<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended October 31, 2000 Commission file number 1-5838
NCH CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-0457200
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
P.O. Box 152170
2727 Chemsearch Boulevard
Irving, Texas 75015
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 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 registrant's
classes of common stock, as of the latest practicable date:
Total Shares
Outstanding at
Class December 7, 2000
Common Stock, $1 Par Value 5,307,330
<PAGE>
NCH CORPORATION
INDEX
Page No.
Part I. Financial Information:
Consolidated Balance Sheets --
October 31, 2000 and April 30, 2000 3
Consolidated Statements of Income --
Three Months and Six Months Ended
October 31, 2000 and 1999 4
Consolidated Statements of Cash Flows --
Six Months Ended October 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6 - 11
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 23
Part II. Other Information 24
<PAGE>
<TABLE>
NCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands Except Share and Per Share Data)
<CAPTION>
October 31, April 30,
2000 2000
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 32,762 $ 32,146
Marketable securities 46,121 20,429
Accounts receivable, net 118,983 133,839
Inventories 86,344 93,536
Prepaid expenses 10,127 6,215
Deferred income taxes 14,496 13,691
----------- -----------
Total Current Assets 308,833 299,856
----------- -----------
Property, Plant and Equipment 183,216 190,475
Accumulated depreciation 119,128 120,242
----------- -----------
64,088 70,233
----------- -----------
Deferred Income Taxes 35,660 36,781
----------- -----------
Other 17,658 20,243
----------- -----------
Total $ 426,239 $ 427,113
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 3,561 $ 5,956
Current maturities of long-term debt 5,978 5,971
Accounts payable 34,794 40,196
Accrued expenses 26,450 26,766
Income taxes payable 11,214 6,176
Dividends payable 1,858 1,893
----------- -----------
Total Current Liabilities 83,855 86,958
----------- -----------
Long-Term Debt, less current maturities 7,631 12,049
----------- -----------
Retirement and Deferred Compensation Plans 116,491 115,344
----------- -----------
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 12,714 12,714
Retained earnings 516,709 501,146
Accumulated other comprehensive loss (48,641) (42,389)
----------- -----------
492,551 483,240
Less treasury stock
(6,461,974 and 6,361,081 shares) 274,289 270,478
----------- -----------
218,262 212,762
----------- -----------
Total $ 426,239 $ 427,113
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<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,
--------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 172,277 $ 181,283 $ 353,605 $ 365,579
--------- --------- --------- ---------
Operating Expenses
Cost of sales, including
warehousing and commissions 95,181 97,321 194,311 194,334
Marketing and administrative
expenses 64,101 69,686 133,587 144,527
--------- --------- --------- ---------
159,282 167,007 327,898 338,861
--------- --------- --------- ---------
Operating Income 12,995 14,276 25,707 26,718
Other Expenses
Revaluation of foreign currencies (250) (98) (424) (903)
Interest income 849 305 1,565 558
Interest expense (1,706) (941) (2,860) (2,002)
Gain on sale of subsidiary 5,068 - 5,068 -
Gain on sale of land 279 - 3,115 -
--------- --------- --------- ---------
Income from Continuing Operations
before Income Taxes 17,235 13,542 32,171 24,371
Provision for Income Taxes 7,025 5,635 12,888 10,026
--------- --------- --------- ---------
Income from Continuing Operations 10,210 7,907 19,283 14,345
--------- --------- --------- ---------
Discontinued Operations:
Loss from Discontinued Operations,
net of income taxes - (682) - (859)
Loss on Disposition of
Discontinued Operations,
net of income tax of $1,782 - (3,309) - (3,309)
--------- --------- --------- ---------
Net Income $ 10,210 $ 3,916 $ 19,283 $ 10,177
========= ========= ========= =========
Weighted Average Number of Shares
Outstanding
Basic 5,315 5,408 5,344 5,408
========= ========= ========= =========
Diluted 5,315 5,408 5,344 5,408
========= ========= ========= =========
Earnings Per Share from Continuing
Operations
Basic $ 1.92 $ 1.46 $ 3.61 $ 2.65
========= ========= ========= =========
Diluted $ 1.92 $ 1.46 $ 3.61 $ 2.65
========= ========= ========= =========
Total Earnings Per Share
Basic $ 1.92 $ 0.72 $ 3.61 $ 1.88
========= ========= ========= =========
Diluted $ 1.92 $ 0.72 $ 3.61 $ 1.88
========= ========= ========= =========
Cash Dividend Paid Per Share $ 0.35 $ 0.35 $ 0.70 $ 0.70
========= ========= ========= =========
Cash Dividend Declared Not Paid $ 0.35 $ 0.35 $ 0.35 $ 0.35
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
NCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
October 31,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities
Income from Continuing Operations $19,283 $ 14,345
Adjustments to reconcile Income from
Continuing Operations to net cash
provided by Continuing Operations:
Depreciation and amortization 6,151 6,054
Provision for losses on accounts receivable 3,496 2,744
Deferred income taxes (101) 665
Retirement and deferred compensation plans 1,441 2,823
Gain on sale of subsidiary (5,068) -
Gain on sale of land (3,115) -
Other noncash items (429) (306)
Changes in assets and liabilities, excluding net
assets acquired in the purchase of businesses:
Accounts receivable 527 1,410
Inventories 2,286 4,539
Prepaid expenses (2,390) (1,097)
Accounts payable, accrued expenses and income
taxes payable 661 (2,243)
Other noncurrent assets (481) (776)
--------- ---------
Net cash provided by Continuing Operations 22,261 28,158
--------- ---------
Cash flow from Discontinued Operations 54 (336)
--------- ---------
Net cash provided by operating activities 22,315 27,822
--------- ---------
Cash Flows from Investing Activities
Sales of property, plant and equipment 7,583 1,385
Purchases of property, plant and equipment (4,920) (5,262)
Redemptions of marketable securities 15,982 2,084
Purchases of marketable securities (41,591) (4,912)
Acquisitions of businesses - (1,341)
Sale of subsidiary 12,626 -
Other (991) (1,005)
--------- ---------
Net cash provided by (used in) in
investing activities (11,311) (9,051)
--------- ---------
Cash Flows from Financing Activities
Proceeds from notes payable 2,007 446
Payments of notes payable (3,927) (270)
Additional long term debt 130 -
Payments of long term debt (1,031) (169)
Borrowing of cash surrender values 2,436 1,143
Payments of dividends (3,755) (3,786)
Purchase of treasury stock (3,831) -
--------- ---------
Net cash used in financing activities (7,971) (2,636)
--------- ---------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (2,417) (1,788)
--------- ---------
Net Increase in Cash and Cash Equivalents 616 14,347
Cash and Cash Equivalents at Beginning of Year 32,146 19,814
--------- ---------
Cash and Cash Equivalents at End of Period $32,762 $ 34,161
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
NCH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary to present fairly NCH Corporation's
financial position as of October 31, 2000, the results of its operations for the
three and six months ended October 31, 2000 and 1999, and cash flows for the six
months then ended. Included in the operating results for the quarter ended
October 31, 2000, is a $1.2 million addition to the allowance for doubtful
accounts receivable. This one time charge to the DBS Services Group was
necessary in management's opinion to adjust accounts receivable for accounts
that are estimated to be uncollectible.
The accounting policies followed by NCH Corporation (the Company) are set forth
in Note 1 to the Company's consolidated financial statements in the 2000 NCH
Corporation Annual Report to Shareholders, which is included in Part II of Form
10-K.
The results of operations for the three and six month periods ended October 31,
2000, are not necessarily indicative of the results to be expected for the full
year.
2. Discontinued Operations
In the third quarter of the prior year, the Company sold substantially all the
net assets of Resource Electronics Inc., a subsidiary of the Company. This sale
closed on November 11, 1999. The net assets and liabilities that were
transferred consisted primarily of accounts receivable, inventories, fixed
assets, and accounts payable. The selling price for these net assets was
$12,697,000 in cash and was received by the Company in November 1999.
The financial position, operating results, and cash flows of Resource
Electronics for the prior year are shown separately as discontinued operations.
Due to the sale of Resource Electronics in the second quarter of the prior year,
there were no net sales related to Resource Electronics in the current year. Net
sales of Resource Electronics for the three months ended October 31, 1999 were
$16,555,000. Net sales of Resource Electronics for the six months ended October
31, 1999 were $32,493,000. These amounts are not included in net sales in the
accompanying Consolidated Statements of Income.
<PAGE>
As shown on the accompanying Consolidated Statements of Income, amounts relating
to discontinued operations are as follows (in thousands except per share
amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
----------------------- -----------------------
2000 1999 2000 1999
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Loss from Discontinued $ - $(1,043) $ - $(1,252)
Operations before taxes
Income Taxes - 361 - 393
----------- ----------- ---------- ----------
Loss from Discontinued
Operations $ - $(682) $ - $(859)
=========== =========== ========== ===========
Loss on Disposition of
Discontinued Operations
before taxes $ - $(5,091) $ - $(5,091)
Income Taxes - 1,782 - 1,782
----------- ----------- ---------- ----------
Loss on Disposition of
Discontinued Operations $ - $(3,309) $ - $(3,309)
=========== =========== ========== ===========
Per share - basic and diluted
Loss from Discontinued
Operations $ - $ (0.13) $ - $ (0.16)
Loss on Disposition of
Discontinued Operations $ - $ (0.61) $ - $ (0.61)
----------- ----------- ---------- -----------
Total from Discontinued
Operations $ - $ (0.74) $ - $ (0.77)
=========== =========== ========== ===========
</TABLE>
<PAGE>
3. Inventories
Inventories consisted of the following (in thousands of dollars):
<TABLE>
<CAPTION>
October 31, April 30,
2000 2000
------------ ------------
<S> <C> <C>
Raw Materials $13,504 $16,137
Finished Goods 71,465 75,947
Sales Supplies 1,375 1,452
------------ ------------
$86,344 $93,536
============ ============
</TABLE>
4. Earnings Per Share
Basic earnings per share are computed by dividing net income for the period by
the weighted average number of shares of common stock outstanding for the
period. Diluted earnings per share are determined by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
outstanding. Stock options are the Company's only potential common stock
equivalents and are considered in the diluted earnings per share calculations if
dilutive. For both the three and six month periods ended October 31, 2000,
options totaling 401,402 were excluded as their effect would have been
antidilutive. For the three and six month periods ended October 31, 1999,
options totaling 305,379 were excluded as their effect would have been
antidilutive.
<PAGE>
5. Comprehensive Income
The components of comprehensive income, net of related tax, for the three-month
and six-month periods ended October 31, 2000 and 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
----------------------- -----------------------
2000 1999 2000 1999
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net income $ 10,210 $ 3,916 $19,283 $10,177
Unrealized gain (loss) on
available-for-sale securities 3 (2) 54 6
Foreign currency translation
adjustment (992) (84) (6,306) (2,831)
----------- ----------- ---------- ------------
Comprehensive income $ 9,221 $ 3,830 $13,031 $7,352
=========== =========== ========== ===========
</TABLE>
The components of accumulated other comprehensive loss, net of related tax, at
October 31, 2000 and April 30, 2000, are as follows (in thousands):
<TABLE>
<CAPTION>
October 31, April 30,
2000 2000
------------- ------------
<S> <C> <C>
Unrealized gain (loss) on
available-for-sale securities $ 202 $ 148
Foreign currency translation
adjustment (48,843) (42,537)
------------- ------------
Accumulated other
comprehensive loss $(48,641) $(42,389)
============= ============
</TABLE>
6. Segment Information
The Company's segments as shown below, are based on the organization structure
that is currently used by management for making operating and investment
decisions and for assessing performance. Based on this management approach, the
Company has six segments: Chemical Specialties, Plumbmaster Group, Partsmaster
Group, Landmark Direct, DBS Services Group, and Other Product Lines. The Company
evaluates the performance of its segments primarily based on operating profit.
All intercompany transactions have been eliminated, and intersegment revenues
are not significant. In calculating operating profit for individual segments,
administrative expenses incurred at the Company's corporate headquarters that
are common to more than one segment are allocated on a usage basis. The segment
classifications shown below have been realigned to reflect changes in the
Company's decision making structure. Compared to the presentation for the fiscal
year ended April 30, 2000, the operating results of certain chemical specialty
products have been reclassified to Chemical Specialties from Other Product
Lines. Information for the three and six month periods ended October 31, 1999
has been restated to conform to the current segment classifications. Other
Product Lines shown below includes only the results of N-E Thing Supply which
was sold on September 30, 2000.
The following tables present a summary of the Company's segments for the
three-month and six-month periods ended October 31, 2000 and 1999 (in
thousands):
<TABLE>
<CAPTION>
Net Sales Net Sales
-------------------------- -------------------------
Three Months Ended Six Months Ended
October 31, October 31,
-------------------------- -------------------------
2000 1999 2000 1999
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Chemical Specialties $102,560 $106,270 $209,792 $216,619
Plumbmaster Group 29,072 29,879 57,586 60,658
Partsmaster Group 18,615 20,360 38,054 42,183
Landmark Direct 12,948 10,791 24,903 19,624
DBS Services Group 3,420 5,987 8,601 10,879
Other Product Lines 5,662 7,996 14,669 15,616
------------ ------------- ------------ -----------
Net Sales $172,277 $181,283 $353,605 $365,579
============ ============= ============ ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Operating Profit Operating Profit
-------------------------- --------------------------
Three Months Ended Six Months Ended
October 31, October 31,
-------------------------- --------------------------
2000 1999 2000 1999
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Chemical Specialties $11,239 $7,779 $20,752 $15,522
Plumbmaster Group 1,458 2,012 3,906 4,037
Partsmaster Group 2,058 2,450 3,779 4,487
Landmark Direct 657 993 568 896
DBS Services Group (1,565) 1,454 (1,157) 2,691
Other Product Lines (334) 314 (52) 704
------------ ------------- ------------- -----------
Total segment operating
profit $13,513 $15,002 $27,796 $28,337
Unallocated Corporate
expenses (518) (726) (2,089) (1,619)
Revaluation of foreign
currencies (250) (98) (424) (903)
Interest income 849 305 1,565 558
Interest expense (1,706) (941) (2,860) (2,002)
Gain on sale of
subsidiary 5,068 - 5,068 -
Gain on sale of land 279 - 3,115 -
------------ ------------- ------------ -----------
Income from Continuing
Operations before
Income Taxes $17,235 $13,542 $32,171 $24,371
============ ============= ============ ===========
</TABLE>
7. Supplemental Cash Flow Information
Cash payments for interest for the six months ended October 31, 2000 and 1999,
were approximately $1,490,000 and $421,000, respectively. Cash payments for
income taxes were approximately $7,340,000 and $10,770,000 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, 2000, working capital increased to
$225.0 million from $212.9 million at April 30, 2000, and the current ratio was
3.7 to 1 at October 31, 2000, compared to 3.4 to 1 at April 30, 2000. The total
of cash, cash equivalents and marketable securities increased by $26.3 million
in the first six months to $78.9 million at October 31, 2000, as shown on the
Consolidated Balance Sheets. Net cash flows from operating activities of
continuing operations totaled $22.3 million. Additional cash of $12.6 million
was provided from the sale of the assets of a subsidiary, and $7.2 million from
the sale of undeveloped surplus land. Principal uses of cash consisted of net
purchases of marketable securities of $25.6 million, capital expenditures of
$4.9 million, and payment of dividends of $3.8 million. Management expects that
operating cash flows will continue to generate sufficient funds to finance
operating needs, capital expenditures and the payment of dividends.
<PAGE>
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, 2000, compared to February 29,
2000. This is reflected by the foreign currency translation component of
accumulated other comprehensive loss, which changed from a $42.5 million
reduction of stockholders' equity at April 30, 2000, to a $48.8 million
reduction of stockholders' equity at October 31, 2000.
Accounts receivable decreased by $14.9 million in the six months ended
October 31, 2000, including the $4.3 million reduction from the sale of N-E
Thing Supply, and inventories decreased by $7.2 million in the six months ended
October 31, 2000, including the $3.5 million reduction from the sale of N-E
Thing Supply, 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 decrease the
reported U.S. dollar values of these assets. 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 the sale of a subsidiary, and
shows accounts receivable (net of provisions for losses) decreasing by $4.0
million for the six month period. The decrease in accounts receivable, exclusive
of the effect of exchange rates, was due to a 11% sales decrease in the
international operations in the current quarter compared to the fourth quarter
of last year. The Consolidated Statements of Cash Flows shows inventories
decreasing by $2.3 million during the six months ended October 31, 2000,
exclusive of the effect of exchange rates and the sale of a subsidiary.
Accounts payable, accrued expenses and income taxes payable were similarly
affected by currency translation. These liabilities increased by $.7 million
when measured exclusive of the effect of exchange rate changes, but decreased by
$.7 million as reported on the Consolidated Balance Sheets. Accounts payable and
accrued expenses decreased as a result of normal business activity associated
with timing of payments and due to the sale of a subsidiary during the quarter.
The increase in income taxes payable was primarily due to timing differences in
the amounts of domestic tax payments in the current year compared to the
preceding year.
During the current year, the Company sold two parcels of surplus land,
resulting in a pretax gain of $3.1 million. Expenditures for property, plant and
equipment amounted to $4.9 million for the six months ended October 31, 2000,
and consisted of the installation and update of worldwide computer systems and
normal additions of operating equipment.
During the second quarter, the Company sold the assets of a subsidiary,
resulting in a pretax gain of $5.1 million. Sales for this subsidiary were less
than 5% of the Company's consolidated annual sales, and therefore this
transaction is not expected to have a material impact on the Company's future
operations.
<PAGE>
Total bank indebtedness, comprised of long-term debt, current maturities of
long-term debt and notes payable, exclusive of the effect of exchange rate
changes, decreased $2.8 million during the six months ended October 31, 2000.
The decrease was due primarily to the repayment of loans in the Company's
international subsidiaries. During the fourth quarter of the prior year, an
environmental insurance policy was purchased and funded by a note payable in a
non-cash transaction. Of the $13.6 million of long-term debt, $13.5 is a note
payable related to the environmental insurance policy. The $3.6 million of notes
payable to banks consist of international subsidiary borrowings in local country
currencies used primarily to finance working capital requirements. The bank
indebtedness shown on the Consolidated Balance Sheets was also affected by
currency translation, and shows a decrease of $6.8 million.
The directors of the Company declared a regular quarterly dividend of $.35
per share on October 30, 2000, payable December 15, 2000, to shareholders of
record December 1, 2000. Cash dividends paid during the first six months of the
fiscal year amounted to $3.8 million.
In August 1998, the Company obtained a $50 million unsecured credit
facility from a group of banks. No borrowing was anticipated under this credit
facility, and it was cancelled by the Company during the current quarter.
Year 2000 Compliance
The Company uses and relies on a wide variety of information technologies,
computer systems and scientific equipment containing computer-related
components. The Company did not experience any business interruptions related to
the Year 2000 Issue. The Company is continuing to monitor its computer systems
and equipment and expects that the Year 2000 Issue will not have a material
adverse effect on its business, financial condition or results of operations.
Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing currencies ("legacy
currencies") and one common currency - the euro. The euro is now trading on
currency exchanges and can be used in business transactions. Beginning in
January 2002, new euro-denominated bills and coins will be issued, and legacy
currencies will be withdrawn from circulation. The Corporation's operating
subsidiaries affected by the euro conversion are developing plans to address the
systems and business issues affected by the euro currency conversion. These
issues include, among others, the need to adapt computer and other business
systems and equipment to accommodate euro-denominated transactions. The
Corporation does not expect this conversion to have a material impact on its
financial condition or results of operations.
<PAGE>
Operating Results
Second Quarter Comparison - Prior Year
Net sales from Continuing Operations for the second quarter of fiscal 2000
decreased 5% to $172.3 million as compared with $181.3 million in the same
quarter of the last fiscal year. Domestically, net sales in the second quarter
of the current year decreased 2% over the same period in the prior year.
International net sales decreased 10% as reported in U.S. dollars and were
negatively affected by changes in currency translation rates. International net
sales, when measured on a local currency basis, decreased 3% compared to the
second quarter of the prior year, due to continued difficult economic conditions
primarily in the European operations. Net sales for Chemical Specialties
decreased $3.7 million, 3%, from the second quarter of the prior year, due to
lower international sales, partially offset by higher domestic sales. The
decrease in net sales for the Plumbmaster Group was due primarily to lower
selling prices. Partsmaster Group's net sales decreased $1.7 million as compared
to the same quarter last year due to lower international sales, partially offset
by higher domestic sales. Net sales for Landmark Direct increased $2.2 million,
20%, from the prior year's second quarter, due to increased sales of medical and
first aid supplies. Net sales for the DBS Services Group decreased $2.6 million,
43%, due to the weakness in the direct broadcast satellite equipment market and
to severe competition. Net sales for Other Product Lines includes only the sales
for N-E Thing Supply which was sold September 30, 2000.
Consolidated operating income before other expenses and income taxes was
7.5% of net sales for the quarter ended October 31, 2000, compared to 7.9% of
net sales for the quarter ended October 31, 1999. Operating profit for Chemical
Specialties increased $3.5 million, 44%, from the second quarter of last year
due to cost reduction efforts in both domestic and international operations.
Operating profit for the Plumbmaster Group decreased $.6 million due to lower
domestic sales, and reduced product margins partially offset by lower marketing
expenses. Operating profit decreased $.4 million, 16%, for the Partsmaster Group
over the second quarter of last year due to lower international sales and lower
domestic margins. The decrease in operating profit for Landmark Direct as
compared to the second quarter of last year is due to increased product cost and
marketing costs. Operating results for DBS Services Group was a loss of $1.6
million in the quarter this year compared to $1.5 million in income in the same
quarter last year. This was the result of sales decreasing from $6.0 million in
the second quarter last year to $3.4 million this year and to the $1.2 million
increase in the reserve for ncollectible accounts receivable in the quarter.
Other Product Lines only includes N-E Thing Supply, a subsidiary that was
sold September 30, 2000. The results shown for the quarter includes only two
months of operations this year versus three last year.
In the quarter ended October 31, 2000, interest expense was $1.7 million
compared to $.9 million in the same quarter of the prior year. Interest income
was $.8 million in the quarter ended October 31, 2000 as compared to $.3 million
in the quarter ended October 31, 1999. Revaluation of foreign currencies
resulted in a loss of $.3 million in the second quarter of the current year
compared to a loss of $.1 million in the same period last year. As discussed
above, the sale of the assets of a subsidiary in the current quarter resulted in
a pretax gain of $5.1 million.
<PAGE>
Provision for income taxes was 40.8% of income from continuing operations
before income taxes in the second quarter of the current year compared to 41.6%
of income from continuing operations before income taxes in the prior year. This
decrease is due to variations in individual country income levels and tax rates
in the international subsidiaries. Income from continuing operations was 5.9% of
net sales for the quarter ended October 31, 2000, compared to 4.4% of net sales
in the quarter ended October 31, 1999.
The sale of the net assets of Resource Electronics Inc. in the second
quarter of the prior year resulted in a loss on disposition of discontinued
operations of $3.3 million (net of income taxes of $1.8 million). For the
quarter ended October 31, 1999, the operating loss, net of income taxes, for
discontinued operations was $.7 million.
Net income, including the results of discontinued operations, was 5.9% of
net sales for the current quarter compared to 2.2% for the second quarter of
last year.
<PAGE>
Second Quarter Comparison - Preceding Quarter
Net sales from Continuing Operations of $172.3 million for the second
quarter of fiscal 2000 were 5% lower than the $181.3 million net sales for the
first quarter. International net sales were 13% 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 the same as the
previous quarter. Net sales for Chemical Specialties decreased $4.7 million, 4%,
from the first quarter due to lower international sales, partially offset by
higher domestic sales. Net sales for the Plumbmaster Group increased $.6
million, 2%, from the prior quarter due to higher domestic sales. Partsmaster
Group's net sales decreased $.8 million, 4%, as compared to the first quarter
due to lower international sales. Net sales for Landmark Direct increased $1.0
million, 8%, from the first quarter due to seasonal fluctuations in sales of
medical and first aid supplies. Net sales for the DBS Services Group decreased
$1.8 million, 34%, from the first quarter, due to increased competition. Net
sales for Other Product Lines consisting only of N-E Thing Supply decreased $3.3
million, due to the sale of the subsidiary on September 30, 2000.
Consolidated operating income before other expenses and income taxes was
7.5% of net sales for the quarter ended October 31, 2000, compared to 7.0% of
net sales for the quarter ended July 31, 2000. Operating profit for Chemical
Specialties Group increased $1.7 million, 18%, from the first quarter as a
result of cost reduction programs. Operating profit for the Plumbmaster Group
decreased $1.0 million from the prior quarter due to lower product margins.
Operating profit increased $.3 million, 20%, for the Partsmaster Group over the
first quarter due to higher international and domestic margins. Landmark Direct
had a $.7 million increase in operating profit as compared to the first quarter
due to seasonal sales fluctuations mentioned above. The DBS Services Group had a
loss of $1.6 million in the second quarter compared to a profit of $.4 million
in the first quarter due to lower sales, reduced selling prices and an increase
of $1.2 million in the reserve for doubtful accounts.
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Interest expense amounted to $1.7 million in the three months ended October
31, 2000, compared to $1.2 million in the three months ended July 31, 2000.
Interest income was $.8 million for the current quarter as compared to $.7
million for the prior quarter of this year. The revaluation of foreign
currencies resulted in a loss of $.3 million in current quarter compared to a
loss of $.2 million in the previous quarter. As discussed above, the sale of the
assets of a subsidiary in the current quarter resulted in a pretax gain of $5.1
million.
Provision for income taxes amounted to 40.8% of income from continuing
operations before income taxes in the quarter ended October 31, 2000, compared
to 39.3% of income from continuing operations before income taxes in the quarter
ended July 31, 2000. This increase is due to variations in individual country
income levels and tax rates in the international subsidiaries. Income from
continuing operations was 5.9% of net sales for the quarter ended October 31,
2000, compared to 5.0% of net sales for the quarter ended July 31, 2000.
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Six Months Comparison - Prior Year
Net sales from Continuing Operations for the six months ended October 31,
2000, decreased 3% to $353.6 million compared to $365.6 million for the first
six months of the last fiscal year. Domestically, net sales increased 1% in the
six months compared to a year ago. International net sales were negatively
affected by changes in currency translation rates and decreased 10% as reported
in U.S. dollars. When measured on a local country currency basis, international
net sales decreased approximately 3%. Net sales for Chemical Specialties
decreased $6.8 million, 3%, from the six month period ended October 31, 1999,
due to lower local currency sales in the international operations and to the
effect of currency translation rates. Net sales for the Plumbmaster Group
decreased $3.1 million, 5%, as compared to the prior year six-month period due
to lower prices in the domestic market. Partsmaster Group's net sales decreased
$4.1 million, or 10%, over the first six months of the prior year due to lower
international sales. Net sales for Landmark Direct increased $5.3 million, 27%,
from the same period of the prior year due to increased sales of medical
equipment and first aid supplies from an expanded product line.. Net sales for
DBS Services Group decreased $2.3 million, 21%, as compared to the prior year
six-month period due to reduced sales volume and lower prices.
Consolidated operating income in the six months this year was 7.3% of net
sales, the same as in the six month period ended October 31, 1999. Operating
profit for Chemical Specialties increased $5.2 million, 34%, from the six month
period ended October 31, 1999 due to concentrated efforts to reduce expenses.
Even with the reduction in sales, the Plumbmaster Group's profits remained
relatively the same as last year due to cost reductions. Operating profit
decreased $.7 million, 16%, for the Partsmaster Group over the first six months
of the prior year due to lower international sales. Operating profit for
Landmark Direct decreased $.3 million, 37%, as compared to the six months ended
October 31, 1999, due to higher product costs. DBS Services Group had a $1.2
million loss in the six months this year compared to income of $2.7 million in
the same period last year due to the cost of relocating to new warehouse and
office facilities, lower sales volume, lower product margins, and an additional
$1.2 million in bad debt expense in the second quarter.
Interest expense was $2.9 million in the six months ended October 31, 2000,
compared to $2.0 million in the first six months of the prior year. Interest
income was $1.6 million in the six months this year compared to $.6 million for
the six month period ended October 31, 1999. Revaluation of foreign currencies
resulted in a loss of $.4 million in the first six months of the current year
compared to a loss of $.9 million in the same period of the prior year. As
discussed above, the sale of the assets of a subsidiary in the current quarter
resulted in a pretax gain of $5.1 million. The sales of land in the current year
resulted in a pretax gain of $3.1 million.
<PAGE>
Provision for income taxes was 40.1% of income from continuing operations
before income taxes in the first six months of the current year compared to
41.1% of income from continuing operations before income taxes in the prior
year. This decrease is due to variations in individual country income levels and
tax rates in the international subsidiaries. Income from continuing operations
was 5.5% of net sales for the six months ended October 31, 2000 compared to 3.9%
of net sales for the six months ended October 31, 1999.
The sale of the net assets of Resource Electronics Inc. in the prior year
resulted in a loss on disposition of discontinued operations of $3.3 million as
discussed earlier. The operating loss, net of income taxes, for discontinued
operations was $.9 million for the first six months of the prior year.
Forward-Looking Information
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Quarterly Report contain forward-looking
statements that are based on current expectations, estimates and assumptions
regarding the worldwide economy, technological innovation, competitive activity,
interest rates, pricing, and currency movements. These statements are not
guarantees of future results or events, and involve certain risk and
uncertainties which are difficult to predict and many of which are beyond the
control of the Company. Actual results and events could differ materially from
those anticipated by the forward-looking statements.
<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
three or six months ended October 31, 2000.
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 8, 2000 /s/ Tom Hetzer
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Tom Hetzer
Vice President - Finance
(Principal Accounting Officer)
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