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 March 31, 1997
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.)
255 E. 5th St, Suite 2900 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 6,221,556 Shares April 30, 1997
$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--
March 31, 1997 and
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Income--
Three months ended
March 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows--
Three months ended
March 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . 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
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Part I. Financial Information
Item 1. Financial Statements
NATIONAL SANITARY SUPPLY COMPANY
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
(thousands, except share data) 1997 1996
- ----------------------------------- ----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,032 $ 1,425
Accounts receivable, less allowances
(1997- $1,043; 1996- $1,071) 34,684 34,856
Inventories 26,335 27,614
Deferred income taxes 2,349 2,366
Prepaid expenses and other current assets 1,872 1,088
---------- -----------
Total current assets 67,272 67,349
Properties and equipment, at cost, less
accumulated depreciation 22,376 21,992
Goodwill, less accumulated amortization 25,894 25,872
Other assets 1,072 771
---------- -----------
Total assets $ 116,614 $ 115,984
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,195 $ 19,424
Accrued liabilities 12,125 13,349
Loans payable to Chemed Corporation 1,112 540
Current portion of notes to Chemed Corporation 9,000 1,000
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Total current liabilities 42,432 34,313
Notes to Chemed Corporation 6,000 14,000
Deferred income taxes 817 849
Other noncurrent liabilities 1,339 1,298
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Total liabilities 50,588 50,460
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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: 1997- 6,708,738 shares;
1996- 6,601,918 shares) 6,709 6,644
Paid-in capital 28,347 27,658
Retained earnings 35,628 35,499
Treasury stock, at cost (1997- 511,523
shares; 1996- 463,986 shares) (4,658) (4,277)
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Total stockholders' equity 66,026 65,524
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Total liabilities and stockholders' equity $ 116,614 $ 115,984
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 3 of 9
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NATIONAL SANITARY SUPPLY COMPANY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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(thousands, except per share data) 1997 1996
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<S> <C> <C>
Sales $ 74,349 $ 77,277
Cost of sales 49,491 52,412
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Gross profit 24,858 24,865
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Expenses and other income:
Operating expenses 23,198 22,759
Amortization of goodwill 226 222
Chemed Corporation interest 371 430
Other income, net (50) (54)
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Total expenses and other income 23,745 23,357
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Income before income taxes 1,113 1,508
Income taxes 488 676
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Net income $ 625 $ 832
========= =========
Earnings per share $ 0.10 $ 0.14
========= =========
Cash dividends paid per share $ 0.080 $ 0.075
========= =========
Average shares outstanding 6,181 6,123
========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
Page 4 of 9
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NATIONAL SANITARY SUPPLY COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
(thousands of dollars) 1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 625 $ 832
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 845 829
Amortization of goodwill and deferred
charges 376 331
Deferred income tax provision (15) (88)
Provision for losses on accounts receivable 141 163
Changes in operating assets and liabilities,
excluding amounts acquired in business
combinations:
Decrease in accounts receivable 206 4,162
Decrease in inventories 1,362 3,666
Increase in other assets (838) (287)
Increase/(decrease) in accounts payable 771 (1,705)
Decrease in other liabilities (1,178) (1,689)
--------- --------
Net cash provided by operating activities 2,295 6,214
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Business combinations (505) (10)
Capital expenditures (1,219) (793)
Other 14 36
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Net cash used for investing activities (1,710) (767)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from/(payments on)loans payable
to Chemed Corporation 572 (4,428)
Principal payments on other long-term debt (5) (12)
Dividends paid (496) (459)
Purchase of common stock (49) (60)
--------- --------
Net cash provided by/(used for)financing
activities 22 (4,959)
--------- --------
Increase in cash equivalents 607 488
Cash and cash equivalents at beginning of period 1,425 1,491
--------- --------
Cash and cash equivalents at end of period $ 2,032 $ 1,979
========= ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
Page 5 of 9
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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 1996 Annual Report on Form 10-K filed with the SEC on March 28, 1997.
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
Stock Incentive Plans is not material.
NOTE C. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per
Share, effective for reporting periods ending after December 15, 1997. Adoption
of SFAS 128 in December 1997 will not impact the Company's reported earnings per
share.
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 reported net income for the first quarter ended
March 31, 1997 of $625,000, a 25% decrease from net income of $832,000 reported
in the prior-year first quarter. Earnings per share of $.10 in the first
quarter of 1997 decreased 29% from earnings per share of $.14 reported in the
comparable prior-year quarter. Sales of $74,349,000 for the first quarter of
1997 were 4% below sales of $77,277,000 in the first quarter of 1996.
National's unfavorable first-quarter sales and earnings comparisons reflect a
combination of factors. First, as expected, the loss of a large fast-food
customer during 1996 continued to temper our sales and earnings comparisons
during the first quarter, since the first quarter of 1996 was the last quarter
in which we still benefited from sales to this customer. Second, deflationary
pricing in our paper product lines unfavorably impacted sales growth and
profitability. Third, there was one less billing day in the first quarter of
1997 than in 1996. Tight control over operating expenses and aggressive market-
ing programs helped to mitigate the impact of these factors.
National's first quarter 1997 gross profit margin of 33.4% increased 1.2%
point from 32.2% in the first quarter of 1996 reflecting the loss of low-margin
sales to the large fast-food customer.
Operating expenses increased 2% during the first quarter of 1997 compared with
the prior year reflecting the loss of the large fast-food account as well as
tight control over expenses.
The decrease in interest expense from Chemed Corporation ("Chemed") from
$430,000 in the first quarter of 1996 to $371,000 in the first quarter of 1997
reflects a reduction in Chemed debt. From March 31, 1996 to March 31, 1997
Chemed debt decreased $2,449,000.
The effective tax rate decreased from 44.8% during the first quarter of 1996 to
43.8% during the first quarter of 1997, primarily due to lower profits in states
with higher tax rates.
Liquidity and capital resources
- -------------------------------
The decrease in inventories reflects a continuing objective to consolidate
vendors in key product lines and a reduction in inventories at certain sales
branch locations. The reduction in accrued liabilities primarily reflects the
payment of 1996 incentive-oriented programs.
Management believes that the company's cash flow from operations and other
sources of liquidity are sufficient for its needs.
Page 7 of 9
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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> <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 March 31, 1997.
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 May 15, 1997 By /s/Paul C. Voet
------------------ ----------------------------------
Paul C. Voet
President and
Chief Executive Officer
Date May 15, 1997 By /s/Gary H. Sander
------------------ ----------------------------------
Gary H. Sander
Senior Vice President,
Treasurer, and
Chief Financial Officer
Page 8 of 9
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EXHIBIT 11
NATIONAL SANITARY SUPPLY COMPANY
COMPUTATION OF EARNINGS PER SHARE (a)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
(thousands, except per share data) March 31,
- ---------------------------------- -------------------------
1997 1996
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<S> <C> <C>
Computation of Earnings Per Common
and Common Equivalent Share
Net Income $ 625 $ 832
======= =======
Average Number of Shares of
Common Stock Outstanding 6,181 6,123
Incremental Effect of
Unexercised Stock Options 73 65
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Average Number of Shares of
Common Stock and Common Stock
Equivalents Outstanding 6,254 6,188
======= =======
Earnings per Common and Common
Equivalent Share $ 0.10 $ 0.13
======= =======
Computation of Earnings Per Common
Share Assuming Full Dilution
Net Income $ 625 $ 832
======= =======
Average Number of Shares of
Common Stock Outstanding 6,181 6,123
Incremental Effect of
Unexercised Stock Options 73 100
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Average Number of Shares of
Common Stock assuming
Full Dilution 6,254 6,223
======= =======
Earnings Per Common Share
Assuming Full Dilution $ 0.10 $ 0.13
======= =======
(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
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10Q FOR
THE FIRST QUARTER ENDED MARCH 31, 1997 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> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,032
<SECURITIES> 0
<RECEIVABLES> 32,446
<ALLOWANCES> (1,043)
<INVENTORY> 26,335
<CURRENT-ASSETS> 67,272
<PP&E> 46,399
<DEPRECIATION> (24,023)
<TOTAL-ASSETS> 116,614
<CURRENT-LIABILITIES> 42,432
<BONDS> 6,000
0
0
<COMMON> 6,709
<OTHER-SE> 59,317
<TOTAL-LIABILITY-AND-EQUITY> 116,614
<SALES> 74,349
<TOTAL-REVENUES> 74,349
<CGS> 49,491
<TOTAL-COSTS> 49,491
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 141
<INTEREST-EXPENSE> 374
<INCOME-PRETAX> 1,113
<INCOME-TAX> 488
<INCOME-CONTINUING> 625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 625
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
