<PAGE>
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, 1997 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 (972) 438-0211
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
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 1, 1997
-------------------------- -------------------------------
Common Stock, $1 par value 7,170,399
-------------------------- -------------------------------
<PAGE>
NCH CORPORATION
INDEX
Page No.
--------
Part I. Financial Information:
Consolidated Balance Sheets --
October 31, 1997 and April 30, 1997 3
Consolidated Statements of Income --
Three Months and Six Months Ended
October 31, 1997 and 1996 4
Consolidated Statements of Cash Flows --
Six Months Ended October 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6 - 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 -17
Part II. Other Information 18
<PAGE>
<TABLE>
NCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands Except Share and Per Share Data)
(Unaudited)
<CAPTION>
October 31, April 30,
1997 1997
-------- --------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 9,981 $ 21,273
Marketable securities 77,502 69,700
Accounts receivable, net 144,285 144,664
Inventories 116,438 107,502
Prepaid expenses 7,831 6,228
Deferred income taxes 21,245 18,579
-------- --------
Total Current Assets 377,282 367,946
-------- --------
Property, Plant and Equipment 204,451 202,830
Accumulated depreciation 116,528 114,330
-------- --------
87,923 88,500
-------- --------
Deferred Income Taxes 30,776 29,637
-------- --------
Other 12,709 11,508
-------- --------
Total $508,690 $497,591
======== ========
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 1,883 $ 2,694
Current maturities of long-term debt 3,736 3,767
Accounts payable 45,631 51,057
Accrued expenses 31,967 28,286
Income taxes payable 23,246 19,874
Dividends payable 2,510 2,149
-------- --------
Total Current Liabilities 108,973 107,827
-------- --------
Long-term Debt, less current maturities 1,660 112
-------- --------
Retirement and Deferred
Compensation Plans 108,498 107,057
-------- --------
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 10,650 8,708
Retained earnings 459,646 448,513
Foreign currency translation
adjustment (29,975) (25,740)
Unrealized gains on investments 166 40
-------- --------
452,256 443,290
-------- --------
Less treasury stock
(4,598,905 and 4,606,705 shares) 162,697 160,695
-------- --------
289,559 282,595
-------- --------
Total $508,690 $497,591
======== ========
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
<TABLE>
NCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $193,621 $192,585 $391,617 $385,121
-------- -------- -------- --------
Operating Expenses
Cost of sales, including
warehousing and
commissions 105,880 100,930 211,767 202,624
Marketing and administrative
expenses 72,303 74,421 151,612 153,609
-------- -------- -------- --------
178,183 175,351 363,379 356,233
-------- -------- -------- --------
Operating Income 15,438 17,234 28,238 28,888
Other (Expenses) Income
Revaluation of foreign
currencies (508) (286) (1,041) (563)
Net interest (116) 162 (279) 292
Gain on sale of subsidiary 0 3,536 0 3,536
-------- -------- -------- --------
Income before Income Taxes 14,814 20,646 26,918 32,153
Provision for Income Taxes 6,228 8,604 11,125 13,445
-------- -------- -------- --------
Net Income $ 8,586 $ 12,042 $ 15,793 $ 18,708
======== ======== ======== ========
Weighted Average Number of
Shares Outstanding 7,167 7,350 7,165 7,455
======== ======== ======== ========
Earnings Per Share $1.20 $1.64 $2.20 $2.51
======== ======== ======== ========
Cash Dividend Paid Per Share $ .30 $ .30 $ .60 $ .60
======== ======== ======== ========
Cash Dividend Declared
Not Paid $ .35 $ 1.30 $ .35 $ 1.30
======== ======== ======== ========
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
<TABLE>
NCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
October 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 15,793 $ 18,708
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 7,365 7,350
Gain on sale of subsidiary 0 (3,536)
Provision for losses on accounts
receivable 3,180 3,533
Deferred income taxes (3,960) (2,641)
Retirement and deferred compensation plans 1,747 3,998
Other noncash items 210 141
Changes in assets and liabilities,
excluding net assets acquired in the
purchase of businesses:
Accounts receivable (4,423) (1,484)
Inventories (8,258) 59
Prepaid expenses (1,685) (2,227)
Accounts payable, accrued expenses and
income taxes payable 2,597 1,710
Other noncurrent assets (264) (959)
-------- --------
Net cash provided by operating
activities 12,302 24,652
-------- --------
Cash Flows from Investing Activities
Sales of property, plant and equipment 783 649
Purchases of property, plant and equipment (7,971) (10,473)
Redemptions of marketable securities 16,419 24,367
Purchases of marketable securities (24,028) (11,806)
Acquisitions of businesses (2,944) (246)
Sale of subsidiary 0 7,932
Other (1,012) (1,012)
-------- --------
Net cash provided (used) in
investing activities (18,753) 9,411
-------- --------
Cash Flows from Financing Activities
Proceeds from notes payable 853 1,266
Payments of notes payable (1,536) (6,804)
Additional long term debt 36 0
Payments of long term debt (42) (10)
Borrowing of cash surrender values 2,060 1,914
Payments of dividends (4,299) (4,504)
Purchase of treasury stock (4,674) (23,102)
Proceeds from exercise of stock options 4,468 46
-------- --------
Net cash used in financing activities (3,134) (31,194)
-------- --------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (1,707) (183)
-------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents (11,292) 2,686
-------- --------
Cash and Cash Equivalents at Beginning
of Year 21,273 21,806
-------- --------
Cash and Cash Equivalents at End of Period $ 9,981 $ 24,492
======== ========
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
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, 1997, and April 30, 1997, the
results of its operations for the six months ended October 31, 1997
and 1996, 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 1997 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,
1997, 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,
1997 1997
-------- --------
Raw Materials $ 15,411 $ 14,580
Finished Goods 99,000 90,915
Sales Supplies 2,027 2,007
-------- --------
$116,438 $107,502
======== ========
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, 1997
and 1996, were approximately $845,000 and $820,000, respectively.
Cash payments for income taxes were approximately $10,923,000 and
$11,813,000 for the same periods, respectively.
<PAGE>
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, 1997, working capital increased
to $268.3 million from $260.1 million at April 30, 1997, and the
current ratio was 3.5 to 1 at October 31, 1997, compared to 3.4 to 1
at April 30, 1997. The total of cash, cash equivalents and marketable
securities decreased by $3.5 million in the first six months to $87.5
million at October 31, 1997, as shown on the Consolidated Balance
Sheets. Net cash flows from operations totaled $12.3 million.
Additional cash was provided by the exercise of stock options of $4.5
million and the borrowing of cash surrender values of company-owned
life insurance policies on key employees of $2.1 million. Principal
uses of cash consisted of net purchases of marketable securities of
$7.6 million, net capital expenditures of $7.2 million, treasury stock
purchases of $4.7 million, and payment of dividends of $4.3 million.
During the year, the Company purchased the net assets of one small
business for $2.9 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
decreased as a result of the change in the Company's composite spot
rate at August 31, 1997, compared to February 28, 1997. This is
reflected by the foreign currency translation component of
stockholders' equity, which changed from a $25.7 million reduction of
stockholders' equity at April 30, 1997, to a $30.0 million reduction
of equity at October 31, 1997.
<PAGE>
Accounts receivable decreased by $.4 million and inventories
increased by $8.9 million in the six months ended October 31, 1997, as
measured in U.S. dollars and reported on the Consolidated Balance
Sheets. As stated above, the result of exchange rate changes from
the end of the previous year through the first six months was to
decrease the reported U.S. dollar values of both assets and
liabilities. The change in accounts receivable 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 increasing by $1.2 million for the six month period, net
of the provision for losses on accounts receivable of $3.2 million.
The increase in accounts receivable was primarily in the Company's
domestic operation due to a 15% sales increase in the current
quarter compared to the fourth quarter of last year. The
Consolidated Statements of Cash Flows shows inventories increasing
by $8.3 million during the six months ended October 31, 1997,
exclusive of the effect of exchange rates. The increase in
inventory was also primarily in the Company's domestic operation,
where inventory was increased to support the 10% increase in sales
in the six months over the prior year and due to an acquisition made
in May of this fiscal year.
Accounts payable, accrued expenses and income taxes payable were
similarly affected by currency translation. These liabilities
increased by $2.6 million when measured exclusive of the effect of
exchange rate changes, but increased by $1.6 million as reported on
the Consolidated Balance Sheets. This increase was primarily due to
an increase in income taxes payable in the Company's domestic
operation, due to normal 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
$7.2 million for the six months ended October 31, 1997, and
consisted of the installation and update of worldwide computer
systems and normal additions of 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 decrease 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 and the indebtedness acquired
in the purchase of a business, by $.7 million during the six months
ended October 31, 1997. The decrease was due primarily to the
repayment of short-term loans in the Company's European
subsidiaries. The bank indebtedness shown on the Consolidated
Balance Sheets was also affected by currency translation, and shows
an increase of $ .7 million, including indebtedness of $1.5 million
related to the purchase of a business.
The directors of the Company increased the regular quarterly
dividend to $.35 from $.30 on September 10, 1997. On that date, the
directors of the Company declared a regular quarterly dividend of
$.35 per share, payable December 15, 1997, to shareholders of record
December 1, 1997. Cash dividends paid during the first six months of
the fiscal year amounted to $4.3 million.
<PAGE>
Operating Results
-----------------
Second Quarter Comparison - Prior Year
Net sales for the second quarter of fiscal 1998 increased 1% to
$193.6 million as compared with $192.6 million reported in the same
quarter of the last fiscal year. Domestically, net sales in the
second quarter of the current year increased 10% over the same
period in the prior year. International net sales, measured on a
local currency basis, increased 3% compared to the second quarter of
the prior year, but decreased 12% when measured in U.S. dollars due
to the negative effects of changes in currency translation rates.
Operating income in the second quarter was $15.4 million
compared to $17.2 million in the second quarter last year. Of this
decrease, an estimated $1.3 million is attributable to the strength
of the U.S. dollar this year compared to last year. Additionally,
operating margins in the domestic operation decreased from last year
due to increased cost of sales and increased marketing expenses. As
a result, operating income before other expenses and income taxes
was 8.0% of net sales for the quarter ended October 31, 1997,
compared to 8.9% of net sales for the quarter ended October 31,
1996.
In the quarter ended October 31, 1997, net interest expense was
$.1 million compared to net interest income of $.2 million in the
same quarter of the prior year. Revaluation of foreign currencies
was a loss of $.5 million in the second quarter of the current year
compared to a loss of $.3 million in the same period last year.
During the second quarter of last year, the Company sold subsidiary
assets, resulting in a gain of $3.5 million before taxes ($2.3
million after taxes).
Provision for income taxes was 42.0% of pre-tax income in the
second quarter of the current year compared to 41.7% of pre-tax
income in the prior year. Net income was 4.4% of net sales for the
quarter ended October 31, 1997, compared to 6.3% of net sales in the
quarter ended October 31, 1996.
Second Quarter Comparison - Preceding Quarter
Net sales of $193.6 million for the second quarter of fiscal
1998 were 2% lower than the $198.0 million net sales reported in the
first quarter. International net sales were 16% lower when measured
in U.S. dollars, as a result of normal quarter-to-quarter sales
fluctuations and the effect of exchange rate changes, while domestic
net sales were 8% higher than the previous quarter.
Operating expenses were 92.0% of net sales in the current
quarter compared to 93.5% in the first quarter. Operating expenses
in the domestic operation were lower as a percent of net sales due
to normal quarter-to-quarter sales and expense fluctuations. As a
result, operating income before other expenses and income taxes was
8.0% of net sales for the quarter ended October 31, 1997, compared
to 6.5% of net sales for the quarter ended July 31, 1997.
<PAGE>
Net interest expense amounted to $.1 million in the three months
ended October 31, 1997, compared to $.2 million in the three months
ended July 31, 1997. The revaluation of foreign currencies resulted
in a loss of $.5 million in both the first and second quarters of
the current year.
Provision for income taxes amounted to 42.0% of pre-tax income
in the quarter ended October 31, 1997, compared to 40.5% of pre-tax
income in the quarter ended July 31, 1997. The higher overall tax
rate in the second quarter was due to the impact of variations in
individual country income levels and tax rates on combined
international results. Net income was 4.4% of net sales for the
quarter ended October 31, 1997, compared to 3.6% of net sales in the
quarter ended July 31, 1997.
Six Months Comparison - Prior Year
Net sales for the six months ended October 31, 1997, increased
2% to $391.6 million as compared with $385.1 million reported in the
first six months of the last fiscal year. Domestically, net sales
increased 10% in the six months compared to a year ago.
International net sales were negatively affected by changes in
currency translation rates and decreased 8% as reported in U.S.
dollars. When measured on a local country currency basis,
international net sales increased approximately 3%.
Operating income for the six months this year was $650,000 below
the operating income reported for the six months ended October 31,
1996. Of this decrease, an estimated $450,000 is due to the impact of
the strength of the U.S. dollar this year compared to last year.
Operating income in the six months this year decreased to 7.2% of
net sales from 7.5% of net sales in the six month period ended
October 31, 1996. Operating expenses, cost of sales and marketing
expenses, were higher in the domestic operation in the six months
this year compared to last year.
Net interest expense was $.3 million in the six months ended
October 31, 1997, compared to net interest income of $.3 million in
the first six months of the prior year. Revaluation of foreign
currencies resulted in a loss of $1.0 million in the first six
months of the current year compared to a loss of $.6 million in the
same period of the prior year. The sale of subsidiary assets in the
six months ended October 31, 1996 resulted in a pre-tax gain of $3.5
million ($2.3 million after tax).
Provision for income taxes was 41.3% of pre-tax income in the
first six months of the current year compared to 41.8% of pre-tax
income in the prior year. Net income was 4.0% of net sales for the
six months ended October 31, 1997 compared to 4.9% of net sales for
the six months ended October 31, 1996.
<PAGE>
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, 1997.
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 10, 1997 /s/ Tom Hetzer
----------------- --------------
Tom Hetzer
Vice President - Finance
(Principal Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1.0
<CASH> 9,981
<SECURITIES> 77,502
<RECEIVABLES> 162,345
<ALLOWANCES> 18,060
<INVENTORY> 116,438
<CURRENT-ASSETS> 377,282
<PP&E> 204,451
<DEPRECIATION> 116,528
<TOTAL-ASSETS> 508,690
<CURRENT-LIABILITIES> 108,973
<BONDS> 0
0
0
<COMMON> 11,769
<OTHER-SE> 277,790
<TOTAL-LIABILITY-AND-EQUITY> 508,690
<SALES> 391,617
<TOTAL-REVENUES> 391,617
<CGS> 211,767
<TOTAL-COSTS> 363,379
<OTHER-EXPENSES> 1,041
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 279
<INCOME-PRETAX> 26,918
<INCOME-TAX> 11,125
<INCOME-CONTINUING> 15,793
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,793
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 2.20
</TABLE>
