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 September 30, 1994
Commission File Number 0-14827
NATIONAL SANITARY SUPPLY COMPANY
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(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
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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 6,011,306 Shares October 31, 1994
$1 Par Value
Page 1 of 10
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NATIONAL SANITARY SUPPLY COMPANY
Index
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<CAPTION>
Page No.
<S> <C>
Part I. Financial Information: --------
Item 1. Financial Statements:
Consolidated Balance Sheet--
September 30, 1994 and
December 31, 1993 . . . . . . . . . . . . . . . . 3
Consolidated Statement of Income--
Three and nine months ended
September 30, 1994 and 1993 . . . . . . . . . . . 4
Consolidated Statement of Cash Flows--
Nine months ended
September 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 6. Exhibits and Reports on Form 8-K . . . . . 9
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Page 2 of 10
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Part I. Financial Information
Item 1. Financial Statements
NATIONAL SANITARY SUPPLY COMPANY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
(thousands, except share data) 1994 1993
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,814 $ 1,110
Accounts receivable, less allowances
(1994- $1,190; 1993- $1,290) 40,681 36,607
Inventories 26,690 26,955
Current deferred income taxes 1,971 1,776
Prepaid expenses and other current assets 1,516 1,189
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Total current assets 72,672 67,637
Properties and equipment, at cost, less
accumulated depreciation
(1994- $18,889; 1993- $17,451) 21,665 17,383
Goodwill, less accumulated amortization
(1994- $ 6,663; 1993- $ 6,008) 27,058 27,513
Other assets 571 1,611
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Total assets $ 121,966 $ 114,144
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,917 $ 18,223
Accrued liabilities 13,576 13,071
Loans payable to Chemed Corporation 10,754 9,702
Current portion of notes to Chemed
Corporation 1,000 1,000
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Total current liabilities 47,247 41,996
Notes to Chemed Corporation 17,000 17,000
Noncurrent deferred income taxes 543 701
Other noncurrent liabilities 1,112 1,299
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Total liabilities 65,902 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- 6,396,381 shares;
1993- 6,323,206 shares) 6,397 6,324
Paid-in capital 25,102 24,369
Retained earnings 27,697 25,468
Treasury stock, at cost (1994- 413,697
shares; 1993- 403,984 shares) (3,132) (3,013)
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Total stockholders' equity 56,064 53,148
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Total liabilities and stockholders' equity $ 121,966 $ 114,144
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The accompanying notes are an integral part of the financial statements.
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Page 3 of 10
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NATIONAL SANITARY SUPPLY COMPANY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
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(thousands, except per share data) 1994 1993 1994 1993
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<S> <C> <C> <C> <C>
Sales $ 81,232 $ 78,598 $229,667 $223,226
Cost of sales 55,972 54,167 158,031 153,196
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Gross profit 25,260 24,431 71,636 70,030
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Expenses and other income:
Operating expenses 21,857 21,181 63,872 62,762
Amortization of goodwill 219 218 656 653
Chemed interest, net 618 542 1,763 1,683
Interest expense 10 32 11 100
Other income, net (196) (130) (396) (385)
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Total expenses and other income 22,508 21,843 65,906 64,813
--------- --------- --------- ---------
Income before income taxes 2,752 2,588 5,730 5,217
Income taxes 1,098 1,079 2,398 2,257
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Net income $ 1,654 $ 1,509 3,332 2,960
========= ========= ========= =========
Earnings per share $ 0.28 $ 0.26 $ 0.56 $ 0.50
========= ========= ========= =========
Cash dividends paid per share $ 0.065 $ 0.060 $ 0.185 $ 0.170
========= ========= ========= =========
Average shares outstanding 5,982 5,899 5,960 5,892
========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
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Page 4 of 10
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NATIONAL SANITARY SUPPLY COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
(thousands of dollars) 1994 1993
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,332 $ 2,960
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,375 2,611
Amortization of goodwill and deferred
charges 782 932
Deferred income tax provision (268) 113
Provision for uncollectible accounts
receivable 651 899
Changes in operating assets and
liabilities, excluding amounts acquired
in business combinations:
Increase in accounts receivable (4,488) (688)
Decrease in inventories 532 1,455
(Increase)/decrease in other assets (171) 196
Increase in accounts payable 3,548 896
Increase/(decrease) in other liabilities 281 (875)
Other 64 219
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Net cash provided by operating activities 6,638 8,718
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CASH FLOWS FROM INVESTING ACTIVITIES
Business combinations (645) (596)
Capital expenditures (5,605) (2,235)
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Net cash used by investing activities (6,250) (2,831)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans payable to Chemed Corporation 1,052 1,592
Principal payments on notes to Chemed Corporation - (5,000)
Principal payments on other long-term debt (34) (137)
Proceeds from issuance of capital stock 483 20
Dividends paid (1,103) (1,002)
Purchase of treasury stock (82) (57)
--------- --------
Net cash provided/(used) by financing activities 316 (4,584)
--------- --------
Increase in cash and cash equivalents 704 1,303
Cash and cash equivalents at beginning
of period 1,110 1,374
--------- --------
Cash and cash equivalents at end of period $ 1,814 $ 2,677
========= ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
Page 5 of 10
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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
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Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations
Results of Operations
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National Sanitary Supply Company's sales for the third quarter ended September
30, 1994 were $81,232,000, a 3% increase over sales of $78,598,000 in the third
quarter of 1993. Net income for the third quarter of 1994 was $1,654,000, a 10%
increase over net income of $1,509,000 reported in the prior year third quarter.
Earnings per share of $.28 for the third quarter of 1994 increased 8% over
earnings per share of $.26 reported in the comparable prior-year quarter.
National's third quarter sales improved in most locations throughout the
National system. Sales in the large Southern California operation continued
to show improvement as this region continues to recover from the January 1994
earthquake.
Product line sales were led by sales of equipment, plastic trash liners, and
foodservice products. The industry-wide deflationary pricing in the high-
volume, commodity-oriented, paper and trash liner product lines slowed
significantly in the third quarter. Prices in these product lines for the
fourth quarter are expected to be up over the same period of the prior year for
the first time in several years. National's third quarter 1994 gross profit
margin was unchanged from the prior year.
Operating expenses as a percentage of sales in the third quarter of 1994 were
the same as in the third quarter of 1993, reflecting tight control over most
expense categories. Interest expense to Chemed Corporation ("Chemed"),
National's parent company, increased from $542,000 in the third quarter of 1993
to $618,000 in the third quarter of 1994. This increase primarily results from
the additional funds necessary to purchase two Los Angeles, California
facilities during the second quarter of 1994 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.
The effective tax rate for the third quarter of 1994 was 39.9% compared with
41.7% for the third quarter of 1993. The decline primarily reflects lower state
taxes in the southwestern part of the country due to the reorganization of the
capital structure of the Company's Century Papers, Inc. subsidiary.
For the nine months ended September 30, 1994, National sales of $229,667,000
increased 3% over sales of $223,226,000 in the comparable period of 1993. Net
income for the first nine months of 1994 was $3,332,000, a 12% increase over the
prior-year nine-month net income of $2,960,000. Earnings per share were $.56
for the first nine months of 1994 compared with $.50 for the first nine months
of 1993.
The sales improvement for the first 9 months of 1994 reflects increased sales of
equipment, foodservice and higher margin proprietary chemical products. The
gross profit margin for the first nine months of 1994 experienced a small
decline of .2% point reflecting the additional sales of low margin foodservice
products. Operating expenses as a percentage of sales for the first nine months
of 1994 dropped .3% point reflecting the continued emphasis on cost containment.
National's efective tax rate for the first nine months decreased from 43.3% in
1993 to 41.8% in 1994. The decrease was due primarily to lower state taxes in
the southwestern part of the country.
Looking ahead, management continues to be optimistic about our future sales and
profit growth. 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.
Page 7 of 10
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Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations (continued)
Liquidity and capital resources
- - -------------------------------
Accounts receivable increased from $36,607,000 at December 31, 1993 to
$40,681,000 at September 30, 1994. The increase primarily reflects the
additional sales volume recorded in the third quarter of 1994 compared with the
fourth quarter of 1993. The decrease in the allowance for doubtful accounts,
from $1,290,000 at December 31, 1993 to $1,190,000 at September 30, 1994,
reflects a decline in our past due receivables. The decrease in inventory from
$26,955,000 at December 31, 1993 to $26,690,000 at September 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
September 30, 1994 compared with December 31, 1993 primarily reflects the timing
of certain inventory purchases and scheduled payments.
Management believes that the company's cash flow from operations and other
sources of liquidity are sufficient for its needs.
Subsequent Events
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National named Dwight Jackson as the new General Manager of Century Papers.
Mr. Jackson brings with him extensive industry experience, primarily with Scott
Paper Company where he most recently served as Director of Sales for Scott
Paper's Southwest Division. Additionally, Donald Pagel has been promoted to
General Manager of the Company's Midwest operating group. Mr. Pagel has an
extensive background in sales and operations, most recently serving as
National's Area Manager - Central California.
Page 8 of 10
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Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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<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 September 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 By /s/Paul C. Voet
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Paul C. Voet
President and
Chief Executive Officer
Date By /s/Gary H. Sander
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Gary H. Sander
Vice President,
Treasurer and
Chief Financial Officer
Page 9 of 10
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EXHIBIT 11
NATIONAL SANITARY SUPPLY COMPANY
<F1>
COMPUTATION OF EARNINGS PER SHARE (a)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(thousands, except per share data) September 30, September 30,
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1994 1993 1994 1993
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<S> <C> <C> <C> <C>
Computation of Earnings Per Common
and Common Equivalent Share
Net Income $ 1,654 $ 1,509 $ 3,332 $ 2,960
======= ======= ======= =======
Average Number of Shares of
Common Stock Outstanding 5,982 5,899 5,960 5,892
Incremental Effect of
Unexercised Stock Options 94 122 102 97
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Average Number of Shares of
Common Stock and Common Stock
Equivalents Outstanding 6,076 6,021 6,062 5,989
======= ======= ======= =======
Earnings per Common and Common
Equivalent Share $ 0.27 $ 0.25 $ 0.55 $ 0.49
======= ======= ======= =======
Computation of Earnings Per Common
Share Assuming Full Dilution
Net Income $ 1,654 $ 1,509 $ 3,332 $ 2,960
======= ======= ======= =======
Average Number of Shares of
Common Stock Outstanding 5,982 5,899 5,960 5,892
Incremental Effect of
Unexercised Stock Options 114 126 105 122
------- ------- ------- -------
Average Number of Shares of
Common Stock assuming
Full Dilution 6,096 6,025 6,065 6,014
======= ======= ======= =======
Earnings Per Common Share
Assuming Full Dilution $ 0.27 $ 0.25 $ 0.55 $ 0.49
======= ======= ======= =======
<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
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