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, 1996
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 45202-4790
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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 6,150,731 Shares July 31, 1996
$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, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Income--
Three and six months ended
June 30, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows--
Six months ended
June 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 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) 1996 1995
- ----------------------------------- ------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,111 $ 1,491
Accounts receivable, less allowances
(1996- $1,214; 1995- $1,458) 36,332 42,083
Inventories 26,582 28,285
Deferred income taxes 2,274 2,305
Prepaid expenses and other current assets 1,796 1,074
---------- -----------
Total current assets 69,095 75,238
Properties and equipment, at cost, less
accumulated depreciation 21,732 21,453
Goodwill, less accumulated amortization 26,278 25,795
Other assets 1,028 753
---------- -----------
Total assets $ 118,133 $ 123,239
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,773 $ 21,950
Accrued liabilities 12,245 14,574
Loans payable to Chemed Corporation 2,451 6,989
Current portion of notes to Chemed Corporation 1,000 1,000
---------- -----------
Total current liabilities 37,469 44,513
Notes to Chemed Corporation 15,000 15,000
Deferred income taxes 909 506
Other noncurrent liabilities 1,194 1,353
---------- -----------
Total liabilities 54,572 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- 6,626,941 shares;
1995- 6,554,543 shares) 6,627 6,555
Paid-in capital 27,493 26,763
Retained earnings 33,718 32,487
Treasury stock, at cost (1996- 482,447 shares;
1995- 456,263 shares) (4,277) (3,938)
---------- -----------
Total stockholders' equity 63,561 61,867
---------- -----------
Total liabilities and stockholders' equity $ 118,133 $ 123,239
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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) 1996 1995 1996 1995
- ---------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 77,210 $ 85,571 $ 154,487 $ 166,364
Cost of sales 51,585 58,942 103,997 114,273
---------- ---------- ---------- ----------
Gross profit 25,625 26,629 50,490 52,091
---------- ---------- ---------- ----------
Expenses and other income:
Operating expenses 22,823 23,535 45,582 46,796
Amortization of goodwill 224 218 446 436
Chemed Corporation interest 387 625 817 1,287
Other income, net (69) (120) (123) (167)
---------- ---------- ---------- ----------
Total expenses and other income 23,365 24,258 46,722 48,352
---------- ---------- ---------- ----------
Income before income taxes 2,260 2,371 3,768 3,739
Income taxes 939 1,001 1,615 1,610
---------- ---------- ---------- ----------
Net income $ 1,321 $ 1,370 $ 2,153 $ 2,129
========== ========== ========== ==========
Earnings per share $ 0.22 $ 0.23 $ 0.35 $ 0.35
========== ========== ========== ==========
Cash dividends paid per share $ 0.075 $ 0.065 $ 0.150 $ 0.130
========== ========== ========== ==========
Average shares outstanding 6,140 6,073 6,132 6,062
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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) 1996 1995
- ---------------------------------------------- --------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,153 $ 2,129
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,666 1,704
Amortization of goodwill and deferred
charges 769 602
Deferred income tax provision (260) (176)
Provision for losses on accounts
receivable 374 522
Changes in operating assets and
liabilities, excluding amounts acquired
in business combinations:
Decrease in accounts receivable 5,497 443
(Increase)/decrease in inventories 1,765 (813)
Increase in other assets (808) (304)
Increase/(decrease) in accounts payable (177) 2,397
Increase/(decrease) in other liabilities (2,649) 1,155
--------- ---------
Net cash provided by operating activities 8,330 7,659
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Business combinations (241) (52)
Capital expenditures (2,009) (1,770)
Other 75 58
--------- ---------
Net cash used for investing activities (2,175) (1,764)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on loans payable to Chemed Corporation (4,538) (5,148)
Principal payments on other long-term debt (25) (23)
Dividends paid (922) (788)
Purchase of common stock (50) (9)
--------- ---------
Net cash used for financing activities (5,535) (5,968)
--------- ---------
Increase/(decrease) in cash and cash equivalents 620 (73)
Cash and cash equivalents at beginning of period 1,491 1,713
--------- ---------
Cash and cash equivalents at end of period $ 2,111 $ 1,640
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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 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 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,
1996 were $77,210,000, a 10% decrease from sales of $85,571,000 in the second
quarter of 1995. Net income for the second quarter of 1996 was $1,321,000, a 4%
decrease from net income of $1,370,000 in the prior-year second quarter.
Earnings per share of $0.22 for the second quarter of 1996 decreased 4% from
earnings per share of $0.23 in the comparable prior-year quarter.
National's second-quarter results reflect the effects of the previously
announced loss of a large fast-food customer in the first quarter of 1996. It
was acticipated that the loss of this large customer in our southwest operating
group would temper our 1996 sales and profit growth. The second-quarter results,
which were in line with our expectations, benefited from a strong performance in
the western operations, along with an improvement in the midwestern operations.
The gross profit margin for the second quarter of 1996 improved 2.1% points from
31.1% in 1995 to 33.2% in 1996. Operating expenses as a percentage of sales in
the second quarter of 1996 increased 2.1% points from 27.5% in 1995 to 29.6% in
1996, offsetting the improvement in the gross profit margin. The change 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 $625,000 in the second quarter of
1995 to $387,000 in the second quarter of 1996 reflects the continued
improvement in National's financial condition. Debt as a percent of total
capital decreased from 30.2% at June 30, 1995 to 22.6% at June 30, 1996.
For the six months ended June 30, 1996, National's sales of $154,487,000
decreased 7% from sales of $166,364,000 in the comparable period of 1995. Net
income for the first half of 1996 was $2,153,000, a 1% increase over the prior-
year first half net income of $2,129,000. Earnings per share of $0.35 for the
first six months of 1996 were equal to those recorded for the comparable prior-
year period.
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 improvement in the gross profit margin after six months compared with the
same period of 1995 was offset by an increase in operating expenses as a percent
of sales. The change in both categories was due to the loss of the large fast-
food account.
The decrease in Chemed interest expense from $1,287,000 in the first six months
of 1995 to $817,000 in the first six months of 1996 reflects a reduction in debt
with Chemed Corporation from June 30, 1995 to June 30, 1996 of $7,122,000.
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 $4,538,000 from $6,989,000 at
December 1995 to $2,451,000 at June 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 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 20, 1996.
(b) The names of directors elected at this annual meeting are as follows:
Edward L. Hutton Charles O. Lane
Paul C. Voet Sandra E. Laney
Robert B. Garber Kevin J. McNamara
James A. Cunningham John M. Mount
Naomi C. Dallob Timothy S. O'Toole
Charles H. Erhart, Jr. D. Walter Robbins, Jr.
Neal Gilliatt Gary H. Sander
Will J. Hoekman Kenneth F. Vuylsteke
Thomas C. Hutton George J. Walsh III
W. Dwight Jackson
(c) The stockholders then ratified the selection by the Board of Directors of
Price Waterhouse LLP as independent accountants for the Company and its
consolidated subsidiaries for the year 1996: 5,590,658 votes were cast in
favor of the proposal, 834 votes were cast against it, 226 votes
abstained, and zero (0) 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 5,590,873 845 -0-
Paul C. Voet 5,590,873 845 -0-
Robert B. Garber 5,590,502 1,216 371
James A. Cunningham 5,590,673 1,045 200
Naomi C. Dallob 5,590,873 845 -0-
Charles H. Erhart, Jr. 5,590,302 1,416 571
Neal Gilliatt 5,590,302 1,416 571
Will J. Hoekman 5,590,873 845 -0-
Thomas C. Hutton 5,590,673 1,045 200
W. Dwight Jackson 5,590,873 845 -0-
Charles O. Lane 5,590,502 1,216 371
Sandra E. Laney 5,590,673 1,045 200
Kevin J. McNamara 5,590,873 845 -0-
John M. Mount 5,590,573 1,145 300
Timothy S. O'Toole 5,590,873 845 -0-
D. Walter Robbins, Jr. 5,590,302 1,416 571
Gary H. Sander 5,590,873 845 -0-
Kenneth F. Vuylsteke 5,590,773 945 100
George J. Walsh III 5,590,873 845 -0-
</TABLE>
Page 8 of 10
<PAGE>
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 June 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 August 14, 1996 By /s/Paul C. Voet
------------------ ----------------------------------
Paul C. Voet
President and
Chief Executive Officer
Date August 14, 1996 By /s/Gary H. Sander
------------------ ----------------------------------
Gary H. Sander
Senior Vice President,
Chief Financial Officer and
Treasurer
Page 9 of 10
<PAGE>
EXHIBIT 11
NATIONAL SANITARY SUPPLY COMPANY
COMPUTATION OF EARNINGS PER SHARE (a)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(thousands, except per share data) June 30, June 30,
- ---------------------------------- ------------------- ------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Computation of Earnings Per Common
and Common Equivalent Share
Net Income $ 1,321 $ 1,370 $ 2,153 $ 2,129
======= ======= ======= =======
Average Number of Shares of
Common Stock Outstanding 6,140 6,073 6,132 6,062
Incremental Effect of
Unexercised Stock Options 86 75 76 81
------- ------- ------- -------
Average Number of Shares of
Common Stock and Common Stock
Equivalents Outstanding 6,226 6,148 6,208 6,143
======= ======= ======= =======
Earnings per Common and Common
Equivalent Share $ 0.21 $ 0.22 $ 0.35 $ 0.35
======= ======= ======= =======
Computation of Earnings Per Common
Share Assuming Full Dilution
Net Income $ 1,321 $ 1,370 $ 2,153 $ 2,129
======= ======= ======= =======
Average Number of Shares of
Common Stock Outstanding 6,140 6,073 6,132 6,062
Incremental Effect of
Unexercised Stock Options 91 76 95 82
------- ------- ------- -------
Average Number of Shares of
Common Stock Assuming
Full Dilution 6,231 6,149 6,227 6,144
======= ======= ======= =======
Earnings Per Common Share
Assuming Full Dilution $ 0.21 $ 0.22 $ 0.35 $ 0.35
======= ======= ======= =======
(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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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q
FOR THE QUARTER ENDED JUNE 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,111
<SECURITIES> 0
<RECEIVABLES> 34,312
<ALLOWANCES> (1,214)
<INVENTORY> 26,582
<CURRENT-ASSETS> 69,095
<PP&E> 43,738
<DEPRECIATION> (22,006)
<TOTAL-ASSETS> 118,133
<CURRENT-LIABILITIES> 37,469
<BONDS> 16,000
0
0
<COMMON> 6,627
<OTHER-SE> 56,934
<TOTAL-LIABILITY-AND-EQUITY> 118,133
<SALES> 154,487
<TOTAL-REVENUES> 154,487
<CGS> 103,997
<TOTAL-COSTS> 103,997
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 374
<INTEREST-EXPENSE> 822
<INCOME-PRETAX> 3,768
<INCOME-TAX> 1,615
<INCOME-CONTINUING> 2,153
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,153
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
