure of our Jacksonville,
Florida facility. In addition to the plant closure cost, we
incurred manufacturing inefficiencies due to the transfer of
business to our Tennessee and Nebraska manufacturing facilities.
|
19
Specialty
Paper Products Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
Percent
|
|
|
|
For the Years Ended
|
|
|
Change
|
|
|
Change
|
|
|
|
December 31,
|
|
|
2008 vs.
|
|
|
2008 vs.
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Net sales
|
|
$
|
162.3
|
|
|
$
|
160.3
|
|
|
$
|
2.0
|
|
|
|
1.2
|
|
Gross margin
|
|
|
25.3
|
|
|
|
26.5
|
|
|
|
(1.2
|
)
|
|
|
(4.5
|
)
|
Gross margin %
|
|
|
15.6
|
%
|
|
|
16.5
|
%
|
|
|
|
|
|
|
|
|
Our Specialty Paper Products segment reported net sales of
$162.3 million in 2008 compared to net sales of
$160.3 million in 2007.
|
|
|
|
|
The $2.0 million, or 1.2 percent, increase in net
sales in 2008 compared to 2007 was primarily due to increased
sales of $10.9 million in our thermal point of sale product
line mainly due to new business and increased sales to an
existing customer. The increased point of sale thermal sales
were partially offset by decreases of $2.4 million in our
wide-format product line, $1.5 million in our thermal
facesheet product line, $1.5 million in our retail product
line, $.8 million in our heat seal product line,
$.8 million in our financial product line, $.6 million
in our core bond product line, $.4 million in our ribbon
product line and $.9 million in other miscellaneous product
lines. The decrease in our wide-format product line was the
result of overall softness in the construction industry. The
thermal facesheet and retail product line decreases were
primarily the result of lower sales to major customers.
|
Gross margin for our Specialty Paper Products segment decreased
to $25.3 million in 2008 compared to $26.5 million in
2007. The gross margin percentage decreased to 15.6 percent
in 2008 compared to 16.5 percent in 2007.
|
|
|
|
|
The gross margin percentage decrease in 2008 compared to 2007
was due primarily to raw material price increases in our thermal
facesheet product line, higher sales volume at lower selling
prices partially offset by savings associated with the
transformation of our Cranbury, New Jersey facility from
manufacturing to distribution.
|
Discontinued
Operations
Discontinued operations includes the reimbursement of legal cost
of $500,000 ($289,000 net of taxes) paid related to the
Cerion litigation which was concluded in the quarter ended
March 30, 2007.
Our asset balance related to discontinued operations included in
our Consolidated Balance Sheets as of December 31, 2008 and
2007 was $1.5 million which was included in other assets
and consists primarily of our 37.1 percent interest in the
Cerion Technologies Liquidating Trust, a trust established
pursuant to the liquidation of Cerion Technologies Inc.,
formerly a publicly held company. Cerion ceased operations
during the fourth quarter of 1998 and will liquidate upon
resolution of legal matters.
Liquidity,
Capital Resources and Financial Condition
Our primary sources of liquidity are cash flow provided by
operations and our revolving credit facility with Bank of
America. Our cash flows from continuing and discontinued
operations are combined in our Consolidated Statements of Cash
Flows. Our future cash flows from discontinued operations are
not expected
20
to have a material affect on future liquidity and capital
resources. Set forth below is a summary of our cash activity for
the years ended December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31
|
|
Cash Provided by (Used in):
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Operating activities
|
|
$
|
(1.5
|
)
|
|
$
|
7.9
|
|
Investing activities
|
|
|
(1.8
|
)
|
|
|
(1.5
|
)
|
Financing activities
|
|
|
(2.5
|
)
|
|
|
.7
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
(5.8
|
)
|
|
$
|
7.1
|
|
|
|
|
|
|
|
|
|
|
Cash used
in and provided by operating activities
Cash used in operations of $1.5 million in 2008 was
primarily the result of our net loss of $19.8 million, the
contribution to our pension plans of $4.9 million, an
increase in inventories of $1.8 million and a decrease in
accounts payable of $2.5 million, which more than offset a
decrease in accounts receivable of $1.9 million, and an
increase in other long-term liabilities of $1.6 million. We
had significant non-cash charges impacting our net loss
including a $14.1 million impairment of goodwill, a
decrease in deferred tax assets of $4.8 million,
depreciation and amortization of $4.4 million and
stock-based compensation expense of $.9 million. The
increase in our inventory balance was primarily in our Label
Products segment related to the shutdown of our Florida facility
and the associated inventory build in order to manage customer
needs. The decrease in our accounts payable was primarily
related to the timing of cash payments in both of our segments
while the decrease in accounts receivable was primarily in our
Label Products segment related to a decrease in net revenues in
the fourth quarter of 2008 when compared to the fourth quarter
of 2007. The decrease in our deferred tax assets in 2008 was
primarily the result of an increase to our valuation reserve on
the tax assets.
Cash flow from operations of $7.9 million in 2007 was
generated primarily by our net income as adjusted for
depreciation and amortization combined with a decrease in
inventory balances which were partially offset by a contribution
to our pension plans and a decrease in accounts payable. The
decrease in our inventory balance was primarily in our Specialty
Paper Products segment.
Cash used
in investing activities
During 2008, cash used in investing activities of
$1.8 million was primarily the result of investment in
plant and equipment of $1.7 million and a $.1 million
equity investment in Tec Print LLC. Capital expenditures for
2009 are expected to be in the range between $1.0 million
and $2.0 million. Funding of the projected capital
expenditures is expected to be provided by operating cash flows
and our revolving credit facility.
During 2007, cash used in investing activities of
$1.5 million was primarily the result of investment in
plant and equipment of $1.3 million and a $.2 million
equity investment in Tec Print LLC.
Cash used
in and provided by financing activities
Cash used in financing activities of $2.5 million includes
the principal repayments on the term portion of our long-term
debt of $1.8 million, which is described in detail below,
and $.7 million related to the repurchase of shares of our
common stock as part of the 2008 stock repurchase program.
Cash provided by financing activities of $.7 million in
2007 includes $10 million proceeds from our second amended
and restated credit agreement, $.6 million proceeds from
shares exercised under stock option plans and $1.0 million
received as repayment of a loan from a related party, offset by
a payment of $7.9 million for the repurchase of shares as
part of our tender offer, $.3 million in payments made for
expenses related to the tender offer, a $2.0 million
repayment on the revolving portion of our long-term debt and
$.8 million related to our repurchase of shares of our
common stock as part of our 2006 repurchase program.
On May 23, 2007, we entered into a Second Amended and
Restated Credit Agreement with LaSalle Bank National
Association, which was subsequently merged with Bank of America,
and the lenders party thereto
21
(the Restated Credit Agreement) to amend and restate
in its entirety our Amended and Restated Credit Agreement, dated
March 30, 2006, as amended (the Original Credit
Agreement). The Restated Credit Agreement extended the
term of the credit facility under the Original Credit Agreement
to March 30, 2012 (unless earlier terminated in accordance
with its terms) and provided for a revolving credit facility of
$28 million, including a $5 million sublimit for the
issuance of letters of credit and a $2,841,425 secured letter of
credit that will continue to support Industrial Development
Revenue Bonds issued by the Industrial Development Board of the
City of Jefferson City, Tennessee. In addition, the Restated
Credit Agreement established a term loan of $10 million.
The term loan was payable in quarterly installments of $625,000
beginning June 30, 2008. The revolving credit facility is
subject to reduction upon the occurrence of a mandatory
prepayment event (as defined in the Restated Credit Agreement).
We are obligated to make prepayments of the term loan
periodically and upon the occurrence of certain specified
events. The Restated Credit Agreement also adjusted our
requirement to maintain fixed charge coverage ratio to be not
less than 1.50 to 1.00. All other terms of the Original
Agreement remained substantially the same.
The interest rate on loans outstanding under the Restated Credit
Agreement was based on the total debt to adjusted EBITDA ratio
and was, at our option, either (1) a range from zero to
.25 percent over the base rate (prime) or (2) a range
from 1.25 percent to 2 percent over LIBOR. We are also
subject to a non-use fee for any unutilized portion of the
revolving credit facility under the Restated Credit Agreement.
For the years ended December 31, 2008 and December 31,
2007, the weighted average annual interest rate on our long-term
debt was 3.8 percent and 5.5 percent, respectively. We
had $24.8 million of available borrowing capacity at
December 31, 2008 under our revolving loan commitment. We
had $3.2 million of obligations under standby letters of
credit with the banks which are included in our bank debt when
calculating our borrowing capacity.
Furthermore, without prior consent of our lenders, the Restated
Credit Agreement limited, among other things, annual capital
expenditures to $8.0 million, the incurrence of additional
debt and restricts the sale of certain assets and merger or
acquisition activities. We may use cash for dividends or the
repurchase of shares to the extent that the availability under
the line of credit exceeds $3.0 million.
As noted in the following table, we were not in compliance with
the fixed charge coverage ratio and the funded debt to adjusted
EBITDA ratio financial covenants at December 31, 2008 under
the Restated Credit Agreement.
|
|
|
|
|
|
|
Requirement
|
|
Ratio at
|
|
|
at December 31,
|
|
December 31,
|
Covenant
|
|
2008
|
|
2008
|
|
Maintain a fixed charge coverage ratio
|
|
Not less than 1.5 to 1.0
|
|
1.1 to 1.0
|
Maintain a funded debt to adjusted EBITDA ratio
|
|
Less than 2.5 to 1.0
|
|
2.6 to 1.0
|
In February 2009, we paid down the term loan under the Restated
Credit Agreement with cash on hand and use of the revolving
credit facility. On March 30, 2009, we entered into an
Amendment Agreement to our Second Amended and Restated Credit
Agreement (the Amended Credit Agreement) with Bank
of America, N.A., to waive our non-compliance with the fixed
charge coverage ratio and the funded debt to adjusted EBITDA
ratio financial covenants at December 31, 2008. In
addition, pursuant to the Amended Credit Agreement:
|
|
|
|
|
the termination date is changed from March 30, 2012 to
March 29, 2010;
|
|
|
|
advances under the revolving credit facility are limited to
75 percent of eligible accounts receivable and
40 percent of eligible inventory, and eligible inventory is
limited to $6 million;
|
|
|
|
the revolving credit facility is decreased from $28 million
to $15 million until June 30, 2009, when it will
increase to $17 million;
|
|
|
|
the interest rate on borrowings is increased to LIBOR plus
335 basis points or prime plus 110 basis points;
|
|
|
|
the fee for the unused line of credit is 75 basis points;
|
22
|
|
|
|
|
annual capital expenditures are limited to
$2 million; and
|
|
|
|
equipment and fixtures are added to the collateral securing the
loan.
|
In addition, the terms of the Amended Credit Agreement adjusted
the fixed charge coverage ratio financial covenant to 1.1 to 1.0
for the rolling twelve months ended April 3, 2009 and 1.2
to 1.0 for the rolling twelve months ended June 30, 2009.
The maximum fixed charge coverage ratio returns to 1.5 to 1.0
for each quarterly measurement period through the end of the
agreement. Under the Restated Credit Agreement, our funded debt
to adjusted EBITDA ratio for the period ended April 3, 2009
and thereafter is to be less than 2.25 to 1.0.
Pursuant to the Amended Credit Agreement, at December 31,
2008 our minimum payment obligations relating to long-term debt
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2024
|
|
|
Total
|
|
|
Term portion of long-term debt
|
|
$
|
8,125
|
|
|
$
|
|
|
|
$
|
8,125
|
|
Industrial revenue bond
|
|
|
|
|
|
|
2,800
|
|
|
|
2,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,125
|
|
|
$
|
2,800
|
|
|
$
|
10,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We had borrowings of $8.1 million under a term loan and
$2.8 million under our IRB loan outstanding at
December 31, 2008. On February 9, 2009, we borrowed
$4.6 million under our revolving line of credit with Bank
of America and used cash of $3.5 million to pay down the
term loan in its entirety.
We have presented the $8.1 million term loan as current at
December 31, 2008 since the amount was refinanced using
cash generated from current assets at December 31, 2008 and
borrowings under the revolving line of credit.
On March 26, 2009, our borrowings were $3.6 million
under the revolving line of credit and $2.8 million on the
IRB note.
We had $27.4 million of working capital at
December 31, 2008. We believe that our working capital
amounts at December 31, 2008, along with cash expected to
be generated from operating activities as well as borrowings
available under the revolving line of credit, are adequate to
allow us to meet our obligations during 2009. In the event our
results of operations do not meet forecasted results and
therefore impact financial covenants with our lender, we believe
there are alternative forms of financing available to us. There
can be no assurance, however, that such financing will be
available on conditions acceptable to us. In the event such
financing is not available to us, we believe we can effectively
manage operating and financial obligations by adjusting the
timing of working capital components.
We use derivative financial instruments to reduce our exposure
to market risk resulting from fluctuations in interest rates.
During the first quarter of 2006, we entered into an interest
rate swap, with a notional debt value of $10.0 million,
which expires in 2011. During the term of the agreement, we have
a fixed interest rate of 4.82 percent on the notional
amount and Bank of America, as counterparty to the agreement,
paid us interest at a floating rate based on LIBOR on the
notional amount. Interest payments are made quarterly on a net
settlement basis.
This derivative does not qualify for hedge accounting,
therefore, changes in fair value of the hedge instrument are
recognized in earnings. We recognized a $.5 million
mark-to-market expense in 2008 and a $.3 million
mark-to-market expense in 2007, both related to the change in
fair value of the derivative. The fair market value of the
derivative resulted in liabilities of $.7 million at
December 31, 2008 and $.3 million at December 31,
2007, which were determined based on current interest rates and
expected trends.
We have net deferred tax assets of $6.2 million on our
Consolidated Balance Sheets at December 31, 2008. During
2008, we decreased deferred tax assets by $4.8 million
primarily due to a $4.3 million increase in our valuation
allowance on deferred taxes. The increase in our valuation
allowance relates primarily to the uncertainty of the
utilization of our deferred tax assets including federal tax
credits, state net operating losses and credits and other tax
assets. We expect the $6.2 million tax assets to be fully
utilized in the future based
23
on our expectations of future taxable income. We expect future
cash expenditures to be less than taxes provided in the
financial statements.
As referenced in Note 11 to our Consolidated Financial
Statements, we maintain defined benefit pension plans. We made a
cash contribution of $4.9 million to our pension plans in
2008. We intend to contribute at least $2.9 million to our
pension plans in 2009.
The 2008 cash payment for the Supplemental Executive Retirement
Plan was $.3 million. For 2009, the estimated payments to
retirees are $.3 million. The 2008 cash payments for
postretirement benefits were $.1 million. For 2009, the
estimated cash payments are expected to be $.1 million.
During the fourth quarter of 2008, our Board of Directors
authorized the repurchase of up to 1,000,000 shares of our
common stock from time to time on the open market or in
privately negotiated transactions. During 2008, we repurchased
and retired 135,544 shares totaling $.7 million.
During the fourth quarter of 2006, our Board of Directors
authorized the repurchase of up to 500,000 shares of our
common stock from time to time on the open market or in
privately negotiated transactions. In 2006, we repurchased and
retired 15,429 shares totaling $.1 million. During
2007, we repurchased and retired 100,300 shares totaling
$.8 million. The share repurchase program expired on
December 31, 2007.
On May 29, 2007, we commenced a tender offer in which we
sought to acquire up to 1,900,000 shares of our common
stock at a price of $10.50 per share. The tender offer expired
on June 28, 2007 at which time 751,150 shares were
tendered at a price of $10.50 per share. During the third
quarter of 2007, we settled the obligation of the tender offer
and paid $7.9 million for the tendered shares. Transaction
fees of $.3 million were paid during 2007 and recorded as a
reduction to retained earnings. The transaction fees included
the dealer manager, information agent, depositary, legal and
other fees.
We have operating leases primarily for office, warehouse and
manufacturing space, and electronic data processing and
transportation equipment.
Our liquidity is affected by many factors, some based on the
normal operations of our business and others related to the
uncertainties of the industry such as overcapacity, raw material
pricing pressures and global economies. Although our cash
requirements could fluctuate based on the timing of these
factors, we believe that our current cash position, cash flows
from operations and amounts available under our revolving line
of credit are sufficient to fund our cash requirements for at
least the next twelve months.
Litigation
and Other Matters
Environmental
We are involved in certain environmental matters and have been
designated by the Environmental Protection Agency, referred to
as the EPA, as a potentially responsible party for certain
hazardous waste sites. In addition, we have been notified by
certain state environmental agencies that some of our sites not
addressed by the EPA require remedial action. These sites are in
various stages of investigation and remediation. Due to the
unique physical characteristics of each site, the technology
employed, the extended timeframes of each remediation, the
interpretation of applicable laws and regulations and the
financial viability of other potential participants, our
ultimate cost of remediation is difficult to estimate.
Accordingly, estimates could either increase or decrease in the
future due to changes in such factors. At December 31,
2008, based on the facts currently known and our prior
experience with these matters, we have concluded that it is
probable that site assessment, remediation and monitoring costs
will be incurred. We have estimated a range for these costs of
$.6 million to $.9 million for continuing operations.
These estimates could increase if other potentially responsible
parties or our insurance carriers are unable or unwilling to
bear their allocated share and cannot be compelled to do so. At
December 31, 2008, our accrual balance relating to
environmental matters was $.7 million for continuing
operations. Based on information currently available, we believe
that it is probable that the major potentially responsible
parties will fully pay the costs apportioned to them. We believe
that our
24
remediation expense is not likely to have a material adverse
effect on our consolidated financial position or results of
operations.
State
Street Bank and Trust
On October 24, 2007, the Nashua Pension Plan Committee
filed a Class Action Complaint with the United States
District Court for the District of Massachusetts against State
Street Bank and Trust, State Street Global Advisors, Inc. and
John Does 1-20. On January 14, 2008, the Nashua Pension
Plan Committee filed a revised Complaint with the United States
District Court for the District of New York against the same
defendants. The Complaint alleges that the defendants violated
their obligations as fiduciaries under ERISA.
On February 7, 2008, the Court consolidated our action with
other pending ERISA actions and appointed the Nashua Pension
Plan Committee as one of the lead plaintiffs in the consolidated
action. On August 22, 2008, the lead plaintiffs filed a
consolidated amended complaint. On October 17, 2008, the
defendants filed their answer and included a counterclaim
against trustees of the named plaintiff plans, including the
trustees of Nashuas Pension Plan Committee, asserting that
to the extent State Street is liable to the plans, the trustees
are liable to State Street for contribution
and/or
indemnification in the amount of any payment by State Street in
excess of State Streets share of liability. On
December 22, 2008, State Street filed an amended
counterclaim against the trustees maintaining their allegations
concerning contribution/indemnification and adding a claim for
breach of fiduciary duty. On March 3, 2009, the trustees
filed a motion to dismiss the counterclaim. We believe the
counterclaim is without merit and the trustees intend to
vigorously defend against the counterclaim. Discovery commenced
in March 2008 and is ongoing.
Other
We are involved in various other lawsuits, claims and inquiries,
most of which are routine to the nature of our business. In the
opinion of our management, the resolution of these matters will
not materially affect us.
Application
of Critical Accounting Policies
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires that
we make estimates and assumptions for the reporting period and
as of the financial statement date. Our management has discussed
our critical accounting estimates, policies and related
disclosures with the Audit/Finance and Investment Committee of
our Board of Directors. These estimates and assumptions affect
the reported amounts of assets and liabilities, the disclosure
of contingent liabilities and the reported amounts of revenues
and expenses. Actual results could differ from those amounts.
Critical accounting policies are those that are important to the
portrayal of our financial condition and results, and which
require us to make difficult, subjective
and/or
complex judgments. Critical accounting policies cover accounting
matters that are inherently uncertain because the future
resolution of such matters is unknown. We believe that our
critical accounting policies include:
Accounts
Receivable Allowance for Doubtful Accounts
We evaluate the collectibility of our accounts receivable based
on a combination of factors. In circumstances where we become
aware of a specific customers inability to meet its
financial obligations to us, such as a bankruptcy filing or a
substantial downgrading of a customers credit rating, we
record a specific reserve to reduce our net receivable to the
amount we reasonably expect to collect. We also record reserves
for bad debts based on the length of time our receivables are
past due, the payment history of our individual customers and
the current financial condition of our customers based on
obtainable data and historical payment and loss trends. After
managements review of accounts receivable, we increased
the allowance for doubtful accounts to $.5 million at
December 31, 2008 from $.3 million at
December 31, 2007. Uncertainties affecting our estimates
include future industry and economic trends and the related
impact on the financial condition of our customers, as well as
the ability of our customers to generate cash flows sufficient
to pay us amounts due. If circumstances change, such as higher
than expected defaults or an unexpected material adverse change
in a
25
customers ability to meet its financial obligations to us,
our estimates of the recoverability of the receivables due us
could be either reduced or increased by a material amount.
Inventories
Slow Moving and Obsolescence
We estimate and reserve amounts related to slow moving and
obsolete inventories that result from changing market conditions
and the manufacture of excess quantities of inventory. We
develop our estimates based on the quantity and quality of
individual classes of inventory compared to historical and
projected sales trends. Inventory values at December 31,
2008 have been reduced by a reserve of $1.1 million, based
on our assessment of the probable exposure related to excess and
obsolete inventories. Our estimated reserve was $.9 million
at December 31, 2007. Major uncertainties in our estimation
process include future industry and economic trends, future
needs of our customers, our ability to retain or replace our
customer base and other competitive changes in the marketplace.
Significant changes in any of the uncertainties used in
estimating the loss exposure could result in a materially
different net realizable value for our inventory.
Goodwill
and Amortizable Intangible Assets
As of December 31, 2008, we had $17.4 million of
recorded goodwill. Effective January 1, 2002, we adopted
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, or FAS 142. Goodwill
and indefinite lived intangible assets are no longer amortized
but are reviewed annually, or more frequently if impairment
indicators arise, for impairment. Given the economic environment
as it impacted our business, we performed an impairment test
during the third quarter ended September 26, 2008. As a
result, we recognized a goodwill impairment charge of
$14.1 million related to our Specialty Paper Products
segment. We concluded there was no impairment to any other
assets related to the business. There was no impairment related
to our Label Products segment. Additionally, we have performed
the annual impairment test required by FAS 142 for the
Label Products segment and have concluded that no further
impairment existed as of November 3, 2008. We computed the
fair value of our reporting units based on a discounted cash
flow model and compared the result to the book value of each
unit. The fair value exceeded book value for the Label Products
segment as of our valuation date of November 3, 2008.
Significant estimates included in our valuation included certain
assumptions including future business results, discount rate and
terminal values. These future operating results are dependent on
increasing sales volumes, which will have an impact on our gross
margin due to available capacity at our plants. These future
operating results will be impacted by the results of an
investment in our sales force as well as managing our cost
structure. Changes in our estimated future operating results,
discount rate or terminal values could significantly impact our
carrying value of goodwill and require further impairment
charges.
As of December 31, 2008, we had $.3 million of
intangibles, net of amortization.
Pension
and Other Postretirement Benefits
The most significant elements in determining our pension income
or expense are mortality tables, the expected return on plan
assets and the discount rate. We assumed an expected long-term
rate of return on plan assets of 8.0 percent for the year
ended December 31, 2008 and 8.5 percent for the year
ended December 31, 2007. The assumed long-term rate of
return on assets is applied to a calculated value of plan
assets, which recognizes changes in the fair value of plan
assets in a systematic manner over five years. This produces the
expected return on plan assets that is included in the
determination of our pension income or expense. The difference
between this expected return and the actual return on plan
assets is partially deferred. The net deferral of past asset
gains or losses affects the calculated value of plan assets and,
ultimately, our future pension income or expense. Should our
long-term return on plan assets either fall below or increase
above 8.0 percent, our future pension expense would either
increase or decrease.
Each year we determine the discount rate to be used to discount
plan liabilities which reflects the current rate at which our
pension liabilities could be effectively settled. The discount
rate that we utilize for determining future benefit obligations
is based on a review of long-term bonds, including published
indices, which receive one of the two highest ratings given by
recognized ratings agencies. We also prepare an analysis
26
comparing the duration of our pension obligations to spot rates
originating from a highly rated index to further support our
discount rate. For the year ended December 31, 2007, we
used a discount rate of 6.25 percent. This rate was used to
determine fiscal year 2008 expense. For the year ended
December 31, 2008 disclosure purposes, we used a discount
rate of 6.0 percent. Should the discount rate either fall
below or increase above 6.0 percent, our future pension
expense would either increase or decrease accordingly. Our
policy is to defer the net effect of changes in actuarial
assumptions and experience. As discussed in detail in
Note 11 to our Consolidated Financial Statements, we froze
benefits under our salaried pension plans effective
December 31, 2002, and during 2006 we froze benefits for
certain employees under our hourly pension plan in Omaha,
Nebraska. In 2007, we froze benefits for certain hourly
employees located in New Hampshire.
At December 31, 2008, our consolidated pension liability
was $41.4 million compared to a consolidated pension
liability of $24.7 million at the end of 2007. We
recognized incremental comprehensive loss of $20.5 million
(excluding income taxes) for 2008 related to our defined benefit
pension plans. We recognized pre-tax pension expense from
continuing operations of $1.4 million for the year ended
December 31, 2008, compared to $1.6 million in 2007.
Future changes in our actuarial assumptions and investment
results due to future interest rate trends could have a material
adverse effect on our future costs and pension obligations.
At December 31, 2008, our liability for our other
postretirement benefits was $.4 million compared to
$.5 million at December 31, 2007. We recognized
incremental comprehensive income of $.1 million in 2008
related to our other postretirement benefits. We recognized
pre-tax income for our other postretirement benefits for
continuing operations of $.1 million in 2007.
Assumed health care cost trend rates for us have a significant
effect on the amounts reported for our health care plan. Our
assumed health care cost trend rate is 10 percent for 2008
and ranges from 10 percent to 5 percent for future
years.
Stock
Based Compensation
Effective January 1, 2006, we adopted the fair value
recognition provisions of Statement of Financial Accounting
Standard 123 (revised 2004) Share-Based Payment, or
FAS 123R, using the modified-prospective application method
for new awards and to awards modified, repurchased or cancelled
after the FAS 123R effective date, January 1, 2006.
Additionally, compensation cost for the portion of awards for
which the requisite service has not been rendered that are
outstanding on January 1, 2006 is recognized based on the
fair value estimated on grant date and as the requisite service
is rendered on or after January 1, 2006.
Compensation expense for the year ended December 31, 2008
for restricted stock awards and restricted stock units was
$.9 million and is included in selling, general and
administrative expenses. Total compensation related to
non-vested awards not yet recognized at December 31, 2008
is $.9 million, which we expect to recognize as
compensation expense over the next three years.
Deferred
Tax Assets
In July 2006, Financial Accounting Standards Board (FASB)
Interpretation No. (FIN) 48, Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement
No. 109, was issued. FIN 48 prescribes a recognition
threshold and measurement attribute for tax positions. We
adopted FIN 48 at the beginning of fiscal year 2007 with no
material impact to our financial position, earnings or cash
flows. See Note 6 for related disclosures.
As of December 31, 2008, we had approximately
$6.2 million of deferred tax assets. During 2008, we
decreased deferred tax assets by $4.8 million, of which
$4.3 million was the result of an increase in our valuation
allowance for deferred taxes. The remaining decrease related to
a lower deferral of our pension and postretirement benefits
($2.5 million) partially offset by other operating
temporary tax differences ($1.9 million). We have a
valuation allowance of $1.8 million for our state loss
carryforwards and credits, $1.5 million for our federal
alternative minimum tax credits, plus $10.1 million related
to our pension accrual charged to other comprehensive loss and
other operating tax differences of $1.0 million. Although
realization of our deferred tax assets is not assured, we
believe it is more likely than not that all of the net deferred
tax asset will be realized.
27
Significant changes in any of the estimated future taxable
income could impair our ability to utilize our deferred tax
assets. Additional disclosures relating to income taxes and our
deferred tax assets are included in Note 6.
Environmental
Reserves
We expense environmental expenditures relating to ongoing
operations unless the expenditures extend the life, increase the
capacity or improve the safety or efficiency of our property,
mitigate or prevent environmental contamination that has yet to
occur and improve our property compared with its original
condition or are incurred for property held for sale. We record
specific reserves related to site assessments, remediation or
monitoring when the costs are both probable and the amount can
be reasonably estimated. We base estimates on in-house and
third-party studies considering current technologies,
remediation alternatives and current environmental standards. In
addition, if there are other participants and the site is joint
and several, the financial stability of other participants is
considered in determining our accrual. We believe the probable
range for future expenditures is $.6 million to
$.9 million and have accrued $.7 million at
December 31, 2008.
Uncertainties affecting our estimates include changes in the
type or degree of contamination uncovered during assessment and
actual
clean-up;
changes in available treatment technologies; changes in the
financial condition of other participants for sites with joint
and several responsibility; changes in the financial condition
of insurance carriers financially responsible for our share of
the remediation costs at certain sites; and changes in local,
state or federal standards or the application of those standards
by governmental officials. We believe a material change in any
of the uncertainties described above could result in spending
materially different from the amounts accrued.
New
Accounting Pronouncements
In September 2006, FASB issued Statement of Financial Accounting
Standards No. 157, Fair Value Measurements (FAS 157).
This standard defines fair value, establishes a market-based
framework or hierarchy for measuring fair value, and expands
disclosures about fair value measurements. FAS 157 is
applicable whenever another accounting pronouncement requires or
permits assets and liabilities to be measured at fair value.
FAS 157 does not expand or require any new fair value
measures, however, the application of this statement may change
current practice. The requirements of FAS 157 are effective
for measurements of financial instruments and recurring fair
value measurements of non-financial assets and liabilities for
our fiscal year beginning January 1, 2008. On
January 1, 2009, FAS 157 applies to non-recurring
valuations of non-financial assets and liabilities, including
those used in measuring impairments of goodwill, other
intangible assets and other long-lived assets. It also applies
to fair value measurements of non-financial assets acquired and
liabilities assumed in business combinations which occur after
January 1, 2009.
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities including
an Amendment of FASB Statement No. 115 (FAS 159). This
standard allows an entity to choose to measure certain financial
instruments and liabilities at fair value. Subsequent
measurements for the financial instruments and liabilities an
entity elects to fair value will be recognized in earnings.
FAS 159 also established additional disclosure
requirements. The requirements of FAS 159 were effective
for our fiscal year beginning January 1, 2008. We adopted
FAS 159 and elected not to measure any additional financial
instruments and other items at fair value. The adoption of
FAS 159 had no impact on our financial statements.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007), Business
Combinations (FAS 141R). FAS 141R establishes
principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any non-controlling interest
in the acquiree and the goodwill acquired. The standard also
establishes disclosure requirements to enable the evaluation for
the nature and financial effects of the business combination.
The requirements of FAS 141R are effective for our fiscal
year beginning January 1, 2009. We do not expect the
adoption of this standard to have a significant impact on our
financial statements upon adoption.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
Not required.
28
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
NASHUA
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
264,903
|
|
|
$
|
272,799
|
|
Cost of products sold
|
|
|
225,498
|
|
|
|
224,545
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
39,405
|
|
|
|
48,254
|
|
Selling and distribution expenses
|
|
|
25,937
|
|
|
|
24,088
|
|
General and administrative expenses
|
|
|
14,857
|
|
|
|
16,991
|
|
Research and development expenses
|
|
|
666
|
|
|
|
806
|
|
Loss from equity investment
|
|
|
192
|
|
|
|
200
|
|
Impairment of goodwill
|
|
|
14,142
|
|
|
|
|
|
Interest expense
|
|
|
535
|
|
|
|
765
|
|
Interest income
|
|
|
(98
|
)
|
|
|
(179
|
)
|
Change in fair value of interest rate swap
|
|
|
538
|
|
|
|
295
|
|
Other income
|
|
|
(958
|
)
|
|
|
(1,196
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(16,406
|
)
|
|
|
6,484
|
|
Provision for income taxes
|
|
|
3,358
|
|
|
|
2,633
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(19,764
|
)
|
|
|
3,851
|
|
Income from discontinued operations, net of $211,000 of taxes
|
|
|
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(19,764
|
)
|
|
$
|
4,140
|
|
|
|
|
|
|
|
|
|
|
Per share amounts:
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations per common share
|
|
$
|
(3.65
|
)
|
|
$
|
0.67
|
|
Income from discontinued operations per common share
|
|
|
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share
|
|
$
|
(3.65
|
)
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations per common
share-assuming dilution
|
|
$
|
(3.65
|
)
|
|
$
|
0.66
|
|
Income from discontinued operations per common share-assuming
dilution
|
|
|
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share-assuming dilution
|
|
$
|
(3.65
|
)
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding:
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
5,414
|
|
|
|
5,743
|
|
Common shares-assuming dilution
|
|
|
5,414
|
|
|
|
5,817
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
29
NASHUA
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,592
|
|
|
$
|
7,388
|
|
Accounts receivable, net
|
|
|
27,469
|
|
|
|
29,375
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Raw materials
|
|
|
8,902
|
|
|
|
9,079
|
|
Work in process
|
|
|
3,329
|
|
|
|
2,565
|
|
Finished goods
|
|
|
9,554
|
|
|
|
8,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,785
|
|
|
|
19,998
|
|
Other current assets
|
|
|
5,599
|
|
|
|
2,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,445
|
|
|
|
59,589
|
|
Plant and equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
|
986
|
|
|
|
986
|
|
Buildings and improvements
|
|
|
15,591
|
|
|
|
16,409
|
|
Machinery and equipment
|
|
|
53,181
|
|
|
|
53,512
|
|
Construction in progress
|
|
|
506
|
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,264
|
|
|
|
71,096
|
|
Accumulated depreciation
|
|
|
(50,110
|
)
|
|
|
(47,805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
20,154
|
|
|
|
23,291
|
|
Goodwill
|
|
|
17,374
|
|
|
|
31,516
|
|
Intangibles, net of amortization
|
|
|
260
|
|
|
|
331
|
|
Other assets
|
|
|
5,970
|
|
|
|
12,975
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
100,203
|
|
|
$
|
127,702
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
11,968
|
|
|
$
|
14,432
|
|
Accrued expenses
|
|
|
8,900
|
|
|
|
9,185
|
|
Current portion of long-term debt
|
|
|
8,125
|
|
|
|
1,875
|
|
Current portion of notes payable to related parties
|
|
|
18
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,011
|
|
|
|
25,523
|
|
Long-term debt, less current portion
|
|
|
2,800
|
|
|
|
10,925
|
|
Notes payable to related parties, less current portion
|
|
|
|
|
|
|
18
|
|
Other long-term liabilities
|
|
|
46,879
|
|
|
|
29,728
|
|
Commitments and contingencies (see Note 10)
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Common stock, par value $1.00; authorized
20,000,000 shares; issued and outstanding
5,607,642 shares in 2008 and 5,640,636 shares in 2007
|
|
|
5,608
|
|
|
|
5,641
|
|
Additional paid-in capital
|
|
|
15,076
|
|
|
|
14,562
|
|
Retained earnings
|
|
|
39,705
|
|
|
|
59,648
|
|
Accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
Minimum pension liability adjustment, net of tax
|
|
|
(38,876
|
)
|
|
|
(18,343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
21,513
|
|
|
|
61,508
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
100,203
|
|
|
$
|
127,702
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
30
NASHUA
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
AND
COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
Capital
|
|
|
Earnings
|
|
|
Loss
|
|
|
Total
|
|
|
|
(In thousands, except share data)
|
|
|
Balance, December 31, 2006
|
|
|
6,344,178
|
|
|
$
|
6,344
|
|
|
$
|
15,998
|
|
|
$
|
61,358
|
|
|
$
|
(14,673
|
)
|
|
$
|
69,027
|
|
Stock options exercised and related tax benefit
|
|
|
85,150
|
|
|
|
85
|
|
|
|
596
|
|
|
|
|
|
|
|
|
|
|
|
681
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
|
232
|
|
Restricted stock issued
|
|
|
148,000
|
|
|
|
148
|
|
|
|
(148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock forfeited
|
|
|
(88,673
|
)
|
|
|
(88
|
)
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase and retirement of treasury shares
|
|
|
(100,300
|
)
|
|
|
(100
|
)
|
|
|
(260
|
)
|
|
|
(445
|
)
|
|
|
|
|
|
|
(805
|
)
|
Purchase and retirement of treasury shares tender
offer
|
|
|
(751,150
|
)
|
|
|
(751
|
)
|
|
|
(2,009
|
)
|
|
|
(5,405
|
)
|
|
|
|
|
|
|
(8,165
|
)
|
Other
|
|
|
3,431
|
|
|
|
3
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,140
|
|
|
|
|
|
|
|
4,140
|
|
Minimum pension liability adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,670
|
)
|
|
|
(3,670
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
5,640,636
|
|
|
$
|
5,641
|
|
|
$
|
14,562
|
|
|
$
|
59,648
|
|
|
$
|
(18,343
|
)
|
|
$
|
61,508
|
|
Stock options exercised and related tax benefit
|
|
|
7,550
|
|
|
|
7
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
888
|
|
|
|
|
|
|
|
|
|
|
|
888
|
|
Restricted stock issued
|
|
|
118,000
|
|
|
|
118
|
|
|
|
(118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock forfeited
|
|
|
(23,000
|
)
|
|
|
(23
|
)
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase and retirement of treasury shares
|
|
|
(135,544
|
)
|
|
|
(135
|
)
|
|
|
(334
|
)
|
|
|
(179
|
)
|
|
|
|
|
|
|
(648
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,764
|
)
|
|
|
|
|
|
|
(19,764
|
)
|
Minimum pension liability adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,533
|
)
|
|
|
(20,533
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
5,607,642
|
|
|
$
|
5,608
|
|
|
$
|
15,076
|
|
|
$
|
39,705
|
|
|
$
|
(38,876
|
)
|
|
$
|
21,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
31
NASHUA
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(19,764
|
)
|
|
$
|
4,140
|
|
Adjustments to reconcile net income (loss) to cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,445
|
|
|
|
4,608
|
|
Amortization of deferred gain
|
|
|
(674
|
)
|
|
|
(674
|
)
|
Change in fair value of interest rate swap
|
|
|
538
|
|
|
|
295
|
|
Impairment of goodwill
|
|
|
14,142
|
|
|
|
|
|
Deferred income taxes
|
|
|
4,818
|
|
|
|
1,309
|
|
Stock based compensation
|
|
|
888
|
|
|
|
261
|
|
Excess tax benefit from exercised stock based compensation
|
|
|
(14
|
)
|
|
|
(125
|
)
|
Loss on sale/disposal of fixed assets
|
|
|
411
|
|
|
|
65
|
|
Equity in loss from unconsolidated joint venture
|
|
|
192
|
|
|
|
200
|
|
Contributions to pension plans (see Note 11)
|
|
|
(4,888
|
)
|
|
|
(5,339
|
)
|
Change in operating assets and liabilities, net of effects from
acquisition of businesses:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,906
|
|
|
|
95
|
|
Inventories
|
|
|
(1,787
|
)
|
|
|
3,766
|
|
Other assets
|
|
|
(633
|
)
|
|
|
(315
|
)
|
Accounts payable
|
|
|
(2,464
|
)
|
|
|
(2,188
|
)
|
Accrued expenses
|
|
|
(285
|
)
|
|
|
546
|
|
Other long-term liabilities
|
|
|
1,642
|
|
|
|
1,202
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities
|
|
|
(1,527
|
)
|
|
|
7,846
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Investment in plant and equipment
|
|
|
(1,648
|
)
|
|
|
(1,346
|
)
|
Investment in unconsolidated joint venture
|
|
|
(129
|
)
|
|
|
(146
|
)
|
Proceeds from sale of plant and equipment
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
(1,777
|
)
|
|
|
(1,486
|
)
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Net repayments on revolving portion of long-term debt
|
|
|
|
|
|
|
(1,950
|
)
|
Net repayments on term portion of long-term debt
|
|
|
(1,875
|
)
|
|
|
|
|
Principal repayment on note payable to related parties
|
|
|
(31
|
)
|
|
|
(71
|
)
|
Proceeds from repayment on loan to related party
|
|
|
|
|
|
|
1,049
|
|
Proceeds from refinancing
|
|
|
|
|
|
|
10,000
|
|
Proceeds from shares exercised under stock option plans
|
|
|
48
|
|
|
|
556
|
|
Excess tax benefit from exercised stock based compensation
|
|
|
14
|
|
|
|
125
|
|
Purchase and retirement of treasury shares
|
|
|
(648
|
)
|
|
|
(805
|
)
|
Purchase and retirement of treasury shares tender
offer
|
|
|
|
|
|
|
(8,165
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) financing activities
|
|
|
(2,492
|
)
|
|
|
739
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(5,796
|
)
|
|
|
7,099
|
|
Cash and cash equivalents at beginning of year
|
|
|
7,388
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,592
|
|
|
$
|
7,388
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
445
|
|
|
$
|
959
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid, net
|
|
$
|
61
|
|
|
$
|
1,952
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
32
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2008 and 2007
|
|
Note 1:
|
Summary
of Significant Accounting Policies
|
Description
of the Company
Nashua Corporation is a manufacturer, converter and marketer of
labels and specialty papers. Our primary products include
thermal and other coated papers, wide-format papers,
pressure-sensitive labels and tags, and transaction and
financial receipts.
Segment
and Related Information
We have two segments as discussed in detail in Note 12:
(1) Label Products
(2) Specialty Paper Products
Basis of
Consolidation
Our Consolidated Financial Statements include the accounts of
Nashua Corporation and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been
eliminated.
Use of
Estimates
The preparation of our Consolidated Financial Statements, in
accordance with U.S. GAAP, requires us to make estimates
and assumptions that affect the amounts reported in our
financial statements and accompanying notes. Significant
estimates include allowances for obsolete inventory and
uncollectible receivables, environmental obligations, pension
and other postretirement benefits, valuation allowances for
deferred tax assets, future cash flows associated with assets
and useful lives for depreciation and amortization. Actual
results could differ from our estimates.
Cash
Equivalents
We consider all highly liquid investment instruments purchased
with a maturity of three months or less to be cash equivalents.
Accounts
Receivable
We evaluate the collectibility of our accounts receivable based
on a combination of factors. In circumstances where we become
aware of a specific customers inability to meet its
financial obligations to us, such as a bankruptcy filing or a
substantial downgrading of a customers credit rating, we
record a specific reserve to reduce our net receivable to the
amount we reasonably expect to collect. We also record reserves
for bad debts based on the length of time our receivables are
past due, the payment history of our individual customers and
the current financial condition of our customers based on
obtainable data and historical payment and loss trends. After
managements review of accounts receivable, we increased
the allowance for doubtful accounts to $.5 million at
December 31, 2008 from $.3 million at
December 31, 2007. Uncertainties affecting our estimates
include future industry and economic trends and the related
impact on the financial condition of our customers, as well as
the ability of our customers to generate cash flows sufficient
to pay us amounts due. If circumstances change, such as higher
than expected defaults or an unexpected material adverse change
in a customers ability to meet its financial obligations
to us, our estimates of the recoverability of the receivables
due us could be either reduced or increased by a material amount.
33
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories
Our inventories are carried at the lower of cost or market. Cost
is determined by the
first-in,
first-out, or commonly known as FIFO, method for approximately
77 percent of our inventories at December 31, 2008 and
2007, and by the
last-in,
first-out, or commonly known as LIFO, method for the balance. If
the FIFO method had been used to cost all inventories, the
balances would have been approximately $2.0 million higher
for December 31, 2008 and $1.8 million higher for
December 31, 2007.
Plant and
Equipment
Our plant and equipment are stated at cost. We charge
expenditures for maintenance and repairs to operations as
incurred, while additions, renewals and betterments of plant and
equipment are capitalized. Items which are sold, retired or
otherwise disposed of, together with related accumulated
depreciation, are removed from our accounts and, where
applicable, the related gain or loss is recognized.
Depreciation expense was $4.4 million for 2008 and
$4.4 million for 2007. Depreciation expense includes
amortization of assets recorded under capital leases. For
financial reporting purposes, we compute depreciation expense
using the straight-line method over the following estimated
useful lives:
|
|
|
|
|
Buildings and improvements
|
|
|
5 40 years
|
|
Machinery and equipment
|
|
|
3 20 years
|
|
We review the value of our plant and equipment whenever events
or changes in circumstances indicate that the carrying value may
not be recoverable.
Goodwill
and Intangible Assets
Goodwill represents the excess of the cost of acquired
businesses over the fair value of identifiable net assets
acquired. For the purposes of performing the required impairment
tests, a present value (discounted cash flow) method was used to
determine fair value of the reporting units. We perform our
annual impairment test in the fourth quarter of each year. We
performed an interim impairment test in the third quarter of
2008, as described in more detail in Note 3.
Intangible assets have determinable useful lives between 5 and
15 years. We review intangible assets for impairment when
events or changes in circumstances indicate that the carrying
value may not be recoverable. When indicators of impairment are
present, we evaluate the carrying value of the intangible asset
in relation to its operating performance and future undiscounted
cash flows. If the assets carrying value is not
recoverable, an impairment loss is recorded to write down the
asset to its fair value.
Stock-Based
Compensation
At December 31, 2008 we had five stock compensation plans,
which are described more fully in Note 8. Effective
January 1, 2006, we account for stock-based compensation in
accordance with the fair value recognition provision of
statement of Financial Accounting Standard No. 123 (revised
2004), Share-Based Payment, or FAS 123R, using the
modified-prospective method. We use the Monte Carlo Simulation,
which requires the input of subjective assumptions. These
assumptions include estimating the length of time employees will
retain their vested stock options before exercising them, the
estimated volatility of our common stock price over the expected
term and the number of options that will ultimately not complete
their vesting requirements. Changes in the subjective
assumptions can materially affect the estimate of fair value
stock-based compensation, and consequently, the related amount
recognized on the Consolidated Statements of Operations.
Compensation expense for the year ended December 31, 2008
for restricted stock awards and restricted stock units was
$.9 million compared to expense for restricted stock awards
of $.2 million in 2007 and is
34
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
included in selling, general and administrative expenses. Total
compensation related to non-vested awards not yet recognized at
December 31, 2008 is $.9 million, which we expect to
recognize as compensation expense over the next three years.
Postretirement
Benefits
Effective December 31, 2006, we adopted Financial
Accounting Standard No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, or
FAS 158. FAS 158 requires us to recognize the funding
status of our defined benefit postretirement plans in our
statement of financial position and to recognize changes in the
funding status in comprehensive income in the year in which the
change occurs. FAS 158 and its effects on our Consolidated
Financial Statements are described more fully in Note 11.
Revenue
Recognition
We recognize revenue from product sales or services rendered
when the following four revenue recognition criteria are met:
persuasive evidence of an arrangement exists, delivery has
occurred or services have been rendered, the selling price is
fixed or determinable, and collectibility is reasonably assured.
Environmental
Expenditures
We expense environmental expenditures relating to ongoing
operations unless the expenditures extend the life, increase the
capacity or improve the safety or efficiency of our property,
mitigate or prevent environmental contamination that has yet to
occur and improve our property compared with its original
condition, or are incurred for property held for sale.
Expenditures relating to site assessment, remediation and
monitoring are accrued and expensed when the costs are both
probable and the amount can be reasonably estimated. We base
estimates on in-house and third-party studies considering
current technologies, remediation alternatives and current
environmental standards. In addition, if there are other
participants and the liability is joint and several, the
financial stability of the other participants is considered in
determining our accrual.
Shipping
Costs
We classify third-party shipping costs as a component of selling
and distribution expenses in our Consolidated Statement of
Operations. Third-party shipping costs totaled
$11.7 million for the year ended December 31, 2008 and
$11.2 million for the year ended December 31, 2007.
Research
and Development
We expense research and development costs as incurred.
Income
Taxes
Income taxes are accounted for under the liability method in
accordance with Financial Accounting Standard No. 109
(FAS 109) Accounting for Income Taxes. Deferred income
taxes result principally from the use of different methods of
depreciation and amortization for income tax and financial
reporting purposes, the recognition of expenses for financial
reporting purposes in years different from those in which the
expenses are deductible for income tax purposes, and the
recognition of the tax benefit of net operating losses and other
tax credits. Deferred taxes reflect the tax consequences on
future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts. The carrying
value of our deferred tax assets is dependent upon the ability
to generate sufficient future taxable income in certain tax
jurisdictions. Should we determine that it is more likely than
not that some portion or all of our deferred assets will not be
realized, a
35
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
valuation allowance to the deferred tax assets would be
established in the period such determination was made.
In accordance with Financial Accounting Standards Board
Interpretation 48, Accounting for Uncertainty in Income
Taxes an Interpretation of FASB Statement
No. 109 (FIN 48), our policy is to provide for
uncertain tax positions and the related interest and penalties
based upon managements assessment of whether a tax benefit
is more likely than not to be sustained upon examination by tax
authorities. At December 31, 2008, we believe we have
appropriately accounted for any unrecognized tax benefits. To
the extent we prevail in matters for which a liability for an
unrecognized tax benefit is established or is required to pay
amounts in excess of the liability, our effective tax rate in a
given financial statement period may be affected.
Concentrations
of Credit Risk
Financial instruments that potentially subject us to
concentrations of credit risk consist primarily of cash
equivalents and trade receivables.
We place our temporary cash investments with high quality
financial institutions and in high quality liquid investments.
Concentrations of credit risk with respect to accounts
receivable are limited because our customer base consists of a
large number of geographically diverse customers. We perform
ongoing credit evaluations of our customers financial
condition and maintain allowances for potential credit losses.
We generally do not require collateral or other security to
support customer receivables.
Concentrations
of Labor
We had 659 full-time employees at February 6, 2009.
Approximately 200 of our employees are members of one of several
unions, principally the United Steelworkers of America. The
agreements have initial durations of three to six years and
expire on April 5, 2009, March 7, 2011 or
March 31, 2012. We believe our employee relations are
satisfactory.
Concentrations
of Supply
We purchase certain important raw materials from a sole source
or a limited number of manufacturers. Management believes that
other suppliers could qualify to provide similar raw materials
on comparable terms. The time required to locate and qualify
other suppliers, however, could cause a delay in manufacturing
that could be disruptive to our company.
Fair
Value of Financial Instruments
The recorded amounts for cash and cash equivalents, other
current assets, accounts receivable and accounts payable and
other current liabilities approximate fair value due to the
short-term nature of these financial instruments. The fair
values of amounts outstanding under our debt instruments
approximate their book values in all material respects due to
the variable nature of the interest rate provisions associated
with such instruments.
Earnings
per Common and Common Equivalent Shares
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.
36
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Repurchased
Shares
Effective July 1, 2004, companies incorporated in
Massachusetts became subject to the Massachusetts Business
Corporation Act, Chapter 156D. Chapter 156D provides
that shares that are reacquired by a company become authorized
but unissued shares under Section 6.31, and thereby
eliminates the concept of treasury shares.
Accordingly, we designate our treasury shares as authorized but
unissued and allocate the cost of treasury stock to common
stock, additional paid-in capital and retained earnings.
New
Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board, or
FASB, issued Statement of Financial Accounting Standards
No. 157, Fair Value Measurements (FAS 157). This
standard defines fair value, establishes a market-based
framework or hierarchy for measuring fair value, and expands
disclosures about fair value measurements. FAS 157 is
applicable whenever another accounting pronouncement requires or
permits assets and liabilities to be measured at fair value.
FAS 157 does not expand or require any new fair value
measures, however, the application of this statement may change
current practice. The requirements of FAS 157 are effective
for measurements of financial instruments and recurring fair
value measurements of non-financial assets and liabilities for
our fiscal year beginning January 1, 2008. On
January 1, 2009, FAS 157 applies to non-recurring
valuations of non-financial assets and liabilities, including
those used in measuring impairments of goodwill, other
intangible assets and other long-lived assets. It also applies
to fair value measurements of non-financial assets acquired and
liabilities assumed in business combinations which occur after
January 1, 2009. We are in the process of evaluating these
deferred provisions of FAS 157 on our 2009 financial statements.
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities including
an Amendment of FASB Statement No. 115 (FAS 159). This
standard allows an entity to choose to measure certain financial
instruments and liabilities at fair value. Subsequent
measurements for the financial instruments and liabilities an
entity elects to fair value will be recognized in earnings.
FAS 159 also established additional disclosure
requirements. The requirements of FAS 159 were effective
for our fiscal year beginning January 1, 2008. We adopted
FAS 159 and elected not to measure any additional financial
instruments and other items at fair value. The adoption of
FAS 159 had no impact on our financial statements.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007), Business
Combinations (FAS 141R). FAS 141R establishes
principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any non-controlling interest
in the acquiree and the goodwill acquired. The standard also
establishes disclosure requirements to enable the evaluation for
the nature and financial effects of the business combination.
The requirements of FAS 141R are effective for our fiscal
year beginning January 1, 2009. We do not expect the impact
of adopting FAS 141R to have a significant impact on our
financial statements upon adoption.
|
|
Note 2:
|
Discontinued
Operations
|
Discontinued operations includes the reimbursement of legal cost
of $500,000 ($289,000 net of taxes) paid related to the
Cerion litigation which was concluded in the quarter ended
March 30, 2007.
Our asset balance related to discontinued operations included in
our Consolidated Balance Sheets as of December 31, 2008 and
2007 was $1.5 million which was included in other assets
and consists primarily of our 37.1 percent interest in the
Cerion Technologies Liquidating Trust, a trust established
pursuant to the liquidation of Cerion Technologies Inc.,
formerly a publicly held company. Cerion ceased operations
during the fourth quarter of 1998 and will liquidate upon
resolution of legal matters.
37
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 3:
|
Goodwill
and Other Intangible Assets
|
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets (FAS 142), requires
that we test goodwill for impairment at least on an annual basis
and on an interim basis when circumstances change between annual
tests that would more-likely-than-not reduce the fair value of
the reporting unit below its carrying value, and to write down
goodwill and
non-amortizable
intangible assets when impaired. Our annual impairment date is
in the fourth quarter of each year. This assessment requires us
to estimate the fair market value of each of our reporting units
and recognize an impairment when the calculated fair value is
less than our carrying value.
For the year ended December 31, 2008, we recognized a
goodwill impairment charge of $14.1 million related to our
Specialty Paper Products business.
The current business climate related to the ongoing economic
crisis and our reliance on retail sales, banking activity and
construction activity within our Specialty Paper Products
business caused us to re-evaluate our current projections as
well as expected market multiples during the third quarter. As a
result, we performed an interim impairment test as of
September 26, 2008, using a discounted cash flow model.
Based on our assessment, we determined that the fair value of
the reporting unit did not exceed the carrying value and
therefore indicated a potential impairment of the reporting
units goodwill and other assets. After performing step 2
of the evaluation, we have concluded that the entire amount of
$14.1 million was impaired and accordingly, recorded as an
impairment charge in the third quarter. No other assets of the
reporting unit were deemed impaired.
The carrying amount of goodwill and activity for the year ended
December 31, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Paper
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Label Products
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Aggregate amount of goodwill acquired
|
|
$
|
14,142
|
|
|
$
|
17,374
|
|
|
$
|
31,516
|
|
Impairment charge
|
|
|
(14,142
|
)
|
|
|
|
|
|
|
(14,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
|
|
|
$
|
17,374
|
|
|
$
|
17,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details of acquired intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Gross
|
|
|
|
|
|
Average
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Amortization
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Period
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Trademarks and trade names
|
|
$
|
211
|
|
|
$
|
101
|
|
|
|
15 years
|
|
Customer relationships and lists
|
|
|
829
|
|
|
|
679
|
|
|
|
12 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,040
|
|
|
$
|
780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Gross
|
|
|
|
|
|
Average
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Amortization
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Period
|
|
|
|
(In thousands)
|
|
|
Trademarks and trade names
|
|
$
|
211
|
|
|
$
|
88
|
|
|
|
15 years
|
|
Customer relationships and lists
|
|
|
829
|
|
|
|
631
|
|
|
|
12 years
|
|
Customer contracts
|
|
|
450
|
|
|
|
440
|
|
|
|
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,490
|
|
|
$
|
1,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Amortization Expense:
|
|
|
|
|
For the year ended December 31, 2007
|
|
$
|
225
|
|
For the year ended December 31, 2008
|
|
$
|
71
|
|
Estimated for the year ending:
|
|
|
|
|
December 31, 2009
|
|
$
|
47
|
|
December 31, 2010
|
|
$
|
39
|
|
December 31, 2011
|
|
$
|
34
|
|
December 31, 2012
|
|
$
|
31
|
|
December 31, 2013
|
|
$
|
30
|
|
December 31, 2014 and thereafter
|
|
$
|
79
|
|
The gross carrying amount, accumulated amortization and weighted
average amortization period has been adjusted to remove fully
amortized intangible assets as of December 31, 2008.
On May 23, 2007, we entered into a Second Amended and
Restated Credit Agreement with LaSalle Bank National
Association, which was subsequently merged with Bank of America,
N.A. and the lenders party thereto (the Restated Credit
Agreement) to amend and restate in its entirety our
Amended and Restated Credit Agreement, dated March 30,
2006, as amended (the Original Credit Agreement).
The Restated Credit Agreement extended the term of the credit
facility under the Original Credit Agreement to March 30,
2012 (unless earlier terminated in accordance with its terms)
and provided for a revolving credit facility of
$28 million, including a $5 million sublimit for the
issuance of letters of credit and a $2,841,425 secured letter of
credit that will continue to support Industrial Development
Revenue Bonds issued by the Industrial Development Board of the
City of Jefferson City, Tennessee. In addition, the Restated
Credit Agreement established a term loan of $10 million.
The term loan was payable in quarterly installments of $625,000
beginning June 30, 2008. The revolving credit facility is
subject to reduction upon the occurrence of a mandatory
prepayment event (as defined in the Restated Credit Agreement).
We are obligated to make prepayments of the term loan
periodically and upon the occurrence of certain specified
events. The Restated Credit Agreement also adjusted our
requirement to maintain fixed charge coverage ratio to be not
less than 1.50 to 1.00. All other terms of the Original
Agreement remained substantially the same.
The interest rate on loans outstanding under the Restated Credit
Agreement was based on the total debt to adjusted EBITDA ratio
and was, at our option, either (1) a range from zero to
.25 percent over the base rate (prime) or (2) a range
from 1.25 percent to 2 percent over LIBOR. We are also
subject to a non-use fee for any unutilized portion of the
revolving credit facility under the Restated Credit Agreement.
39
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the years ended December 31, 2008 and December 31,
2007, the weighted average annual interest rate on our long-term
debt was 3.8 percent and 5.5 percent, respectively. We
had $24.8 million of available borrowing capacity at
December 31, 2008 under our revolving loan commitment. We
had $3.2 million of obligations under standby letters of
credit with the banks which are included in our bank debt when
calculating our borrowing capacity.
Furthermore, without prior consent of our lenders, the Restated
Credit Agreement limited, among other things, annual capital
expenditures to $8.0 million, the incurrence of additional
debt and restricts the sale of certain assets and merger or
acquisition activities. We may use cash for dividends or the
repurchase of shares to the extent that the availability under
the line of credit exceeds $3.0 million.
As noted in the following table, we were not in compliance with
the fixed charge coverage ratio and the funded debt to adjusted
EBITDA ratio financial covenants at December 31, 2008 under
the Restated Credit Agreement.
|
|
|
|
|
|
|
Requirement at
|
|
Ratio at
|
Covenant
|
|
December 31, 2008
|
|
December 31, 2008
|
|
Maintain a fixed charge coverage ratio
|
|
Not less than 1.5 to 1.0
|
|
1.1 to 1.0
|
Maintain a funded debt to adjusted EBITDA ratio
|
|
Less than 2.5 to 1.0
|
|
2.6 to 1.0
|
In February 2009, we paid down the term loan under the Restated
Credit Agreement with cash on hand and use of the revolving
credit facility. On March 30, 2009, we entered into an
Amendment Agreement to our Second Amended and Restated Credit
Agreement (the Amended Credit Agreement) with Bank
of America, N.A., to waive our non-compliance with the fixed
charge coverage ratio and the funded debt to adjusted EBITDA
ratio financial covenants at December 31, 2008. In
addition, pursuant to the Amended Credit Agreement:
|
|
|
|
|
The termination date is changed from March 30, 2012 to
March 29, 2010;
|
|
|
|
advances under the revolving credit facility are limited to
75 percent of eligible accounts receivable and
40 percent of eligible inventory, and eligible inventory is
limited to $6 million;
|
|
|
|
the revolving credit facility is decreased from $28 million
to $15 million until June 30, 2009, when it will
increase to $17 million;
|
|
|
|
the interest rate on borrowings is increased to LIBOR plus
335 basis points or prime plus 110 basis points;
|
|
|
|
the fee for the unused line of credit is 75 basis points;
|
|
|
|
annual capital expenditures are limited to
$2 million; and
|
|
|
|
equipment and fixtures are added to the collateral securing the
loan.
|
In addition, the terms of the Amended Credit Agreement adjusted
the fixed charge coverage ratio financial covenant to 1.1 to 1.0
for the rolling twelve months ended April 3, 2009 and 1.2
to 1.0 for the rolling twelve months ended June 30, 2009.
The maximum fixed charge coverage ratio returns to 1.5 to 1.0
for each quarterly measurement period through the end of the
agreement. Under the Restated Credit Agreement, our funded debt
to adjusted EBITDA ratio for the period ended April 3, 2009
and thereafter is to be less than 2.25 to 1.0.
40
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pursuant to the Amended Credit Agreement, at December 31,
2008 our minimum payment obligations relating to long-term debt
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2024
|
|
|
Total
|
|
|
Term portion of long-term debt
|
|
$
|
8,125
|
|
|
$
|
|
|
|
$
|
8,125
|
|
Industrial revenue bond
|
|
|
|
|
|
|
2,800
|
|
|
|
2,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,125
|
|
|
$
|
2,800
|
|
|
$
|
10,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We had borrowings of $8.1 million under a term loan and
$2.8 million under our IRB loan outstanding at
December 31, 2008. On February 9, 2009, we borrowed
$4.6 million under our revolving line of credit with Bank
of America and used cash of $3.5 million to pay down the
term loan in its entirety.
We have presented the $8.1 million term loan as current at
December 31, 2008 since the amount was refinanced using
cash generated from current assets at December 31, 2008 and
borrowings under the revolving line of credit.
On March 26, 2009, our borrowings were $3.6 million
under the revolving line of credit and $2.8 million on the
IRB note.
We had $27.4 million of working capital at
December 31, 2008. We believe that our working capital
amounts at December 31, 2008, along with cash expected to
be generated from operating activities as well as borrowings
available under the revolving line of credit, are adequate to
allow us to meet our obligations during 2009. In the event our
results of operations do not meet forecasted results and
therefore impact financial covenants with our lender, we believe
there are alternative forms of financing available to us. There
can be no assurance, however, that such financing will be
available on conditions acceptable to us. In the event such
financing is not available to us, we believe we can effectively
manage operating and financial obligations by adjusting the
timing of working capital components.
We use derivative financial instruments to reduce our exposure
to market risk resulting from fluctuations in interest rates.
During the first quarter of 2006, we entered into an interest
rate swap, with a notional debt value of $10.0 million,
which expires in 2011. During the term of the agreement, we have
a fixed interest rate of 4.82 percent on the notional
amount and Bank of America, as counterparty to the agreement,
paid us interest at a floating rate based on LIBOR on the
notional amount. Interest payments are made quarterly on a net
settlement basis.
This derivative does not qualify for hedge accounting,
therefore, changes in fair value of the hedge instrument are
recognized in earnings. We recognized a $.5 million
mark-to-market
expense in 2008 and a $.3 million
mark-to-market
expense in 2007, both related to the change in fair value of the
derivative. The fair market value of the derivative resulted in
liabilities of $.7 million at December 31, 2008 and
$.3 million at December 31, 2007, which were
determined based on current interest rates and expected trends.
|
|
Note 5:
|
Lease
Exit Charges
|
During the third quarter of 2008, we recorded $.3 million
related to the closure of our leased facility located in
Cranbury, New Jersey as part of distribution expense. In
December 2008, we were released from the Cranbury, New Jersey
lease obligation and reversed the expense related to the exit
charges. During the fourth quarter of 2008, we recorded a lease
liability expense of $1.0 million included in cost of
products sold related to the closure of our leased facility
located in Jacksonville, Florida in our Label Products segment
and $.1 million related to leased trucks no longer used by
our distribution facilities and included in selling and
distribution expense. In accordance with Statement of Financial
Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (FAS 146), we
calculated the costs associated with the closure of the
facilities and our related lease obligations. The calculation
includes the discounted effect of
41
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
future minimum lease payments from the date of closure to the
end of the remaining lease term, net of estimated cost
recoveries that may be achieved through subletting the facility
or favorably terminating the lease. The total cost expected to
be incurred with the Florida lease is $1.8 million, which
will be expensed through May 2013, in our Label Products
segment. A roll forward of the activity for the year ended
December 31, 2008 is as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Balance as of December 31, 2007
|
|
$
|
|
|
Provision for lease exit charges
|
|
|
1,374
|
|
Reduction of lease exit charges
|
|
|
(298
|
)
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
1,076
|
|
|
|
|
|
|
The provision for income taxes from continuing operations
consists of the following:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(1,460
|
)
|
|
$
|
1,073
|
|
State
|
|
|
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
(1,460
|
)
|
|
|
1,324
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
4,343
|
|
|
|
1,110
|
|
State
|
|
|
475
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
4,818
|
|
|
|
1,309
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes, continuing operations
|
|
$
|
3,358
|
|
|
$
|
2,633
|
|
|
|
|
|
|
|
|
|
|
42
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Total net deferred tax assets (liabilities) are comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Depreciation
|
|
$
|
(304
|
)
|
|
$
|
(725
|
)
|
Other
|
|
|
(614
|
)
|
|
|
(611
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(918
|
)
|
|
|
(1,336
|
)
|
|
|
|
|
|
|
|
|
|
Pension and postretirement benefits
|
|
|
14,947
|
|
|
|
9,287
|
|
State net operating loss carryforwards and other state credits
|
|
|
1,767
|
|
|
|
1,690
|
|
Alternative minimum tax and general business credits
|
|
|
1,528
|
|
|
|
1,109
|
|
Accrued expenses
|
|
|
743
|
|
|
|
278
|
|
Inventory reserves
|
|
|
565
|
|
|
|
478
|
|
Bad debt reserves
|
|
|
266
|
|
|
|
351
|
|
Other
|
|
|
1,648
|
|
|
|
1,082
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
21,464
|
|
|
|
14,275
|
|
Deferred tax asset valuation allowance
|
|
|
(14,384
|
)
|
|
|
(1,959
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
|
7,080
|
|
|
|
12,316
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
6,162
|
|
|
$
|
10,980
|
|
|
|
|
|
|
|
|
|
|
Reconciliations between income tax provision from continuing
operations computed using the United States statutory
income tax rate and our effective tax rate are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
United States federal statutory rate
|
|
$
|
(5,742
|
)
|
|
|
(35.0
|
)%
|
|
$
|
2,268
|
|
|
|
35.0
|
%
|
State taxes, net of federal tax benefit
|
|
|
309
|
|
|
|
1.9
|
|
|
|
310
|
|
|
|
4.8
|
|
Goodwill impairment
|
|
|
5,609
|
|
|
|
34.2
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
4,293
|
|
|
|
26.2
|
|
|
|
195
|
|
|
|
3.0
|
|
Other items
|
|
|
(1,111
|
)
|
|
|
(6.8
|
)
|
|
|
(140
|
)
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,358
|
|
|
|
20.5
|
%
|
|
$
|
2,633
|
|
|
|
40.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, other current assets included
$3.2 million of net deferred tax assets and other assets
included $3.0 million of net deferred tax assets. At
December 31, 2007, other current assets included
$1.5 million of net deferred tax assets and
$9.5 million was included in other assets.
At December 31, 2008, we had $19.2 million of state
net operating loss carryforwards and other state credits (net
benefit of $1.8 million) and $1.5 million of federal
tax credit carryforwards, which are available to offset future
domestic taxable earnings and taxes and are fully reserved at
December 31, 2008. The state net operating loss
carryforward benefits and other state credits expire between tax
years 2009 and 2020. Primarily all of the $1.5 million of
federal tax credit carryforwards are for alternative minimum tax
and have no expiration date. In 2008, we increased our valuation
allowance by approximately $12.4 million for uncertainty
related to the overall utilization of our deferred tax assets.
The increase in the valuation allowance related to pension and
postretirement benefits ($9.1 million), of which
$8.1 million was recorded through other comprehensive loss,
federal tax credits ($1.5 million), state net operating
losses and credits ($.7 million), and other tax assets
($1.6 million). $4.3 million of the increase in
valuation allowance was recorded through the income tax
provision and $8.1 million was recorded through other
comprehensive loss due to the nature of the items.
43
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In 2007, we increased our valuation allowance by approximately
$.2 million for uncertainty related to our expected
decrease in utilization of state net operating losses.
In 2008, our minimum pension liability increased due to changes
in the pension plan funded status. Accordingly, we increased
both the deferred tax asset and related valuation allowance by
$8.1 million through accumulated other comprehensive loss.
In 2007, our additional minimum pension liability increased due
to changes in its funded status and changes in actuarial
assumptions. Accordingly, we increased both the deferred tax
asset and related valuation allowance in 2007 by
$4.1 million through accumulated other comprehensive loss.
Taxes charged to other comprehensive loss, net of the deferred
tax asset valuation allowance, related to certain other pension
and postretirement benefits amounts to $0 million in 2008
and 2007.
Effective January 1, 2007, we adopted the provisions of
FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement
No. 109 (FIN 48). FIN 48 prescribes a recognition
threshold and a measurement attribute for the financial
statement recognition and measurement of tax positions taken or
expected to be taken in a tax return. For those benefits to be
recognized, a tax position must be
more-than-likely-not
to be sustained upon examination by taxing authorities. There
was not a material impact on our consolidated financial position
and results of operations as a result of the adoption of the
provisions of FIN 48. At December 31, 2008 and 2007,
we had no unrecognized tax benefits. We do not believe there
will be any material changes in our unrecognized tax positions
over the next twelve months.
Our policy for recording interest and penalties associated with
tax audits is to record such items as a component of income or
loss before income taxes. When applicable, interest is recorded
as interest expense, net and penalties are recorded in other
income (loss). For the year ended 2008, we had no interest or
penalties accrued related to unrecognized tax benefits.
|
|
Note 7:
|
Shareholders
Equity
|
Our ability to pay dividends is restricted to the provisions of
our debt agreement which allows us to use cash for dividends to
the extent that the availability under the line of credit
exceeds $3.0 million. We did not declare or pay a cash
dividend on our common stock in 2008 or 2007.
We account for repurchased common stock under the cost method
and upon purchase, we retire treasury stock as a reduction of
common stock, additional paid-in capital and retained earnings.
During the fourth quarter of 2008, our Board of Directors
authorized the repurchase of up to 1,000,000 shares of our
common stock from time to time on the open market or in
privately negotiated transactions. During 2008, we repurchased
and retired 135,544 shares totaling $.7 million.
During the fourth quarter of 2006, our Board of Directors
authorized the repurchase of up to 500,000 shares of our
common stock from time to time on the open market or in
privately negotiated transactions. In 2006, we repurchased and
retired 15,429 shares totaling $.1 million. During
2007, we repurchased and retired 100,300 shares totaling
$.8 million. The share repurchase program expired on
December 31, 2007.
On May 29, 2007, we commenced a tender offer in which we
sought to acquire up to 1,900,000 shares of our common
stock at a price of $10.50 per share. The tender offer expired
on June 28, 2007 at which time 751,150 shares were
tendered at a price of $10.50 per share. During the third
quarter of 2007, we settled the obligation of the tender offer
and paid $7.9 million for the tendered shares. Transaction
fees of $.3 million were paid during 2007 and recorded as a
reduction to retained earnings. The transaction fees included
the dealer manager, information agent, depositary, legal and
other fees.
44
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 8:
|
Stock
Option and Stock Award Plans
|
We have five stock compensation plans at December 31, 2008:
the 2008 Value Creation Incentive Plan (2008 Plan), the 2007
Value Creation Incentive Plan (2007 Plan), the 2004 Value
Creation Incentive Plan (2004 Plan), the 1999 Shareholder
Value Plan (1999 Plan) and the 1996 Stock Incentive Plan (1996
Plan).
On April 28, 2008, our shareholders approved the 2008 Value
Creation Incentive Plan pursuant to which restricted stock
awards may be granted to certain key executives. The restricted
stock will vest only upon achievement of certain target average
closing prices of our common stock over the 40-consecutive
trading day period which ends on the third anniversary of the
date of grant, such that 33 percent of such shares shall
vest if the
40-day
average closing price of at least $13.00 but less than $14.00 is
achieved, 66 percent of such shares shall vest if the
40-day
average closing price of at least $14.00 but less than $15.00 is
achieved, and 100 percent of such shares shall vest if the
40-day
average closing price of $15.00 or greater is achieved. The
restricted shares vest upon a change of control if the share
price at the date of the change of control is equal to or
greater than $13.00. Shares of the restricted stock are
forfeited if the specified closing prices of our common stock
are not met or if certain individual stock ownership criteria
are not met. There are 100,000 shares authorized for
issuance under the 2008 Plan. As of December 31, 2008,
there are no shares available to be awarded under the 2008 Plan.
On May 4, 2007, our shareholders adopted the 2007 Plan
pursuant to which restricted stock awards may be granted to
certain key executives. The restricted stock will vest only upon
achievement of certain target average closing prices of our
common stock over the 40-consecutive trading day period which
ends on the third anniversary of the date of grant, such that
33 percent of such shares shall vest if the
40-day
average closing price of at least $11.00 but less than $12.00 is
achieved, 66 percent of such shares shall vest if the
40-day
average closing price of at least $12.00 but less than $13.00 is
achieved, and 100 percent of such shares shall vest if the
40-day
average closing price of $13.00 or greater is achieved. The
restricted shares vest upon a change of control if the share
price at the date of the change of control is equal to or
greater than $11.00. Shares of the restricted stock are
forfeited if the specified closing prices of our common stock
are not met or if certain individual stock ownership criteria
are not met. Of the 160,000 shares authorized for issuance
under the 2007 Plan, 17,000 shares are available to be
awarded as of December 31, 2008.
On May 4, 2004, our shareholders adopted the 2004 Plan in
which restricted stock awards have been granted to certain key
executives that will vest upon achievement of certain target
average closing prices of our common stock over the
40-consecutive trading day period which ends on the third
anniversary of the date of grant, or the
40-day
average closing price, such that 33 percent of such shares
shall vest if the
40-day
average closing price of at least $13.00 but less than $14.00 is
achieved, 66 percent of such shares shall vest if the
40-day
average closing price of at least $14.00 but less than $15.00 is
achieved, and 100 percent of such shares shall vest if the
40-day
average closing price of $15.00 or greater is achieved. The
restricted shares vest upon a change in control if the share
price at the date of the change of control is equal to or
greater than $13.00. Shares of the restricted stock are
forfeited if the specified closing prices of our common stock
are not met. As of December 31, 2008, 146,000 shares
have been forfeited. Of the 150,000 shares authorized for
issuance under the 2004 Plan, 49,000 shares are outstanding
as of December 31, 2008. The 2004 Plan has expired and no
further awards can be granted.
Under the 1999 Plan, nonstatutory stock options have been
awarded. Of the 600,000 shares authorized for the 1999
Plan, 9,719 shares are available to be awarded as of
December 31, 2008. There were 226,550 stock options
outstanding at December 31, 2008, all of which are
currently exercisable. Stock options under the 1999 Plan
generally become exercisable either (a) 50 percent on
the first anniversary of grant and the remainder on the second
anniversary of grant, (b) 100 percent at one year from
the date of grant, or (c) otherwise as determined by the
Leadership and Compensation Committee of our Board of Directors.
Certain options may become exercisable immediately under certain
circumstances and events as defined under
45
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the plan and option agreements. Nonstatutory and incentive stock
options granted under the 1999 Plan expire on April 30,
2009. Currently, there are no incentive stock options granted
under the 1999 Plan.
Under the 1999 Plan, performance based restricted stock awards
have also been granted. There were 22,288 restricted stock
awards outstanding at December 31, 2008 under this plan.
The shares of restricted stock granted will vest either
(i) upon achievement of certain target average closing
prices of our common stock over the 40-consecutive trading day
period which ends on the third anniversary of the date of grant
or upon a change in control if the share price at the date of
the change in control is equal to or greater than $13.00, or
(ii) annually in three equal installments on the first,
second and third anniversary of the date of grant. Shares of the
restricted stock are forfeited if the specified closing prices
of our common stock are not met.
Under the 1996 Plan, both nonstatutory stock options and
restricted stock have been awarded. There were
49,200 shares outstanding at December 31, 2008, all of
which are currently exercisable. Nonstatutory stock options
granted under the 1996 Plan expire 10 years and one day
from the date of grant. Under this plan, there were 26,000
restricted stock awards outstanding at December 31, 2008.
These restricted stock awards vest upon achievement of certain
target average closing prices of our common stock over the
40-consecutive trading day period which ends on the third
anniversary of the date of grant, such that 33 percent of
such shares shall vest if the
40-day
average closing price of at least $13.00 but less than $14.00 is
achieved, 66 percent of such shares shall vest if the
40-day
average closing price of at least $14.00 but less than $15.00 is
achieved, and 100 percent of such shares shall vest if the
40-day
average closing price of $15.00 or greater is achieved. The 1996
Plan has expired and no further awards can be granted.
Compensation expense for the year ended December 31, 2008
for restricted stock awards and restricted stock units was
$.9 million compared to $.2 million in 2007 and is
included in selling, general and administrative expenses. Total
compensation related to non-vested awards not yet recognized at
December 31, 2008 is $.9 million, which we expect to
recognize as compensation expense over the next three years.
A summary of the status of our fixed stock option plans as of
December 31, 2008 and 2007 and changes during the years
ended on those dates is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding beginning of year
|
|
|
291,800
|
|
|
$
|
6.18
|
|
|
|
400,950
|
|
|
$
|
6.65
|
|
Exercised
|
|
|
(7,550
|
)
|
|
|
6.36
|
|
|
|
(85,150
|
)
|
|
|
6.52
|
|
Forfeited exercisable
|
|
|
(7,000
|
)
|
|
|
15.93
|
|
|
|
(24,000
|
)
|
|
|
12.78
|
|
Expired
|
|
|
(1,500
|
)
|
|
|
12.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at end of year
|
|
|
275,750
|
|
|
$
|
5.90
|
|
|
|
291,800
|
|
|
$
|
6.18
|
|
46
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the status of our restricted stock plans as of
December 31, 2008 and 2007 and changes during the years
ended on those dates is presented below:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Restricted stock outstanding at beginning of year
|
|
|
246,431
|
|
|
|
183,673
|
|
Granted
|
|
|
166,570
|
|
|
|
151,431
|
|
Forfeited
|
|
|
(23,000
|
)
|
|
|
(88,673
|
)
|
Vested
|
|
|
(1,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock outstanding at end of year
|
|
|
388,858
|
|
|
|
246,431
|
|
Weighted average fair value per restricted share at grant date
|
|
$
|
5.95
|
|
|
$
|
5.12
|
|
Weighted average share price at grant date
|
|
$
|
10.50
|
|
|
$
|
10.54
|
|
While we did not grant stock options for the years ended
December 31, 2008 and 2007, we did grant shares of
restricted stock. Key assumptions and methods used in estimating
the fair value at the grant date of restricted shares granted
are listed below:
|
|
|
|
|
|
|
|
|
|
|
Grant Year
|
|
|
|
2008
|
|
|
2007
|
|
|
Volatility of Share Price
|
|
|
48.9
|
%
|
|
|
44.0
|
%
|
Dividend yield
|
|
|
|
|
|
|
|
|
Interest rate
|
|
|
2.6
|
%
|
|
|
4.6
|
%
|
Expected forfeiture
|
|
|
9.9
|
%
|
|
|
9.9
|
%
|
Valuation methodology
|
|
|
Monte Carlo
Simulation
|
|
|
|
Monte Carlo
Simulation
|
|
47
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 9:
|
Earnings
Per Share
|
Reconciliations of the denominators used in our 2008 and 2007
earnings per share calculations are presented below.
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
12/31/08
|
|
|
12/31/07
|
|
|
|
In thousands except per share data
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
(19,764
|
)
|
|
$
|
3,851
|
|
Income from discontinued operations
|
|
|
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(19,764
|
)
|
|
$
|
4,140
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding
|
|
|
5,397
|
|
|
|
5,740
|
|
Other
|
|
|
17
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
|
|
|
5,414
|
|
|
|
5,743
|
|
Diluted
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
|
5,397
|
|
|
|
5,743
|
|
Common stock equivalents
|
|
|
17
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
Denominator for dilutive earnings per share
|
|
|
5,414
|
|
|
|
5,817
|
|
Per share amounts
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
(3.65
|
)
|
|
$
|
0.67
|
|
Income from discontinued operations
|
|
|
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(3.65
|
)
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
(3.65
|
)
|
|
$
|
0.66
|
|
Income from discontinued operations
|
|
|
|
|
|
|
.05
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(3.65
|
)
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
Market-based restricted stock of 340,288 shares for the
year ended December 31, 2008 and 246,431 shares for
the year ended December 31, 2007 were not included in the
above computations. For the year ended December 31, 2008,
75,001 stock options were not included in the above computation
because to do so would have been anti-dilutive. Such shares
could be issued in the future subject to the occurrence of
certain events as described in Note 8.
48
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 10:
|
Commitments
and Contingencies
|
Lease
Agreements
Our rent expense for office equipment, facilities and vehicles
was $4.1 million for 2008 and $2.9 million for 2007.
Rent expense for 2008 includes $1.0 million of lease
liability related to the closure of our Jacksonville, Florida
plant. At December 31, 2008, we are committed, under
non-cancelable operating leases, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beyond
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2013
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Non-cancelable operating leases
|
|
$
|
1,821
|
|
|
$
|
1,531
|
|
|
$
|
1,288
|
|
|
$
|
224
|
|
|
$
|
95
|
|
|
$
|
26
|
|
|
$
|
4,985
|
|
In November 2006, we sold our property in Merrimack, New
Hampshire to a third party for net proceeds of
$17.1 million and leased back approximately
156,000 square feet under a five-year lease arrangement
with the right to extend the term for two additional five-year
terms. In connection with the sale of the building, we
recognized approximately $9.0 million of gain in our
accompanying 2006 Consolidated Statement of Operations. In
accordance with SFAS No. 28, Accounting for Sales with
Leasebacks (an Amendment of FASB No. 13), we have deferred
a portion of the gain related to the transaction. As of
December 31, 2008, we have accrued expenses
($.7 million) and other long-term liabilities
($1.3 million) in our Consolidated Balance Sheets related
to the deferred gain.
The aggregate rental payment is approximately $3.7 million
over the five-year lease term. Rental payments escalate
approximately 3 percent per year over the term of the lease.
Contingencies
At December 31, 2008, we had a $3.2 million obligation
under standby letters of credit under the credit facility with
Bank of America.
Environmental
We are involved in certain environmental matters and have been
designated by the Environmental Protection Agency, referred to
as the EPA, as a potentially responsible party for certain
hazardous waste sites. In addition, we have been notified by
certain state environmental agencies that some of our sites not
addressed by the EPA require remedial action. These sites are in
various stages of investigation and remediation. Due to the
unique physical characteristics of each site, the technology
employed, the extended timeframes of each remediation, the
interpretation of applicable laws and regulations and the
financial viability of other potential participants, our
ultimate cost of remediation is difficult to estimate.
Accordingly, estimates could either increase or decrease in the
future due to changes in such factors. At December 31,
2008, based on the facts currently known and our prior
experience with these matters, we have concluded that it is
probable that site assessment, remediation and monitoring costs
will be incurred. We have estimated a range for these costs of
$.6 million to $.9 million for continuing operations.
These estimates could increase if other potentially responsible
parties or our insurance carriers are unable or unwilling to
bear their allocated share and cannot be compelled to do so. At
December 31, 2008, our accrual balance relating to
environmental matters was $.7 million for continuing
operations. Based on information currently available, we believe
that it is probable that the major potentially responsible
parties will fully pay the costs apportioned to them. We believe
that our remediation expense is not likely to have a material
adverse effect on our consolidated financial position or results
of operations.
49
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
State
Street Bank and Trust
On October 24, 2007, the Nashua Pension Plan Committee
filed a Class Action Complaint with the United States
District Court for the District of Massachusetts against State
Street Bank and Trust, State Street Global Advisors, Inc. and
John Does 1-20. On January 14, 2008, the Nashua Pension
Plan Committee filed a revised Complaint with the United States
District Court for the District of New York against the same
defendants. The Complaint alleges that the defendants violated
their obligations as fiduciaries under the Employment Retirement
Income Securities Act of 1974, (ERISA).
On February 7, 2008, the Court consolidated our action with
other pending ERISA actions and appointed the Nashua Pension
Plan Committee as one of the lead plaintiffs in the consolidated
action. On August 22, 2008, the lead plaintiffs filed a
consolidated amended complaint. On October 17, 2008, the
defendants filed their answer and included a counterclaim
against trustees of the named plaintiff plans, including the
trustees of Nashuas Pension Plan Committee, asserting that
to the extent State Street is liable to the plans, the trustees
are liable to State Street for contribution
and/or
indemnification in the amount of any payment by State Street in
excess of State Streets share of liability. On
December 22, 2008, State Street filed an amended
counterclaim against the trustees maintaining their allegations
concerning contribution/indemnification and adding a claim for
breach of fiduciary duty. On March 3, 2009, the trustees
filed a motion to dismiss the counterclaim. We believe the
counterclaim is without merit and the trustees intend to
vigorously defend against the counterclaim. Discovery commenced
in March 2008 and is ongoing.
Other
We are involved in various other lawsuits, claims and inquiries,
most of which are routine to the nature of our business. In the
opinion of our management, the resolution of these matters will
not materially affect us.
|
|
Note 11:
|
Postretirement
Benefits
|
Defined
Contribution Plan
Eligible employees may participate in the Nashua Corporation
Employees Savings Plan, a defined contribution 401(k)
plan. We match participating employee contributions at
50 percent for the first 7 percent of base
compensation that a participant contributes to the Plan.
Matching contributions can be increased or decreased at the
option of our Board of Directors. For 2008 and 2007, our
contributions to this Plan were $.8 million and
$.8 million, respectively. Participants are immediately
vested in all contributions, plus actual earnings thereon.
Effective January 1, 2009, we eliminated the company match
related to our defined contribution 401(k) plan for all
non-union employees.
The Plan also provides that eligible employees not covered under
our defined benefit pension plans may receive a profit sharing
contribution. This contribution, which is normally based on our
profitability, is discretionary and not defined. There were no
contributions to the profit sharing plan in 2008 and 2007.
Pension
Plans
We have three pension plans, which cover portions of our regular
full-time employees. Benefits under these plans are generally
based on years of service and the levels of compensation during
those years. Our policy is to fund the minimum amounts specified
by regulatory statutes. Assets of the plans are invested in
common stocks, fixed-income securities, hedge funds and
interest-bearing cash equivalent instruments. As of
December 31, 2008, all three of our plans are frozen. The
plans are: The Nashua Corporation Retirement Plan for Salaried
Employees, the Nashua Corporation Hourly Employees
Retirement Plan, and the Supplemental Executive Retirement Plan.
50
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Retiree
Health Care and Other Benefits
We also provide certain postretirement health care and death
benefits to eligible retired employees and their spouses.
Salaried participants generally became eligible for retiree
health care benefits after reaching age 60 with ten years
of service and retired prior to January 1, 2003. Benefits,
eligibility and cost-sharing provisions for hourly employees
vary by location or bargaining unit. Generally, the medical
plans are fully insured managed care plans.
The following table represents the funded status and amounts
recognized in our Consolidated Balance Sheets for our defined
benefit and other postretirement plans at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
96,977
|
|
|
$
|
97,905
|
|
|
$
|
498
|
|
|
$
|
814
|
|
Service cost
|
|
|
500
|
|
|
|
509
|
|
|
|
|
|
|
|
1
|
|
Interest cost
|
|
|
5,949
|
|
|
|
5,773
|
|
|
|
27
|
|
|
|
42
|
|
Actuarial gain
|
|
|
3,145
|
|
|
|
(2,590
|
)
|
|
|
(96
|
)
|
|
|
(209
|
)
|
Expenses paid from assets
|
|
|
(500
|
)
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(4,446
|
)
|
|
|
(4,120
|
)
|
|
|
(68
|
)
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$
|
101,625
|
|
|
$
|
96,977
|
|
|
$
|
361
|
|
|
$
|
498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
72,237
|
|
|
$
|
75,284
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
(12,765
|
)
|
|
|
(4,576
|
)
|
|
|
|
|
|
|
|
|
Employer contribution
|
|
|
5,198
|
|
|
|
5,649
|
|
|
|
68
|
|
|
|
150
|
|
Benefits paid
|
|
|
(4,446
|
)
|
|
|
(4,120
|
)
|
|
|
(68
|
)
|
|
|
(150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
60,224
|
|
|
$
|
72,237
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of funded status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(41,401
|
)
|
|
$
|
(24,740
|
)
|
|
$
|
(361
|
)
|
|
$
|
(498
|
)
|
Unrecognized net actuarial (gain)/loss
|
|
|
50,902
|
|
|
|
30,427
|
|
|
|
(1,155
|
)
|
|
|
(1,143
|
)
|
Unrecognized prior service cost
|
|
|
|
|
|
|
|
|
|
|
(679
|
)
|
|
|
(749
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
9,501
|
|
|
$
|
5,687
|
|
|
$
|
(2,195
|
)
|
|
$
|
(2,390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount recognized in our consolidated balance sheets
consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension/postretirement liability
|
|
$
|
(41,401
|
)
|
|
$
|
(24,740
|
)
|
|
$
|
(361
|
)
|
|
$
|
(498
|
)
|
Accumulated other comprehensive loss (income)
|
|
|
50,902
|
|
|
|
30,427
|
|
|
|
(1,834
|
)
|
|
|
(1,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
9,501
|
|
|
$
|
5,687
|
|
|
$
|
(2,195
|
)
|
|
$
|
(2,390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Weighted-average assumptions used to determine net benefit
costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.25
|
%
|
|
|
6.00
|
%
|
|
|
6.25
|
%
|
|
|
6.00
|
%
|
Expected return on plan assets
|
|
|
8.00
|
%
|
|
|
8.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Weighted-average assumptions used to determine benefit
obligations at year end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.00
|
%
|
|
|
6.25
|
%
|
|
|
6.00
|
%
|
|
|
6.25
|
%
|
The funded status of our pension and other postretirement plans
is recorded as a non-current liability and all unrecognized
losses, net of tax, are recorded as a component of other
comprehensive loss within stockholders equity at
December 31, 2007 and 2008.
The most significant elements in determining our pension income
or expense are mortality tables, the discount rate and the
expected return on plan assets. Each year, we determine the
discount rate to be used to discount plan liabilities which
reflects the current rate at which our pension liabilities could
be effectively settled. The discount rate that we utilize for
determining future benefit obligations is based on a review of
long-term bonds, including published indices, which receive one
of the two highest ratings given by recognized ratings agencies.
We also prepare an analysis comparing the duration of our
pension obligations to spot rates originating from a highly
rated index to further support our discount rate. For the year
ended December 31, 2007, we used a discount rate of
6.25 percent. This rate was used to determine fiscal year
2008 expense. For the year ended December 31, 2008
disclosure purposes, we used a discount rate of
6.0 percent. Should the discount rate either fall below or
increase above 6.0 percent, our future pension expense
would either increase or decrease accordingly. Our policy is to
defer the net effect of changes in actuarial assumptions and
experience.
We assumed an expected long-term rate of return on plan assets
of 8.0 percent for the year ended December 31, 2008
and 8.5 percent for the year ended December 31, 2007.
The assumed long-term rate of return on assets is applied to a
calculated value of plan assets, which recognizes changes in the
fair value of plan assets in a systematic manner over five
years. This produces the expected return on plan assets that is
included in the determination of our pension income or expense.
The difference between this expected return and the actual
return on plan assets is deferred. The net deferral of past
asset gains or losses affects the calculated value of plan
assets and, ultimately, our future pension income or expense.
Should our long-term return on plan assets either fall below or
increase above 8.0 percent, our future pension expense
would either increase or decrease. The historic rate of return
for our pension plan assets are as follows:
|
|
|
|
|
One year
|
|
|
(17.8
|
)%
|
Five years
|
|
|
0.9
|
%
|
Ten years
|
|
|
3.5
|
%
|
52
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our pension plan asset and our target allocation are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2008 Target
|
|
|
Asset Category
|
|
|
|
|
|
|
|
|
Equity Securities
|
|
|
31
|
%
|
|
|
22
|
%
|
Fixed Income
|
|
|
34
|
%
|
|
|
18
|
%
|
Hedge funds
|
|
|
19
|
%
|
|
|
29
|
%
|
Other
|
|
|
16
|
%
|
|
|
2
|
%
|
Our pension plan investment strategy includes the maximization
of return on pension plan investment, at an acceptable level of
risk, assuring the fiscal health of the plan and achieving a
long-term real rate of return which will equal or exceed the
expected return on plan assets. To achieve these objectives, we
invest in a diversified portfolio of asset classes consisting of
U.S. domestic equities, international equities, hedge funds
and high quality and high yield domestic fixed income funds.
Our pension plan investments were diversified as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Investments
|
|
|
|
|
|
|
|
|
Domestic equities
|
|
$
|
15.1
|
|
|
$
|
33.7
|
|
International equities
|
|
|
3.5
|
|
|
|
8.6
|
|
High yield bonds
|
|
|
|
|
|
|
6.5
|
|
Fixed income/bond investments
|
|
|
21.2
|
|
|
|
22.1
|
|
Hedge funds
|
|
|
11.7
|
|
|
|
|
|
Cash
|
|
|
8.7
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
60.2
|
|
|
$
|
72.2
|
|
|
|
|
|
|
|
|
|
|
The estimated net actuarial loss and prior service credit for
our retiree benefit plans that will be amortized from
accumulated other comprehensive income into retiree benefit plan
cost in 2008 are $2.3 million and $.1 million,
respectively.
As of December 31, 2008, our estimated future benefit
payments reflecting future service for the fiscal years ending
December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Plan
|
|
|
Hourly
|
|
|
Supplemental
|
|
|
|
|
|
|
|
|
|
for Salaried
|
|
|
Employees
|
|
|
Executive
|
|
|
|
|
|
|
|
|
|
Employees
|
|
|
Retirement Plan
|
|
|
Retirement Plan
|
|
|
Postretirement
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
2009
|
|
$
|
2.6
|
|
|
$
|
2.0
|
|
|
$
|
.3
|
|
|
$
|
.1
|
|
|
$
|
5.0
|
|
2010
|
|
|
2.9
|
|
|
|
2.1
|
|
|
|
.3
|
|
|
|
.1
|
|
|
|
5.4
|
|
2011
|
|
|
3.0
|
|
|
|
2.2
|
|
|
|
.3
|
|
|
|
.1
|
|
|
|
5.6
|
|
2012
|
|
|
3.3
|
|
|
|
2.3
|
|
|
|
.3
|
|
|
|
.1
|
|
|
|
6.0
|
|
2013
|
|
|
3.5
|
|
|
|
2.5
|
|
|
|
.3
|
|
|
|
.1
|
|
|
|
6.4
|
|
2014-2018
|
|
|
19.9
|
|
|
|
14.8
|
|
|
|
1.2
|
|
|
|
.1
|
|
|
|
36.0
|
|
53
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net periodic pension and postretirement benefit (income) costs
for the plans include the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Components of net periodic (income) cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
500
|
|
|
$
|
509
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
|
|
5,949
|
|
|
|
5,773
|
|
|
|
27
|
|
|
|
42
|
|
Expected return on plan assets
|
|
|
(6,529
|
)
|
|
|
(6,413
|
)
|
|
|
|
|
|
|
|
|
Amortization of prior service cost (credit)
|
|
|
4
|
|
|
|
4
|
|
|
|
(69
|
)
|
|
|
(69
|
)
|
Recognized net actuarial (gain) loss
|
|
|
1,459
|
|
|
|
1,744
|
|
|
|
(85
|
)
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic (income) cost
|
|
$
|
1,383
|
|
|
$
|
1,617
|
|
|
$
|
(126
|
)
|
|
$
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our projected benefit obligation, or PBO, accumulated benefit
obligation, or ABO, and fair value of plan assets for our plans
that have accumulated benefit obligations in excess of plan
assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
PBO
|
|
|
ABO
|
|
|
Plan Assets
|
|
|
PBO
|
|
|
ABO
|
|
|
Plan Assets
|
|
|
|
(In millions)
|
|
|
Supplemental Executive Retirement Plan
|
|
$
|
3.0
|
|
|
$
|
3.0
|
|
|
$
|
|
|
|
$
|
3.0
|
|
|
$
|
3.0
|
|
|
$
|
|
|
Hourly Employees Retirement Plan of Nashua Corporation
|
|
$
|
44.2
|
|
|
$
|
44.2
|
|
|
$
|
27.2
|
|
|
$
|
42.1
|
|
|
$
|
42.1
|
|
|
$
|
31.7
|
|
Retirement Plan for Salaried Employees of Nashua Corporation
|
|
$
|
54.5
|
|
|
$
|
54.5
|
|
|
$
|
33.1
|
|
|
$
|
51.9
|
|
|
$
|
51.9
|
|
|
$
|
40.5
|
|
Our assumed health care cost trend rate is 10 percent for
2008 and ranges from 10 percent to 5 percent for
future years. A one percentage-point change in assumed health
care cost trend rates would have no effect on our total service
and interest cost or our accumulated postretirement benefit
obligation.
Our annual measurement dates for our pension benefits and
postretirement benefits are December 31.
Approximately $41.4 million and $24.7 million of our
accrued pension cost and $.4 million and $.5 million
of our accrued postretirement benefits for 2008 and 2007,
respectively, are included in other long-term liabilities in our
accompanying Consolidated Balance Sheets. We expect to make a
contribution of approximately $1.6 million and
$1.3 million to our salaried pension plan and hourly
pension plan, respectively, in 2009.
During the fourth quarter of 2008, we recorded
$20.5 million, net of taxes, through other comprehensive
loss related to an increase in the funded status liability of
our defined benefit plans. We recognized incremental
comprehensive loss of $.1 million related to our
postretirement benefit plan in 2008.
During the fourth quarter of 2007, we recorded
$3.7 million, net of taxes, through other comprehensive
loss related to an increase in the funded status liability of
our defined benefit plans. We recognized incremental
comprehensive income of $.1 million related to our
postretirement benefit plan in 2007.
|
|
Note 12:
|
Information
About Operations
|
We report the following two segments:
(1) Label Products: which converts, prints and sells
pressure sensitive labels, radio frequency identification (RFID)
labels and tickets and tags to distributors and end-users.
54
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(2) Specialty Paper Products: which coats and converts
various converted paper products sold primarily to domestic
converters and resellers, end-users and private-label
distributors. Our Specialty Paper segments product scope
includes thermal papers, dry-gum papers, heat seal papers, bond
papers, wide-format media papers, small rolls, financial
receipts,
point-of-sale
receipts, retail consumer products and ribbons.
The accounting policies of our segments are the same as those
described in Note 1.
We manage our business between specialty paper and label
products. Our Chief Executive Officer utilizes financial reports
that include net sales, cost of sales and gross margin with
respect to the component products mentioned in the segments
above. Selling, distribution, general, administrative and
research and development expenses are managed and reported on a
consolidated basis.
Eliminations represent sales between our Specialty Paper
Products and Label Products segments. Excluding sales between
segments, reflected as eliminations in the table below, external
sales for our Specialty Paper Products segment were
$155.4 million and $153.2 million for the years ended
December 31, 2008 and 2007, respectively. Sales between
segments and between geographic areas are negotiated based on
what we believe to be market pricing.
Our 2008 net revenues for the Specialty Paper Products
segment include sales of our thermal
point-of-sale
(POS) rolls to Wal-Mart and Sams Club. The Wal-Mart and
Sams Club sales exceeded 10 percent of our
consolidated net revenues. While no other customer represented
10 percent of our consolidated net revenues, both of our
segments have significant customers. The loss of Wal-Mart and
Sams Club or any other significant customer or the loss of
sales of our POS rolls could have a material adverse effect on
us or our segments.
Our 2007 net revenues for the Label Products segment
include sales of our automatic identification labels to FedEx.
FedEx sales exceeded 10 percent of our consolidated net
revenues for 2007.
The table below presents information about our segments for the
years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
Gross Margin
|
|
|
Identifiable Assets
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
By Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Label Products
|
|
$
|
105.1
|
|
|
$
|
115.5
|
|
|
$
|
13.3
|
|
|
$
|
21.0
|
|
|
$
|
44.1
|
|
|
$
|
46.6
|
|
Specialty Paper Products
|
|
|
162.3
|
|
|
|
160.3
|
|
|
|
25.3
|
|
|
|
26.5
|
|
|
|
38.6
|
|
|
|
53.9
|
|
Other(1)
|
|
|
4.4
|
|
|
|
4.1
|
|
|
|
.8
|
|
|
|
.7
|
|
|
|
|
|
|
|
|
|
Reconciling Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations
|
|
|
(6.9
|
)
|
|
|
(7.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.5
|
|
|
|
27.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
264.9
|
|
|
$
|
272.8
|
|
|
$
|
39.4
|
|
|
$
|
48.2
|
|
|
$
|
100.2
|
|
|
$
|
127.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes activity from operations which falls below the
quantitative thresholds for a segment.
|
55
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Capital expenditures and depreciation and amortization from
continuing operations by segment are set forth below for the
years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation &
|
|
|
|
Capital Expenditures
|
|
|
Amortization
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Label Products
|
|
$
|
.6
|
|
|
$
|
.4
|
|
|
$
|
2.1
|
|
|
$
|
2.0
|
|
Specialty Paper Products
|
|
|
.6
|
|
|
|
.7
|
|
|
|
2.0
|
|
|
|
2.1
|
|
Reconciling Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
.5
|
|
|
|
.2
|
|
|
|
.3
|
|
|
|
.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
1.7
|
|
|
$
|
1.3
|
|
|
$
|
4.4
|
|
|
$
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is information by geographic area as of and for
the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales From
|
|
|
|
|
|
|
Continuing Operations
|
|
|
Long-Lived Assets
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
By Geographic Area
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
264.9
|
|
|
$
|
272.8
|
|
|
$
|
36.1
|
|
|
$
|
57.1
|
|
Reconciling Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
1.5
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
6.2
|
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
264.9
|
|
|
$
|
272.8
|
|
|
$
|
43.8
|
|
|
$
|
68.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales from continuing operations by geographic area are
based upon the geographic location from which the goods were
shipped and not the customer location.
56
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 13:
|
Quarterly
Operating Results
|
Our quarterly operating results from continuing operations based
on our use of 13-week periods are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
|
3/28/08
|
|
|
6/27/08
|
|
|
9/26/08
|
|
|
12/31/08
|
|
|
|
(In thousands, except per share data)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
63,926
|
|
|
$
|
67,003
|
|
|
$
|
66,239
|
|
|
$
|
67,735
|
|
Gross margin
|
|
|
9,858
|
|
|
|
11,327
|
|
|
|
10,558
|
|
|
|
7,662
|
|
Net income (loss)(1)
|
|
|
(353
|
)
|
|
|
300
|
|
|
|
(13,689
|
)
|
|
|
(6,022
|
)
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(0.07
|
)
|
|
|
0.06
|
|
|
|
(2.52
|
)
|
|
|
(1.11
|
)
|
Net income (loss), assuming dilution
|
|
|
(0.07
|
)
|
|
|
0.05
|
|
|
|
(2.52
|
)
|
|
|
(1.11
|
)
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
65,169
|
|
|
$
|
67,688
|
|
|
$
|
67,610
|
|
|
$
|
72,332
|
|
Gross margin
|
|
|
11,449
|
|
|
|
12,298
|
|
|
|
11,564
|
|
|
|
12,943
|
|
Income from continuing operations
|
|
|
637
|
|
|
|
1,252
|
|
|
|
852
|
|
|
|
1,110
|
|
Income from discontinued operations
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
926
|
|
|
|
1,252
|
|
|
|
852
|
|
|
|
1,110
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
0.10
|
|
|
|
0.21
|
|
|
|
0.16
|
|
|
|
0.20
|
|
Discontinued operations
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
0.15
|
|
|
|
0.21
|
|
|
|
0.16
|
|
|
|
0.20
|
|
Continuing operations, assuming dilution
|
|
|
0.10
|
|
|
|
0.20
|
|
|
|
0.16
|
|
|
|
0.20
|
|
Discontinued operations, assuming dilution
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, assuming dilution
|
|
|
0.15
|
|
|
|
0.20
|
|
|
|
0.16
|
|
|
|
0.20
|
|
|
|
|
(1)
|
|
We recorded an impairment charge related to goodwill in the
third quarter of 2008 in the amount of $14.1 million. We
recorded an increase in the valuation allowance on deferred
income taxes in the fourth quarter of 2008 in the amount of
$4.3 million.
|
Leases
with Related Parties
We rent property under a lease with entities partially owned by
either our Chairman or by a family partnership of which our
Chairman and his family have total interest. Associated with
this lease, we incurred rent expense of approximately
$.3 million during both 2008 and 2007. We also pay taxes
and utilities and insure property occupied under this lease.
Loans to
Related Parties
We had a loan to a former owner of Rittenhouse Paper Company
relating to life insurance premiums paid on his behalf. This
loan was partially collateralized by the cash surrender value of
related life insurance policies and fully covered by the death
benefit payable under this policy. This loan did not incur
interest and was due upon death, settlement or termination of
related life insurance policies. During the fourth quarter of
2007, we received cash of $1.1 million from the related
party in settlement of the loan and the loan was removed from
our Consolidated Balance Sheets.
57
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 15:
|
Fair
Value Measurements
|
In September 2006, the Financial Accounting Standards Board, or
FASB, issued Statement of Financial Accounting Standards
No. 157, Fair Value Measurements, (FAS 157), which is
effective for fiscal years beginning after November 15,
2007 and for interim periods within those years. This statement
defines fair value, establishes a framework or hierarchy for
measuring fair value and expands disclosures about fair value
measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements.
The statement indicates, among other things, that a fair value
measurement assumes that the transaction to sell an asset or
transfer a liability occurs in the principal market for the
asset or liability or, in the absence of a principal market, the
most advantageous market for the asset or liability.
FAS 157 defines fair value based upon an exit price model.
Relative to FAS 157, the FASB issued FASB Staff Positions
(FSP)
157-1
and
157-2.
FSP 157-1
amended FAS 157 to exclude FAS No. 13,
Accounting for Leases, and its related interpretive
accounting pronouncements that address leasing transactions,
while
FSP 157-2
delays the effective date of the application of FAS 157 to
fiscal years beginning after November 15, 2008 for all
nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial
statements on a non-recurring basis.
We adopted FAS 157 as of January 1, 2008, with the
exception of the application of the statement to non-recurring
nonfinancial assets and nonfinancial liabilities as permitted.
Non-recurring nonfinancial assets and nonfinancial liabilities
for which we have not applied the provisions of FAS 157
include those measured at fair value in goodwill impairment
testing and indefinite lived intangible assets measured at fair
value for impairment testing. The adoption of FAS 157 had
no material impact on our financial statements.
FAS 157 provides a framework for measuring fair value and
requires expanded disclosures regarding fair value measurements.
FAS 157 defines fair value as the price that would be
received for an asset or the exit price that would be paid to
transfer a liability in the principal or most advantageous
market in an orderly transaction between market participants on
the measurement date. FAS 157 also established a fair value
hierarchy which requires an entity to maximize the use of
observable inputs, where available. The following summarizes the
three levels of inputs required by the standard that we use to
measure fair value.
|
|
|
|
Level 1:
|
Quoted prices in active markets for identical assets or
liabilities.
|
|
|
Level 2:
|
Observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable
or can be corroborated by observable market data for
substantially the full term of the related assets or liabilities.
|
|
|
Level 3:
|
Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the
assets or liabilities.
|
The following table sets forth the financial liability as of
December 31, 2008 that we measured at fair value on a
recurring basis by level within the fair value hierarchy. As
required by FAS 157, assets and liabilities measured at
fair value are classified in their entirety based on the lowest
level of input that is significant to their fair value
measurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Carrying
|
|
|
Fair Value Measurements at December 31, 2008 Using
|
|
|
|
Value at
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
December 31,
|
|
|
Active Markets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(In thousands of dollars)
|
|
|
Interest rate swap liability
|
|
$
|
678
|
|
|
$
|
|
|
|
$
|
678
|
|
|
$
|
|
|
The fair value of the interest rate swap was derived from a
discounted cash flow analysis based on the terms of the contract
and the forward interest rate curve adjusted for our credit risk.
58
NASHUA
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities Including
an amendment of FASB Statement No. 115 (FAS 159). This
standard allows an entity to choose to measure certain financial
instruments and liabilities at fair value. Subsequent
measurements for the financial instruments and liabilities an
entity elects to fair value will be recognized in earnings.
FAS 159 also established additional disclosure
requirements. The requirements for FAS 159 were effective
for our fiscal year beginning January 1, 2008. We have
adopted FAS 159 and have elected not to measure any
additional financial instruments and other items at fair value.
The adoption of FAS 159 had no impact on our financial
statements.
59
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Nashua Corporation:
We have audited the accompanying consolidated balance sheets of
Nashua Corporation as of December 31, 2008 and 2007 and the
related consolidated statements of operations,
shareholders equity and other comprehensive loss, and cash
flows for each of the two years in the period ended
December 31, 2008. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Nashua Corporation at December 31,
2008 and 2007, and the consolidated results of its operations
and its cash flows for each of the two years in the period ended
December 31, 2008, in conformity with U.S. generally
accepted accounting principles.
As discussed in Note 15 to the consolidated financial
statements, effective January 1, 2008, the Company adopted
Statement of Financial Accounting Standards No. 157,
Fair Value Measurements
. Additionally, as discussed in
Note 6 to the consolidated financial statements, effective
January 1, 2007, the Company adopted Financial Accounting
Standards Board Interpretation No. 48,
Accounting for
Uncertainty in Income Taxes
(FIN No. 48).
Boston, Massachusetts
March 30, 2009
60
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Not required.
|
|
Item 9A(T).
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
Our companys management, with the participation of our
chief executive officer and chief financial officer, evaluated
the effectiveness of our disclosure controls and procedures as
of December 31, 2008. The term disclosure controls
and procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to
be disclosed by a company in the reports that it files or
submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in
the Securities and Exchange Commissions rules and forms.
Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it
files or submits under the Exchange Act is accumulated and
communicated to the companys management, including its
principal executive and principal financial officers, as
appropriate, to allow timely decisions regarding required
disclosure. Management recognizes that any controls and
procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their objectives
and management necessarily applies its judgment in evaluating
the cost-benefit relationship of possible controls and
procedures. Based on the evaluation of our disclosure controls
and procedures as of December 31, 2008, our chief executive
officer and chief financial officer concluded that, as of such
date, our disclosure controls and procedures were effective at
the reasonable assurance level.
Internal
Control Over Financial Reporting
Managements
Annual Report on Internal Control Over Financial
Reporting
The management of the company is responsible for establishing
and maintaining adequate internal control over financial
reporting for the company. Internal control over financial
reporting is defined in
Rule 13a-15(f)
or
15d-15(f)
promulgated under the Securities Exchange Act of 1934 as a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers and effected by the companys board of directors,
management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and
includes those policies and procedures that:
|
|
|
|
|
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of the assets of the company;
|
|
|
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made
only in accordance with authorizations of management and
directors of the company; and
|
|
|
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
61
The companys management assessed the effectiveness of our
internal control over financial reporting as of
December 31, 2008. In making this assessment, the
companys management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework.
Based on our assessment, management concluded that, as of
December 31, 2008, the companys internal control over
financial reporting is effective based on those criteria.
The annual report does not include an attestation report of the
companys registered public accounting firm regarding
internal control over financial reporting. Managements
report was not subject to attestation by the companys
registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit the company
to provide only managements report in this annual report.
Changes
in Internal Control Over Financial Reporting
No change in our internal control over financial reporting
occurred during the fiscal quarter ended December 31, 2008
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
On March 30, 2009, we entered into an Amendment Agreement
to our Restated Credit Agreement with Bank of America, N.A. to
amend specified terms of the Restated Credit Agreement and to
waive our non-compliance with the fixed charge coverage ratio
and the funded debt to adjusted EBITDA ratio financial covenants
provided in the Restated Credit Agreement at December 31,
2008. The Restated Credit Agreement as amended by the Amendment
Agreement is referred to as the Amended Credit Agreement. In the
Amended Credit Agreement:
|
|
|
|
|
the termination date of the credit facility is changed from
March 30, 2012 to March 29, 2010;
|
|
|
|
advances under the revolving credit facility are limited to
75 percent of eligible accounts receivable and
40 percent of eligible inventory, and eligible inventory is
limited to $6 million;
|
|
|
|
the revolving credit facility is decreased from $28 million
to $15 million until June 30, 2009, when it will
increase to $17 million;
|
|
|
|
the interest rate on borrowings is increased to LIBOR plus
335 basis points or prime plus 110 basis points;
|
|
|
|
the fee for the unused line of credit is 75 basis points;
|
|
|
|
annual capital expenditures are limited to
$2 million; and
|
|
|
|
equipment and fixtures are added to the collateral securing
borrowings under the credit facility.
|
In addition, the terms of the Amended Credit Agreement adjusted
the fixed charge coverage ratio financial covenant to 1.1 to 1.0
for the rolling twelve months ended April 3, 2009 and 1.2
to 1.0 for the rolling twelve months ended June 30, 2009.
The maximum fixed charge coverage ratio returns to 1.5 to 1.0
for each quarterly measurement period through the end of the
agreement. Under the Restated Credit Agreement, our funded debt
to adjusted EBITDA ratio for the period ended April 3, 2009
and thereafter is to be less than 2.25 to 1.0.
The other terms of the Restated Credit Agreement remained
substantially the same.
The Amendment Agreement to the Restated Credit Agreement is
attached to this Annual Report on
Form 10-K
as Exhibit 4.12, and the information contained in the
Amendment Agreement is incorporated herein by reference.
62
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this Item will be included in our
definitive Proxy Statement for our Annual Meeting of
Stockholders and is incorporated herein by reference.
Executive
Officers of the Registrant
The information required by this Item with respect to our
executive officers is contained in Part I of this
Form 10-K.
Code of
Ethics
The information required by this Item with respect to code of
ethics will be included in our definitive Proxy Statement for
our Annual Meeting of Stockholders and is incorporated herein by
reference. In accordance with Item 406 of
Regulation S-K,
a copy of our code of ethics is available on our website at
www.nashua.com under the Corporate Governance
section of the Investor Relations web page. We
intend to make all required disclosures concerning any
amendments to, or waivers from, our Code of Business Conduct and
Ethics on our Internet website.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item will be included in our
definitive Proxy Statement for our Annual Meeting of
Stockholders and is incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this Item will be included in our
definitive Proxy Statement for our Annual Meeting of
Stockholders and is incorporated herein by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this Item will be included in our
definitive Proxy Statement for our Annual Meeting of
Stockholders and is incorporated herein by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this Item will be included in our
definitive Proxy Statement for our Annual Meeting of
Stockholders and is incorporated herein by reference.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) The following documents are included in Item 8 of
Part II of this
Form 10-K:
(1)
Financial statements:
|
|
|
|
|
Consolidated statements of operations for each of the two years
ended December 31, 2008 and 2007
|
|
|
|
Consolidated balance sheets at December 31, 2008 and 2007
|
|
|
|
Consolidated statements of shareholders equity and other
comprehensive income (loss) for each of the two years ended
December 31, 2008 and 2007
|
63
|
|
|
|
|
Consolidated statements of cash flows for each of the two years
ended December 31, 2008 and 2007
|
|
|
|
Notes to Consolidated Financial Statements
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
(2)
Financial statements schedule:
Not required
(3)
Exhibits:
|
|
|
|
|
|
2
|
.01
|
|
Agreement and Plan of Merger, dated as of March 25, 2002,
between Nashua Corporation and Nashua MA Corporation.
Incorporated by reference to our Definitive Proxy Statement
filed on March 27, 2002.
|
|
3
|
.01
|
|
Articles of Organization, as amended. Incorporated by reference
to our Quarterly Report on
Form 10-Q
for the quarter ended June 28, 2002.
|
|
3
|
.02
|
|
By-laws, as amended. Incorporated by reference to our Quarterly
Report on
Form 10-Q
for the quarter ended June 28, 2002.
|
|
4
|
.01
|
|
Credit Agreement, dated March 1, 2002, by and among Nashua
Corporation, LaSalle Bank National Association and Fleet
National Bank, a Bank of America Company. Incorporated by
reference to our Current Report on
Form 8-K
dated March 14, 2002.
|
|
4
|
.02
|
|
First Amendment to Credit Agreement, dated as of July 15,
2003, by and among Nashua Corporation, Fleet National Bank, a
Bank of America Company, and LaSalle Bank National Association.
Incorporated by reference to our Quarterly Report on
Form 10-Q
for the quarter ended June 27, 2003.
|
|
4
|
.03
|
|
Waiver and Second Amendment to Credit Agreement, dated as of
July 24, 2003, by and among Nashua Corporation, Fleet
National Bank, a Bank of America Company, and LaSalle Bank
National Association. Incorporated by reference to our Quarterly
Report on
Form 10-Q
for the quarter ended June 27, 2003.
|
|
4
|
.04
|
|
Third Amendment to Credit Agreement, dated as of
September 25, 2003, by and among Nashua Corporation, Fleet
National Bank, a Bank of America Company, and LaSalle Bank
National Association. Incorporated by reference to our Quarterly
Report on
Form 10-Q
for the quarter ended September 26, 2003.
|
|
4
|
.05
|
|
Fourth Amendment to Credit Agreement, dated as of
December 30, 2003, by and among Nashua Corporation, Fleet
National Bank, a Bank of America Company, and LaSalle Bank
National Association. Incorporated by reference to our Annual
Report on
Form 10-K
for the year ended December 31, 2003.
|
|
4
|
.06
|
|
Fifth Amendment to Credit Agreement dated as of March 31,
2004 by and among Nashua Corporation, Fleet National Bank, a
Bank of America Company, and LaSalle Bank National Association.
Incorporated by reference to our current report on
Form 8-K
dated March 31, 2004 and filed April 2, 2004.
|
|
4
|
.07
|
|
Sixth Amendment to Credit Agreement dated as of December 9,
2004 by and among Nashua Corporation, Fleet National Bank, a
Bank of America Company, and LaSalle Bank National Association.
Incorporated by reference to our current report on
Form 8-K
dated December 9, 2004 and filed December 15, 2004.
|
|
4
|
.08
|
|
Seventh Amendment to Credit Agreement dated as of April 14,
2005, among Nashua Corporation, Fleet National Bank, a Bank of
America Company, and LaSalle Bank National Association.
Incorporated by reference to our current report on
Form 8-K
dated April 14, 2005 and filed April 20, 2005.
|
|
4
|
.09
|
|
Amended and Restated Credit Agreement, dated as of
March 30, 2006, among Nashua Corporation, LaSalle Bank
National Association and the lenders party hereto. Incorporated
by reference to our current report on
Form 8-K
dated March 30, 2006 and filed on April 3, 2006.
|
|
4
|
.10
|
|
First Amendment to Amended and Restated Credit Agreement, dated
as of January 12, 2007, among Nashua Corporation, LaSalle
Bank National Association, and the lenders party thereto.
Incorporated by reference to our current report on
Form 8-K
dated January 12, 2007 and filed on January 18, 2007.
|
|
4
|
.11
|
|
Second Amendment and Restated Credit Agreement, dated as of
May 23, 2007, among Nashua Corporation, LaSalle Bank
National Association, and the lenders party thereto.
Incorporated by reference to our current report on
Form 8-K
dated May 23, 2007 and filed on May 29, 2007.
|
64
|
|
|
|
|
|
4
|
.12*
|
|
Amendment Agreement to Second Amended and Restated Credit
Agreement, dated as of March 30, 2009, by and among Nashua
Corporation and Bank of America, N.A.
|
|
+10
|
.01
|
|
Amended and Restated 1996 Stock Incentive Plan. Incorporated by
reference to our Quarterly Report on
Form 10-Q
for the quarter ended April 2, 1999.
|
|
+10
|
.02
|
|
1999 Shareholder Value Plan. Incorporated by reference to
our Quarterly Report on
Form 10-Q
for the quarter ended April 2, 1999.
|
|
+10
|
.03
|
|
2004 Value Creation Incentive Plan. Incorporated by reference to
our Proxy Statement dated as of March 23, 2004.
|
|
+10
|
.04
|
|
2007 Value Creation Incentive Plan. Incorporated by reference to
our current report on
Form 8-K
dated as of May 4, 2007 and filed on May 8, 2007.
|
|
+10
|
.05
|
|
2008 Value Creation Incentive Plan. Incorporated by reference to
our Proxy Statement dated March 21, 2008.
|
|
+10
|
.06
|
|
Form of Restricted Stock Agreement under the 2007 Value Creation
Incentive Plan. Incorporated by reference to our current report
on
Form 8-K
dated as of August 1, 2007 and filed on August 6, 2007.
|
|
+10
|
.07
|
|
Form of Restricted Stock Agreement under the 2008 Value Creation
Incentive Plan. Incorporated by reference to our current report
on
Form 8-K
dated and filed on April 28, 2008.
|
|
+10
|
.08
|
|
2008 Directors Plan. Incorporated by reference to our
Proxy Statement dated March 21, 2008.
|
|
+10
|
.09
|
|
Forms of Restricted Stock Unit Agreement under the
2008 Directors Plan. Incorporated by reference to our
current report on
Form 8-K
dated and filed on April 28, 2008.
|
|
+10
|
.10
|
|
Letter Agreement, by and between the Company and Andrew Albert,
dated as of April 24, 2006. Incorporated by reference to
our current report on
Form 8-K
dated April 24, 2006 and filed April 25, 2006.
|
|
+10
|
.11*
|
|
Amended and Restated Change of Control and Severance Agreement,
dated as of December 23, 2008 by and between Nashua
Corporation and John L. Patenaude.
|
|
+10
|
.12
|
|
Employment Agreement, by and between Nashua Corporation and
Thomas G. Brooker, dated as of March 12, 2006. Incorporated
by reference to our current report on
Form 8-K
dated March 12, 2006 and filed on March 16, 2006.
|
|
+10
|
.13*
|
|
Amended and Restated Change of Control and Severance Agreement,
by and between Nashua Corporation and Thomas G. Brooker, dated
as of December 23, 2008.
|
|
+10
|
.14
|
|
Restricted Stock Agreements, by and between Nashua Corporation
and Thomas G. Brooker, dated as of May 4, 2006.
Incorporated by reference to our current report on
Form 8-K
dated May 4, 2006 and filed on May 5, 2006.
|
|
+10
|
.15
|
|
Employment Agreement, by and between Nashua Corporation and Todd
McKeown, dated as of September 1, 2006. Incorporated by
reference to our current report on
Form 8-K
dated August 17, 2006 and filed August 22, 2006.
|
|
+10
|
.16*
|
|
Amended and Restated Change of Control and Severance Agreement,
by and between Nashua Corporation and Todd McKeown, dated as of
December 23, 2008.
|
|
+10
|
.17
|
|
Restricted Stock Agreement, by and between the Company and Todd
McKeown, dated as of September 1, 2006. Incorporated by
reference to our Quarterly Report on
Form 10-Q
dated and filed November 3, 2006.
|
|
+10
|
.18*
|
|
Management Incentive Plan. Revised December 30, 2008.
|
|
10
|
.19
|
|
Form of Indemnification Agreement between Nashua Corporation and
its directors and executive officers. Incorporated by reference
to our Quarterly Report on
Form 10-Q
for the quarter ended September 27, 2002.
|
|
10
|
.20*
|
|
Executive officer 2009 salaries.
|
|
10
|
.21*
|
|
Summary of compensation arrangements with Directors.
|
|
21
|
.01*
|
|
Subsidiaries of the Registrant.
|
|
23
|
.01*
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
31
|
.01*
|
|
Certificate of Chief Executive Officer pursuant to
Rule 13a-14(a)
or
Rule 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
65
|
|
|
|
|
|
31
|
.02*
|
|
Certificate of Chief Financial Officer pursuant to
Rule 13a-14(a)
or
Rule 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
32
|
.01*
|
|
Certificate of the Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.02*
|
|
Certificate of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
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*
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Filed herewith.
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+
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Identifies exhibits constituting management
contracts or compensatory plans or other arrangements required
to be filed as an exhibit to this annual report on
Form 10-K.
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66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Nashua Corporation
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By:
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/s/
John
L. Patenaude
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John L. Patenaude
Vice President-Finance and
Chief Financial Officer
Date: March 31, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
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Signature
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Title
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Date
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/s/
Thomas
G. Brooker
Thomas
G. Brooker
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President and
Chief Executive Officer
(principal executive officer)
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March 31, 2009
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/s/
John
L. Patenaude
John
L. Patenaude
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Vice President-Finance and
Chief Financial Officer
(principal financial officer)
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March 31, 2009
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/s/
Margaret
M. Callan
Margaret
M. Callan
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Corporate Controller and
Chief Accounting Officer
(principal accounting officer)
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March 31, 2009
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/s/
Andrew
B. Albert
Andrew
B. Albert
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Chairman of the Board
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March 31, 2009
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/s/
L.
Scott Barnard
L.
Scott Barnard
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Director
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March 31, 2009
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/s/
Clinton
J. Coleman
Clinton
J. Coleman
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Director
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March 31, 2009
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/s/
Avrum
Gray
Avrum
Gray
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Director
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March 31, 2009
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/s/
Michael
T. Leatherman
Michael
T. Leatherman
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Director
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March 31, 2009
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/s/
George
R. Mrkonic, Jr.
George
R. Mrkonic, Jr.
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Director
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March 31, 2009
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/s/
Mark
E. Schwarz
Mark
E. Schwarz
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Director
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March 31, 2009
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67
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