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, 1996
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 45202-4790
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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 6,159,919 Shares October 31, 1996
$1 Par Value
Page 1 of 9
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NATIONAL SANITARY SUPPLY COMPANY
Index
<TABLE>
<CAPTION>
<S> <C>
Page No.
Part I. Financial Information: --------
Item 1. Financial Statements:
Consolidated Balance Sheet--
September 30, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Income--
Three and nine months ended
September 30, 1996 and 1995 . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows--
Nine months ended
September 30, 1996 and 1995 . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . 8
</TABLE>
Page 2 of 9
<PAGE>
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) 1996 1995
- ----------------------------------- ------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,632 $ 1,491
Accounts receivable, less allowances
(1996- $1,168; 1995- $1,458) 36,873 42,083
Inventories 26,522 28,285
Deferred income taxes 2,338 2,305
Prepaid expenses and other current assets 1,677 1,074
---------- -----------
Total current assets 70,042 75,238
Properties and equipment, at cost, less
accumulated depreciation 21,616 21,453
Goodwill, less accumulated amortization 26,070 25,795
Other assets 904 753
---------- -----------
Total assets $ 118,632 $ 123,239
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,262 $ 21,950
Accrued liabilities 13,104 14,574
Loans payable to Chemed Corporation 1,146 6,989
Current portion of notes to Chemed Corporation 1,000 1,000
---------- -----------
Total current liabilities 36,512 44,513
Notes to Chemed Corporation 15,000 15,000
Deferred income taxes 921 506
Other noncurrent liabilities 1,166 1,353
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Total liabilities 53,599 61,372
---------- -----------
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: 1996- 6,642,116 shares;
1995- 6,554,543 shares) 6,644 6,555
Paid-in capital 27,629 26,763
Retained earnings 35,037 32,487
Treasury stock, at cost (1996- 482,447 shares;
1995- 456,263 shares) (4,277) (3,938) ---------- -----------
Total stockholders' equity 65,033 61,867
---------- -----------
Total liabilities and stockholders' equity $ 118,632 $ 123,239
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 3 of 9<PAGE>
NATIONAL SANITARY SUPPLY COMPANY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
(thousands, except per share data) 1996 1995 1996 1995
- ---------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 80,652 $ 89,396 $ 235,139 $ 255,760
Cost of sales 53,673 61,691 157,670 175,964
---------- ---------- ---------- ----------
Gross profit 26,979 27,705 77,469 79,796
---------- ---------- ---------- ----------
Expenses and other income:
Operating expenses 23,340 23,688 68,922 70,484
Amortization of goodwill 225 217 671 653
Chemed Corporation interest 391 508 1,208 1,709
Other income, net (43) (68) (166) (149)
---------- ---------- ---------- ----------
Total expenses and other income 23,913 24,345 70,635 72,697
---------- ---------- ---------- ----------
Income before income taxes 3,066 3,360 6,834 7,099
Income taxes 1,254 1,383 2,869 2,993
---------- ---------- ---------- ----------
Net income $ 1,812 $ 1,977 $ 3,965 $ 4,106
========== ========== ========== ==========
Earnings per share $ 0.30 $ 0.33 $ 0.65 $ 0.68
========== ========== ========== ==========
Cash dividends paid per share $ 0.080 $ 0.075 $ 0.230 $ 0.205
========== ========== ========== ==========
Average shares outstanding 6,141 6,079 6,139 6,068
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 4 of 9
<PAGE>
NATIONAL SANITARY SUPPLY COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
(thousands of dollars) 1996 1995
- ---------------------------------------------- --------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,965 $ 4,106
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,507 2,662
Amortization of goodwill and deferred
charges 1,138 904
Deferred income tax provision (313) (214)
Provision for losses on accounts
receivable 603 811
Changes in operating assets and
liabilities, excluding amounts acquired
in business combinations:
(Increase)/decrease in accounts receivable 4,715 (1,169)
(Increase)/decrease in inventories 1,826 (713)
Increase in other assets (694) (153)
Increase/(decrease) in accounts payable (688) 2,520
Increase/(decrease) in other liabilities (1,781) 1,319
--------- ---------
Net cash provided by operating activities 11,278 10,073
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CASH FLOWS FROM INVESTING ACTIVITIES
Business combinations (280) (52)
Capital expenditures (2,745) (2,550)
Other 82 109
--------- ---------
Net cash used for investing activities (2,943) (2,493)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on loans payable to Chemed Corporation (5,843) (6,267)
Principal payments on other long-term debt (39) (36)
Dividends paid (1,415) (1,244)
Purchase of common stock 103 51
--------- ---------
Net cash used for financing activities (7,194) (7,496)
--------- ---------
Increase/(decrease) in cash and cash equivalents 1,141 84
Cash and cash equivalents at beginning of period 1,491 1,713
--------- ---------
Cash and cash equivalents at end of period $ 2,632 $ 1,797
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 5 of 9
<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 1995
Annual Report on Form 10-K filed with the SEC on March 28, 1996.
NOTE B. 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, 1988, and 1995 Stock Incentive Plans is not material.
Page 6 of 9
<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 third quarter ended September
30, 1996 were $80,652,000, a 10% decrease from sales of $89,396,000 in the third
quarter of 1995. Net income for the third quarter of 1996 was $1,812,000, an 8%
decrease from net income of $1,977,000 in the prior-year third quarter.
Earnings per share of $0.30 for the third quarter of 1996 decreased 9% from
earnings per share of $0.33 in the comparable prior-year quarter.
National's third-quarter results reflect the effects of the previously announced
loss of a large fast-food customer in the first quarter of 1996. It was
anticipated that the loss of this large customer in our southwest operating
group would constrain our 1996 sales and profit growth, especially in the third
quarter which was traditionally the strongest quarter for this customer.
Strong performances in the core sanitary maintenance business in many locations
and controlled operating expenses helped to temper the lost business.
The gross profit margin for the third quarter of 1996 improved 2.5% points from
31.0% in 1995 to 33.5% in 1996. Operating expenses as a percentage of sales in
the third quarter of 1996 increased 2.4% points from 26.5% in 1995 to 28.9% in
1996, offsetting the improvement in the gross profit margin. The gross profit
margin improvement reflects the loss of low-margin sales to the large fast-food
customer, which correspondingly had lower associated operating expenses.
The decline in Chemed interest expense from $508,000 in the third quarter of
1995 to $391,000 in the third quarter of 1996 reflects the continued improvement
in National's financial condition. Debt as a percent of total capital decreased
from 28.8% at September 30, 1995 to 20.9% at September 30, 1996.
For the nine months ended September 30, 1996, National's sales of $235,139,000
decreased 8% from sales of $255,760,000 in the comparable period of 1995. Net
income for the first nine months of 1996 was $3,965,000, a 3% decline from the
prior-year nine months net income of $4,106,000. Earnings per share of $0.65
for the first nine months of 1996 decreased 4% from earnings per share of $.68
for the comparable period of 1995. The year-to-date performance reflects the
loss of the large fast-food account and a significant increase in cash flow due
to a reduction in working capital.
The gross profit margin improvement of 1.7% points after nine months compared
with the same period of 1995 was offset by a similar increase in operating
expenses as a percent of sales. The change in both categories was primarily due
to a shift in the sales mix with the loss of the large fast-food account.
The decrease in Chemed interest expense from $1,709,000 in the first nine months
of 1995 to $1,208,000 in the first nine months of 1996 reflects a $7,308,000
reduction in debt with Chemed Corporation from September 30, 1995 to September
30, 1996.
Liquidity and Capital Resources
- -------------------------------
The decrease in accounts receivable and inventories primarily reflects the loss
of the large fast-food account. The cash flow from these accounts was used
primarily to repay loans to Chemed which decreased $5,843,000 from $6,989,000 at
December 1995 to $1,146,000 at September 30, 1996.
Management believes that the company's cash flow from operations and other
sources of liquidity are sufficient for its needs.
Page 7 of 9
<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.
- ----------- -------- ----------- --------
<C> <C> <S> <C>
1 (11) Statement re: E-1
Computation of
Earnings Per Share
2 (27) Financial Data Schedule E-2
</TABLE>
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended September 30,
1996.
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 November 13, 1996 By /s/Paul C. Voet
----------------- ----------------------------------
Paul C. Voet
President and
Chief Executive Officer
Date November 13, 1996 By /s/Gary H. Sander
----------------- ----------------------------------
Gary H. Sander
Senior Vice President,
Chief Financial Officer and
Treasurer
Page 8 of 9
<PAGE>
EXHIBIT 11
NATIONAL SANITARY SUPPLY COMPANY
COMPUTATION OF EARNINGS PER SHARE (a)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(thousands, except per share data) September 30, September 30,
- ---------------------------------- ------------------- ------------------
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Computation of Earnings Per Common
and Common Equivalent Share
Net Income $ 1,812 $ 1,977 $ 3,965 $ 4,106
======= ======= ======= =======
Average Number of Shares of
Common Stock Outstanding 6,141 6,079 6,139 6,068
Incremental Effect of
Unexercised Stock Options 82 81 78 81
------- ------- ------- -------
Average Number of Shares of
Common Stock and Common Stock
Equivalents Outstanding 6,223 6,160 6,217 6,149
======= ======= ======= =======
Earnings per Common and Common
Equivalent Share $ 0.29 $ 0.32 $ 0.64 $ 0.67
======= ======= ======= =======
Computation of Earnings Per Common
Share Assuming Full Dilution
Net Income $ 1,812 $ 1,977 $ 3,965 $ 4,106
======= ======= ======= =======
Average Number of Shares of
Common Stock Outstanding 6,141 6,079 6,139 6,068
Incremental Effect of
Unexercised Stock Options 109 116 99 102
------- ------- ------- -------
Average Number of Shares of
Common Stock Assuming
Full Dilution 6,250 6,195 6,238 6,170
======= ======= ======= =======
Earnings Per Common Share
Assuming Full Dilution $ 0.29 $ 0.32 $ 0.64 $ 0.67
======= ======= ======= =======
(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 9 of 9<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q FOR
THE QUARTER ENDED SEPTEMBER 30, 1996 FOR NATIONAL SANITARY SUPPLY COMPANY AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000793500
<NAME> NATIONAL SANITARY SUPPLY CO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,632
<SECURITIES> 0
<RECEIVABLES> 34,999
<ALLOWANCES> (1,168)
<INVENTORY> 26,522
<CURRENT-ASSETS> 70,042
<PP&E> 44,183
<DEPRECIATION> (22,567)
<TOTAL-ASSETS> 118,632
<CURRENT-LIABILITIES> 36,512
<BONDS> 15,000
0
0
<COMMON> 6,644
<OTHER-SE> 58,389
<TOTAL-LIABILITY-AND-EQUITY> 118,632
<SALES> 235,139
<TOTAL-REVENUES> 235,139
<CGS> 157,670
<TOTAL-COSTS> 157,670
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 603
<INTEREST-EXPENSE> 1,204
<INCOME-PRETAX> 6,834
<INCOME-TAX> 2,869
<INCOME-CONTINUING> 3,965
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,965
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
</TABLE>
