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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended October 31, 1994 Commission file number 1-5838
----------------- ---------
NCH CORPORATION
- - --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-0457200
- - --------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 152170
2727 Chemsearch Blvd.
Irving, TX 75015-2170
- - --------------------------------- -------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, include area code (214) 438-0211
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at December 7, 1994
- - ------------------------------- --------------------------------
Common Stock, $1 par value 8,302,876
- - ------------------------------- -----------
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NCH CORPORATION
INDEX
Page No.
--------
Part I. Financial Information:
Consolidated Balance Sheets --
October 31, 1994 and April 30, 1994 3
Consolidated Statements of Income --
Three Months and Six Months
Ended October 31, 1994 and 1993 4
Consolidated Statements of Cash Flows --
Six Months Ended October 31, 1994 and 1993 5
Notes to Consolidated Financial Statements 6 - 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 12
Part II. Other Information 13
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NCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands Except Share and Per Share Data)
(Unaudited)
<CAPTION>
October 31, April 30,
1994 1994
---------- ---------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 19,305 $ 18,754
Marketable securities 112,494 105,784
Accounts receivable, net 136,053 136,178
Inventories 97,218 83,634
Prepaid expenses 9,445 6,431
Deferred income taxes 14,730 12,990
-------- --------
Total Current Assets 389,245 363,771
-------- --------
Property, Plant and Equipment 184,844 177,999
Accumulated depreciation 99,767 93,892
-------- --------
85,077 84,107
-------- --------
Deferred Income Taxes 23,070 22,332
-------- --------
Other 14,676 15,013
-------- --------
Total $512,068 $485,223
======== ========
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 5,491 $ 9,745
Current maturities of long-term debt 2,307 1,875
Accounts payable 46,641 46,775
Accrued expenses 27,693 22,784
Income taxes payable 22,599 18,117
Dividends payable 10,780 2,069
-------- --------
Total Current Liabilities 115,511 101,365
-------- --------
Long-term Debt, less current maturities 7,013 6,790
-------- --------
Retirement and Deferred Compensation Plans 86,786 83,986
-------- --------
Stockholders' Equity
Common stock, par value $1 per share, authorized
20,000,000 shares. Issued 11,769,304 shares 11,769 11,769
Additional paid-in capital 6,735 6,369
Unrealized loss on investments (672) -
Retained earnings 398,879 393,193
Foreign currency translation adjustment (18,215) (22,100)
-------- --------
398,496 389,231
Less treasury stock
(3,477,128 and 3,492,058 shares) 95,738 96,149
-------- --------
302,758 293,082
-------- --------
Total $512,068 $485,223
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
NCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Six Months
Ended October 31, Ended October 31,
----------------------- ---------------------
1994 1993 1994 1993
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net Sales $184,641 $163,160 $363,369 $332,809
-------- -------- -------- ---------
Operating Expenses
Cost of sales, including
warehousing & commissions 98,223 85,483 192,735 172,280
Marketing & administrative
expenses 69,632 62,963 140,788 133,576
-------- -------- -------- --------
167,855 148,446 333,523 305,856
-------- -------- -------- --------
Operating Income 16,786 14,714 29,846 26,953
Other (Expenses) Income
(Loss)/gain on revaluation of
foreign currencies 738 196 319 (8)
Net interest income 1,083 341 1,723 1,055
-------- -------- -------- --------
Income before Income Taxes 18,607 15,251 31,888 28,000
Provision for Income Taxes 7,903 5,984 13,358 11,172
-------- -------- -------- --------
Net Income $ 10,704 $ 9,267 $ 18,530 $ 16,828
======== ======== ======== ========
Weighted Average Number of
Shares Outstanding 8,286 8,270 8,283 8,280
===== ===== ===== =====
Earnings Per Share $1.29 $1.12 $2.24 $2.03
===== ===== ===== =====
Cash Dividend Paid Per Share $ .25 $ .25 $ .50 $ .50
===== ===== ===== =====
Cash Dividend Declared Not Paid $1.30 $1.25 $1.30 $1.25
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
NCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
October 31,
---------------------
1994 1993
-------- ---------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 18,530 $ 16,828
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,761 6,431
Provision for losses on accounts receivable 3,736 3,452
Deferred income taxes (2,396) (2,588)
Retirement and deferred compensation plans 2,715 3,711
Changes in assets and liabilities, excluding net
assets acquired in the purchase of businesses:
Accounts receivable 288 (734)
Inventories (12,357) (4,178)
Prepaid expenses (2,808) (1,563)
Current liabilities (except short-term debt) 6,891 (1,662)
Other (935) 628
-------- --------
Net cash provided by operating activities 20,425 20,325
-------- --------
Cash Flows from Investing Activities
Sales of property, plant and equipment 1,320 404
Purchases of property, plant and equipment (6,562) (8,012)
Redemptions of marketable securities 20,733 16,654
Purchases of marketable securities (28,477) (19,316)
Purchases of intangible assets (919) (1,992)
-------- --------
Net cash used in investing activities (13,905) (12,262)
-------- --------
Cash Flows from Financing Activities
Proceeds from notes payable 1,927 348
Payments of notes payable (6,531) (1,317)
Additional long-term debt 296 -
Payments of long-term debt - (1,923)
Borrowing of cash surrender values 690 7,758
Payments of dividends (4,133) (4,136)
Purchase of treasury stock - (3,422)
Proceeds from exercise of stock options 669 122
-------- --------
Net cash used in financing activities (7,082) (2,570)
-------- --------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 1,113 (1,757)
-------- --------
Net Increase in Cash and Cash Equivalents 551 3,736
Cash and Cash Equivalents at Beginning of Year 18,754 28,620
-------- --------
Cash and Cash Equivalents at End of Period $ 19,305 $ 32,356
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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NCH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Basis of Presentation
----------------------
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary (consisting of only
normal re-occurring accruals) to present fairly NCH Corporation's financial
position as of October 31, 1994, and April 30, 1994, the results of its
operations for the six months ended October 31, 1994 and 1993, and cash
flows for the six months then ended.
The accounting policies followed by the Company are set forth in Note 1 to
the Company's financial statements in the 1994 NCH Corporation Report to
the Shareholders, which is included in Part II of Form 10-K.
The results of operations for the six month period ended October 31, 1994,
are not necessarily indicative of the results to be expected for the full
year.
2. Inventories
------------
Inventories consisted of the following (in thousands of dollars):
October 31, April 30,
1994 1994
----------- ----------
Raw Materials $14,208 $13,849
Finished Goods 80,767 67,676
Sales Supplies 2,243 2,109
------- -------
$97,218 $83,634
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3. Earnings Per Common Share
--------------------------
Earnings per common share are based upon the weighted average number of
common shares outstanding during the period.
4. Supplemental Cash Flow Information
-----------------------------------
Cash payments for interest for the six months ended October 31, 1994 and
1993, were approximately $2,168,000 and $1,635,000, respectively. Cash
payments for income taxes were approximately $12,251,000 and $12,613,000
for the same periods, respectively.
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5. Adoption of New Accounting Standards
--------------------------------------
The Company implemented Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits" as of May 1, 1994.
This statement requires recognition of a liability for certain benefits
provided to former or inactive employees after employment but before
retirement. Implementation of this statement was immaterial to the
Company's financial position and results of operations.
The Company implemented Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" as
of May 1, 1994. This statement requires that certain debt and equity
security investments, other than investments accounted for by the equity
method and investments in consolidated subsidiaries, be categorized as
either trading securities, securities available-for-sale, or securities
held-to-maturity. The Company classifies all of its investments in
securities which do not meet the definition of cash equivalents as
marketable securities available-for-sale. Available-for-sale securities
are reported at fair value with unrealized gains and losses (net of
deferred income taxes) recognized on the balance sheet as a separate
component of stockholders' equity. Fair values are based on quoted market
prices obtained from an independent broker. Realized gains and losses are
included in other income. The cost of securities sold is based on the
specific identification method. In accordance with the provisions of this
statement, prior period financial statements have not been restated to
reflect this change in accounting principle.
The following is a summary of available-for-sale marketable securities as
of October 31, 1994 (in thousands of dollars):
Estimated Unrealized
Fair Gains
Value (Losses) Cost
--------- ---------- ---------
U.S. Government Securities $ 9,911 $ 55 $ 9,856
State and Municipal Bonds 102,287 (1,088) 103,375
Certificates of Deposit 296 - 296
-------- -------- --------
$112,494 $(1,033) $113,527
======== ======== ========
The contractual maturities of the marketable securities at estimated fair
value as of October 31, 1994 are as follows (in thousands of dollars):
1995-$46,268; 1996-$32,140; 1997-$16,620; 1998-$15,817; and 1999-$1,649.
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NCH CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
- - -------------------------------
In the six months ended October 31, 1994, working capital increased
to $273.7 million from $262.4 million at April 30, 1994, and the current
ratio decreased to 3.4 to 1 at October 31, 1994, compared to 3.6 to 1 at
April 30, 1994. The total of cash, cash equivalents and marketable
securities increased by $7.3 million in the first six months to $131.8
million at October 31, 1994. Net cash flow from operations totaled $20.4
million. Principal uses of cash consisted of net capital expenditures of
$5.2 million, payment of dividends of $4.1 million, and a net repayment of
debt amounting to $4.3 million. Management expects that operating cash
flows will continue to generate sufficient funds to finance operating
needs, capital expenditures and the payment of dividends.
The Company's international subsidiaries operate on a fiscal year
ending on the last day of February. The reported values of both assets and
liabilities of the Company's international subsidiaries increased as a
result of the change in the Company's composite spot rate at August 31,
1994, compared to February 28, 1994. This is reflected by the foreign
currency translation component of stockholders' equity, which changed from
a $22.1 million reduction of equity at April 30, 1994, to an $18.2 million
reduction of equity at October 31, 1994.
Accounts receivable decreased by $125,000, and inventories increased
by $13.6 million in the six months ended October 31, 1994, as measured in
U.S. dollars and reported on the Consolidated Balance Sheets. As stated
above, the result of exchange rate deviations from the end of the previous
year to the end of the first six months was to increase the reported U.S.
dollar values of both assets and liabilities. The change in accounts
receivable and inventories shown in the Consolidated Statements of Cash
Flows is exclusive of the effect of exchange rates on the reported asset
values, and shows accounts receivable decreasing by $4.0 million and
inventories increasing by $12.4 million during the six months. The
decrease in accounts receivable was primarily the result of routine
seasonal fluctuations in the Company's European operations and improved
collection results in some domestic operations. Inventory levels increased
in both the domestic and international operations, due to higher inventory
requirements as a result of a trend of increasing sales.
Accounts payable, accrued expenses and income taxes payable were
similarly affected by currency translation. These liabilities increased by
$6.9 million when measured exclusive of the effect of exchange rate
changes, and increased by $9.3 million as reported on the Consolidated
Balance Sheets. The increase in accounts payable and accrued expenses
occurred primarily in the domestic operations, as a result of increased
inventory purchases and timing of certain payments, offset somewhat by
decreases in international accounts payable due to routine seasonal
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fluctuations. The increase in income taxes payable occurred in the
domestic operations due to a higher provision for income taxes in the
current quarter and timing differences in the amounts of tax payments in
the current quarter compared to the fourth quarter of the prior year.
Net expenditures for property, plant and equipment amounted to $5.2
million for the six months ended October 31, 1994, and consisted of normal
additions of data processing and operating equipment. As with the other
assets and liabilities, the effect of currency translation on the reported
U.S. dollar values of property, plant and equipment was to increase those
reported values.
Total bank indebtedness, comprised of long-term debt, current
maturities of long-term debt and notes payable, decreased exclusive of the
effect of exchange rate changes by $4.3 million during the six months ended
October 31, 1994. The decrease was due primarily to the maturation and
repayment of loans in several of the Company's European subsidiaries. The
bank indebtedness shown on the Consolidated Balance Sheets was also
affected by currency translation, showing a decrease of $3.6 million.
The directors of the Company increased the regular quarterly dividend
by $.05 per share on September 14, 1994, and declared a regular quarterly
dividend of $.30 per share, payable December 15, 1994, to shareholders of
record December 1, 1994. On September 14, 1994, the directors of the
Company also declared a special dividend of $1.00 per share of common stock
payable December 15, 1994, to shareholders of record December 1, 1994.
Cash dividends paid during the first six months of the fiscal year amounted
to $4.1 million.
Operating Results
- - -----------------
Second Quarter Comparison - Prior Year
Net sales for the second quarter increased 13% to $184.6 million in
the current year as compared with $163.2 million reported in the same
quarter of the last fiscal year. Domestically, net sales increased 12%
from the prior year. International net sales increased 15% as reported in
U.S. dollars and were positively affected by changes in currency
translation rates. International net sales, when measured on a local
country currency basis, increased approximately 5%.
Operating expenses, as a percent of net sales, decreased slightly in
the current quarter to 90.9% compared to 91.0% in the second quarter last
year. Increases to cost of sales, as a percent of sales, due primarily to
increased sales of products with lower profit margins in the international
operations, were offset by decreases to marketing and administrative
expenses, as a percent of sales, due primarily to increased sales volume.
As a result, operating income before other expenses and income taxes for
the quarter ended October 31, 1994, was 9.1% of net sales compared to 9.0%
of net sales for the quarter ended October 31, 1993.
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In the quarter ended October 31, 1994, net interest income was $1.1
million compared to $.3 million in the same quarter of the prior year.
Gain on revaluation of foreign currencies amounted to $.7 million in the
second quarter of the current year compared to $.2 million in the same
period of the prior year due to a net gain on translation in Brazil as a
result of changes in the net financial position of the Company's Brazilian
subsidiaries, and exchange gains in several of the Company's European
operations in the current year.
Provision for income taxes was 42.5% of pre-tax income in the second
quarter of the current year compared to 39.2% of pre-tax income in the
prior year. A deferred tax asset rate adjustment was made in the second
quarter of the prior year, which reduced the provision for income taxes in
the prior year. Net income for the quarter ended October 31, 1994, was
5.8% of net sales compared to 5.7% of net sales in the quarter ended
October 31, 1993.
Second Quarter Comparison - Preceding Quarter
Net sales of $184.6 million for the second quarter of fiscal 1995 were
3% higher than the $178.7 million reported in the first quarter. Domestic
net sales were 9% higher in the second quarter than in the first quarter as
a result of normal quarter-to-quarter sales fluctuations and strong sales
activity in some of the Company's domestic operations. International net
sales were 4% lower when measured in U.S. dollars, as a result of normal
quarter-to-quarter sales fluctuations. Operating expenses, as a percent of
net sales, were 90.9% in the current quarter compared to 92.7% in the first
quarter. Domestic operating expenses decreased as a percent of net sales
primarily due to a seasonal reduction in marketing expenses in the current
quarter as compared to the first quarter. As a result, operating income
before other expenses and income taxes for the quarter ended October 31,
1994, was 9.1% of net sales compared to 7.3% of net sales for the quarter
ended July 31, 1994.
Net interest income in the three months ended October 31, 1994,
amounted to $1.1 million compared to $.6 million in the three months ended
July 31, 1994. Revaluation of foreign currency amounted to a gain of $.7
million in the second quarter compared to a loss of $.4 million reported in
the first quarter, due to a net gain on translation in Brazil in the second
quarter as a result of changes in the net financial position of the
Company's Brazilian subsidiaries.
Provision for income taxes in the quarter ended October 31, 1994,
amounted to 42.5% of pre-tax income compared to 41.1% of pre-tax income in
the quarter ended July 31, 1994. Net income for the quarter ended October
31, 1994, was 5.8% of net sales compared to 4.4% of net sales for the
quarter ended July 31, 1994.
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Six Months Comparison - Prior Year
Net sales for the six months ended October 31, 1994, increased 9% to
$363.4 million as compared with $332.8 million reported in the first six
months of the last fiscal year. Domestically, net sales increased 12% in
the six months compared to a year ago. International net sales increased
5% as reported in U.S. dollars and were positively affected by changes in
currency translation rates. International net sales, when measured on a
local country currency basis, increased approximately 4%.
Operating expenses, as a percent of net sales, decreased slightly to
91.8% for the six months of the current year compared to 91.9% for the six
months of the prior year. Increases to cost of sales, as a percent of
sales, due primarily to increased sales of products with lower profit
margins in the international operations, were offset by decreases to
marketing and administrative expenses, as a percent of sales, due primarily
to increased sales volume. As a result, operating income before other
expenses and income taxes for the six months ended October 31, 1994, was
8.2% of net sales compared to 8.1% of net sales for the six months ended
October 31, 1993.
In the six months ended October 31, 1994, net interest income was $1.7
million compared to $1.1 million in the first six months of the prior year.
Revaluation of foreign currencies amounted to a gain of $.3 million in the
first six months of the current year compared to a negligible loss on
revaluation in the same period of the prior year.
Provision for income taxes was 41.9% of pre-tax income in the first
six months of the current year compared to 39.9% of pre-tax income in the
prior year. A deferred tax asset rate adjustment was made in the second
quarter of the prior year, which reduced the provision for income taxes in
the prior year. Net income was 5.1% of net sales for both the six months
ended October 31, 1994 and the six months ended October 31, 1993.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- - ------------------------------------------
(b) Reports on Form 8-K -- There were no reports on Form 8-K filed for
the six months ended October 31, 1994.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
NCH Corporation
-------------------------
(Registrant)
Date December 12, 1994 /s/Tom Hetzer
---------------------- -------------------------
Tom Hetzer
Vice President - Finance
(Principal Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1995
<PERIOD-START> MAY-01-1994
<PERIOD-END> OCT-31-1994
<EXCHANGE-RATE> 1.0
<CASH> 19,305
<SECURITIES> 112,494
<RECEIVABLES> 155,940
<ALLOWANCES> 19,887
<INVENTORY> 97,218
<CURRENT-ASSETS> 389,245
<PP&E> 184,844
<DEPRECIATION> 99,767
<TOTAL-ASSETS> 512,068
<CURRENT-LIABILITIES> 115,511
<BONDS> 0
<COMMON> 11,769
0
0
<OTHER-SE> 290,989
<TOTAL-LIABILITY-AND-EQUITY> 512,068
<SALES> 363,369
<TOTAL-REVENUES> 363,369
<CGS> 192,735
<TOTAL-COSTS> 192,735
<OTHER-EXPENSES> (319)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,723)
<INCOME-PRETAX> 31,888
<INCOME-TAX> 13,358
<INCOME-CONTINUING> 18,530
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,530
<EPS-PRIMARY> 2.24
<EPS-DILUTED> 2.24
</TABLE>
