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 June 30, 1994
Commission File Number 0-14827
NATIONAL SANITARY SUPPLY COMPANY
- - -------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1079482
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(State or other jurisdiction of (IRS Employer Identification
incorporation of organization) No.)
2900 Chemed Center, 255 E. 5th St., Cincinnati, OH 45202-4729
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(Address of principal executive offices) (Zip code)
(513) 762-6500
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(Registrant's telephone number, including area code)
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 Amount Date
- - ----- ------ ----
Common Stock 5,981,360 Shares July 31, 1994
$1 Par Value
Page 1 of 10<PAGE>
NATIONAL SANITARY SUPPLY COMPANY
Index
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information: --------
Item 1. Financial Statements:
Consolidated Balance Sheet--
June 30, 1994 and
December 31, 1993 . . . . . . . . . . . . . . . . 3
Consolidated Statement of Income--
Three and six months ended
June 30, 1994 and 1993. . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows--
Six months ended
June 30, 1994 and 1993. . . . . . . . . . . . . . 5
Notes to Consolidated Financial
Statements. . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations. . . . . . . . . 7
Part II. Other Information:
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . 8
Item 6. Exhibits and Reports on Form 8-K. . . . . . 9
</TABLE>
Page 2 of 10<PAGE>
Part I. Financial Information
Item 1. Financial Statements
NATIONAL SANITARY SUPPLY COMPANY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
(thousands, except share data) 1994 1993
- - ----------------------------------- ----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,109 $ 1,110
Accounts receivable, less allowances
(1994- $1,300; 1993- $1,290) 37,436 36,607
Inventories 25,300 26,955
Current deferred income taxes 2,000 1,776
Prepaid expenses and other current assets 1,545 1,189
---------- ----------
Total current assets 69,390 67,637
Properties and equipment, at cost, less
accumulated depreciation
(1994- $18,499; 1993- $17,451) 21,896 17,383
Goodwill, less accumulated amortization
(1994- $ 6,444; 1993- $ 6,008) 27,223 27,513
Other assets 638 1,611
---------- ----------
Total assets $ 119,147 $ 114,144
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,129 $ 18,223
Accrued liabilities 11,900 13,071
Loans payable to Chemed Corporation 12,594 9,702
Current portion of notes to Chemed
Corporation 1,000 1,000
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Total current liabilities 45,623 41,996
Notes to Chemed Corporation 17,000 17,000
Noncurrent deferred income taxes 587 701
Other noncurrent liabilities 1,134 1,299
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Total liabilities 64,344 60,996
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Stockholders' equity:
Preferred stock - 1,000,000 shares authorized,
$1 par value (none issued) - -
Common stock - 7,000,000 shares authorized,
$1 par value (issued: 1994- 6,392,291 shares;
1993- 6,323,206 shares) 6,393 6,324
Paid-in capital 25,075 24,369
Retained earnings 26,432 25,468
Treasury stock, at cost (1994- 410,931
shares; 1993- 403,984 shares) (3,097) (3,013)
---------- ----------
Total stockholders' equity 54,803 53,148
---------- ----------
Total liabilities and stockholders' equity $ 119,147 $ 114,144
========== ==========
The accompanying notes are an integral part of the financial statements.
</TABLE>
Page 3 of 10<PAGE>
NATIONAL SANITARY SUPPLY COMPANY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
(thousands, except per share data) 1994 1993 1994 1993
- - ---------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 76,975 $ 75,281 $148,435 $144,628
Cost of sales 52,860 51,627 102,059 99,029
--------- --------- ---------- ---------
Gross profit 24,115 23,654 46,376 45,599
--------- --------- ---------- ---------
Expenses and other income:
Operating expenses 21,459 21,255 42,015 41,581
Amortization of goodwill 219 218 437 435
Chemed interest, net 600 553 1,145 1,141
Interest expense 10 37 1 68
Other income, net (92) (126) (200) (255)
--------- --------- --------- ---------
Total expenses and other income 22,196 21,937 43,398 42,970
--------- --------- --------- ---------
Income before income taxes 1,919 1,717 2,978 2,629
Income taxes 815 767 1,300 1,178
--------- --------- --------- ---------
Net income $ 1,104 $ 950 1,678 1,451
========= ========= ========= =========
Earnings per share $ 0.19 $ 0.16 $ 0.28 $ 0.25
========= ========= ========= =========
Cash dividends paid per share $ 0.060 $ 0.055 $ 0.120 $ 0.110
========= ========= ========= =========
Average shares outstanding 5,961 5,895 5,949 5,889
========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
Page 4 of 10<PAGE>
NATIONAL SANITARY SUPPLY COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
(thousands of dollars) 1994 1993
- - ---------------------------------------------- --------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,678 $ 1,451
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,584 1,754
Amortization of goodwill and deferred
charges 656 625
Deferred income tax provision (263) 27
Provision for uncollectible accounts
receivable 393 677
Changes in operating assets and
liabilities, excluding amounts acquired
in business combinations:
(Increase)/decrease in accounts receivable (1,112) 854
Decrease in inventories 1,855 2,330
(Increase)/decrease in other assets (332) 169
Increase/(decrease) in accounts payable 1,760 (1,433)
Decrease in other liabilities (1,315) (1,345)
Other 152 69
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Net cash provided by operating activities 5,056 5,178
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Business combinations (434) (587)
Capital expenditures (5,154) (1,404)
--------- --------
Net cash used by investing activities (5,588) (1,991)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans payable to Chemed Corporation 2,892 3,104
Principal payments on notes to Chemed Corporation - (5,000)
Principal payments on other long-term debt (22) (126)
Proceeds from issuance of capital stock 449 6
Dividends paid (714) (650)
Purchase of treasury stock (74) (57)
--------- --------
Net cash provided/(used) by financing activities 2,531 (2,723)
--------- --------
Increase in cash and cash equivalents 1,999 464
Cash and cash equivalents at beginning
of period 1,110 1,374
--------- --------
Cash and cash equivalents at end of period $ 3,109 $ 1,838
========= ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
Page 5 of 10 <PAGE>
NATIONAL SANITARY SUPPLY COMPANY
Notes to Consolidated Financial Statements
(unaudited)
NOTE A. The accompanying unaudited financial statements have been prepared in
accordance with Rule 10-01 of SEC Regulation S-X. Consequently, they do not
include all the disclosures required under generally accepted accounting
principles for complete financial statements. However, in the opinion of the
management of National Sanitary Supply Company ("National"), the financial
statements presented herein contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position, the
results of operations and cash flows of National and its subsidiaries for the
periods indicated. For additional information concerning the accounting
policies of National, refer to the consolidated financial statements included
in the 1993 Annual Report on Form 10-K filed with the SEC on March 28, 1994.
NOTE B. Cash equivalents include highly liquid investments with maturities of
three months or less when purchased.
NOTE C. Earnings per common share are computed on the basis of the weighted
average number of shares of common stock outstanding during the respective
periods. The dilution that would result from shares issuable under National's
1986 and 1988 Stock Incentive Plans is not material.
Page 6 of 10<PAGE>
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations
Results of Operations
- - ---------------------
National Sanitary Supply Company's sales for the second quarter ended June 30,
1994 were $76,975,000, a 2% increase over sales of $75,281,000 in the second
quarter of 1993. Net income for the second quarter of 1994 was $1,104,000, a
16% increase over net income of $950,000 reported in the prior year second
quarter. Earnings per share of $.19 for the second quarter of 1994 increased
19% over earnings per share of $.16 reported in the comparable prior year
quarter.
National's second quarter sales improved in many locations throughout the
National system, including most areas in the large Southern California market.
Sales also benefited from increased sales of sanitary paper, equipment and high
margin proprietary chemical products. National's second quarter 1994 gross
profit margin was relatively unchanged from the prior year.
Operating expenses as a percentage of sales in the second quarter of 1994
decreased .3% point mainly reflecting tight control over most expense
categories.
Interest expense to Chemed Corporation ("Chemed"), National's parent company,
increased from $553,000 in the second quarter of 1993 to $600,000 in the second
quarter of 1994. This increase primarily results from the additional funds
necessary to purchase two Los Angeles, California facilities at a total cost of
$3,282,000. These facilities had been previously leased from the former owners
of National since 1983. The leases had included options to purchase the
facilities at the fair market value as of November 1983.
For the six months ended June 30, 1994, National sales of $148,435,000 increased
3% over sales of $144,628,000 in the comparable period of 1993. Net income for
the first half of 1994 was $1,678,000, a 16% increase over the prior year first
half net income of $1,451,000. Earnings per share were $.28 for the first six
months of 1994 compared with $.25 for the first six months of 1993.
The sales improvements for the first half of 1994 reflect increased sales of
equipment, foodservice and higher margin proprietary chemical products. The
gross profit margin for the first six months of 1994 experienced a small decline
of .3% point reflecting the additional sales of low margin foodservice products.
Operating expenses as a percentage of sales for the first half of 1994 dropped
.5% point reflecting the continued emphasis on cost containment, especially in
health care and workers' compensation costs.
Looking ahead, management continues to be optimistic about our sales and profit
growth for the remainder of the year. Management is particularly encouraged by
the continued sales improvement in the large Southern California market.
Profits should continue to be bolstered by very low operating expense increases.
Liquidity and capital resources
- - -------------------------------
Accounts receivable increased from $36,607,000 at December 31, 1993 to
$37,436,000 at June 30, 1994. The increase primarily reflects the additional
sales volume recorded in the second quarter of 1994 compared with the fourth
quarter of 1993. The decrease in inventory from $26,955,000 at
December 31, 1993 to $25,300,000 at June 30, 1994 results from the year-end
purchase of selected items in order to avoid price increases and achieve
certain discount quotas. The increase in accounts payable at June 30, 1994
compared with December 31, 1993 primarily reflects the timing of certain
inventory purchases and scheduled payments.
National obtained the funds for the purchase of the two Los Angeles facilities
from its short-term line of credit with Chemed. Short-term advances from Chemed
bear interest at a rate based on U.S. Treasury notes and are payable on demand.
Page 7 of 10<PAGE>
PART II -- OTHER INFORMATION
----------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
(a) National Sanitary Supply held its Annual Meeting of Stockholders on May
16, 1994.
(b) The names of directors elected at this Annual Meeting are as follows:
Edward L. Hutton Anthony C. Hutton
Paul C. Voet Thomas C. Hutton
Jon D. Krahulik Charles O. Lane
Robert B. Garber Sandra E. Laney
Arthur J. Bennert, Jr. Kevin J. McNamara
James A. Cunningham Timothy S. O'Toole
Naomi C. Dallob Scott R. Pancoast
Charles H. Erhart, Jr. D. Walter Robbins, Jr.
Neal Gilliatt Gary H. Sander
Harvey S. Glanzrock Jerome E. Schnee
J. Peter Grace Kenneth F. Vuylsteke
Will J. Hoekman
(c) The Stockholders then ratified the selection by the Board of Directors of
Price Waterhouse as independent accountants for the Company and its
consolidated subsidiaries for the year 1994. 5,621,607 votes were cast in
favor of the proposal, 200 were cast against it, 981 votes abstained and
zero were broker non-votes.
With respect to the election of directors, the number of votes cast for
each nominee was as follows:
<TABLE>
<CAPTION>
Votes Votes
Votes For Against Withheld
--------- ------- --------
<S> <C> <C> <C>
Edward L. Hutton 5,621,676 1,112 300
Paul C. Voet 5,621,476 1,312 500
Robert B. Garber 5,621,476 1,312 500
Arthur J. Bennert, Jr. 5,621,976 812 -0-
James A. Cunningham 5,621,976 812 -0-
Naomi C. Dallob 5,621,876 912 100
Charles H. Erhart, Jr. 5,621,576 1,212 400
Neal Gilliatt 5,621,576 1,212 400
Harvey S. Glanzrock 5,621,976 812 -0-
J. Peter Grace 5,621,576 1,212 400
Will J. Hoekman 5,621,976 812 -0-
Anthony C. Hutton 5,621,176 1,612 800
Thomas C. Hutton 5,621,176 1,612 800
Jon D. Krahulik 5,621,776 1,012 200
Charles O. Lane 5,621,476 1,312 500
Sandra E. Laney 5,620,976 1,812 1,000
Kevin J. McNamara 5,621,976 812 -0-
Timothy S. O'Toole 5,621,976 812 -0-
Scott R. Pancoast 5,621,876 912 100
D. Walter Robbins, Jr. 5,621,576 1,212 400
Gary H. Sander 5,621,976 812 -0-
Jerome E. Schnee 5,621,976 812 -0-
Kenneth F. Vuylsteke 5,621,776 1,012 200
</TABLE>
Page 8 of 10
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
<TABLE>
<CAPTION>
SK 601
Exhibit No. Ref. No. Description Page No.
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<C> <C> <S> <S>
1 (11) Statement re: E-1
Computation of
Earnings Per Share
</TABLE>
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended June 30, 1994.
SIGNATURES
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.
National Sanitary Supply Company
--------------------------------
(Registrant)
Date August 9, 1994 By /s/Paul C. Voet
------------------ ----------------------------------
Paul C. Voet
President and
Chief Executive Officer
Date August 9, 1994 By /s/Gary H. Sander
------------------ ----------------------------------
Gary H. Sander
Vice President,
Treasurer and
Chief Financial Officer
Page 9 of 10
<PAGE>
EXHIBIT 11
NATIONAL SANITARY SUPPLY COMPANY
<F1>
COMPUTATION OF EARNINGS PER SHARE (a)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(thousands, except per share data) June 30, June 30,
- - ---------------------------------- ------------------ -----------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Computation of Earnings Per Common
and Common Equivalent Share
Net Income $ 1,104 $ 950 $ 1,678 $ 1,451
======= ======= ======= =======
Average Number of Shares of
Common Stock Outstanding 5,961 5,895 5,949 5,889
Incremental Effect of
Unexercised Stock Options 104 95 106 85
------- ------- ------- -------
Average Number of Shares of
Common Stock and Common Stock
Equivalents Outstanding 6,065 5,990 6,055 5,974
======= ======= ======= =======
Earnings per Common and Common
Equivalent Share $ 0.18 $ 0.16 $ 0.28 $ 0.24
======= ======= ======= =======
Computation of Earnings Per Common
Share Assuming Full Dilution
Net Income $ 1,104 $ 950 $ 1,678 $ 1,451
======= ======= ======= =======
Average Number of Shares of
Common Stock Outstanding 5,961 5,895 5,949 5,889
Incremental Effect of
Unexercised Stock Options 111 124 109 123
------- ------- ------- -------
Average Number of Shares of
Common Stock assuming
Full Dilution 6,072 6,019 6,058 6,012
======= ======= ======= =======
Earnings Per Common Share
Assuming Full Dilution $ 0.18 $ 0.16 $ 0.28 $ 0.24
======= ======= ======= =======
<F1>
(a) This calculation is submitted in accordance with the Securities Exchange Act of
1934. Because the incremental effect of unexercised stock options results in dilution
of less than 3%, the per share data presented in the consolidated statement of income
excludes the impact of common stock equivalents.
</TABLE>
E-1
Page 10 of 10
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